¡Descarga Understanding Economic Growth: Institutions, Human & Physical Capital, and Productivity y más Diapositivas en PDF de Historia Económica solo en Docsity! Economic History The Building Blocks of Economic Growth UC3M 2021 Leonard Kukic lkukic@clio.uc3m.es Big issue
*. What causes economic growth?
Today – The Building Blocks of Economic Growth • Proximate sources of economic growth • Fundamental sources of economic growth Proximate causes of growth
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Source: CaixaBank Research, based on data from the World Bank and Barro-Lee (2016).
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High TFP: Car factory How do you increase TFP? • 1. Innovation: develop new technologies • In modern economies it is the outcome of • Basic research, mostly done in universities • R&D, mostly done in firms • Patents and subsides are key What causes growth? • Growth on the basis of physical and human capital is limited • TFP is key to long-run growth Today – The Building Blocks of Economic Growth • Proximate sources of economic growth • Fundamental sources of economic growth The importance of institutions: Rule of law
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What are institutions? • “Rules of the game” which impact the behaviour of individuals and organisations • Formal rules • Laws • Regulations What do institutions do? • Provide incentives for individuals and firms to engage in socially productive activities • Education • Investment • Innovation The bad (Acemoglu and Robinson) • Extractive institutions • Insecure property rights • Dictatorships • Limited markets French Revolution • France in 18th century ruled by absolute monarchy • Ancien Regime was a system of corporate privileges • Privileges limited to aristocratic elite and the Church • Venal offices (source of rents) sold by king to raise funds • Guilds have monopoly rights on production • Law protects the elite French Revolution • 1789 Revolution overthrew monarchy • Privileges abolished, venal offices suppressed • Political representation through elected officials • Guilds destroyed • Equality before law French Revolution • Major social and political event • Rise of secular ideas and individual rights • Fostered democratic progress and enfranchisement • Rule of Law The importance of geography • Economic growth is impacted by • Disease environment and agricultural suitability • Market access (distance to large markets) • Initial geographical conditions and institutions Market access Redding and Venables (2004) 0 20 40 60 80 100 120 North America Western Europe EU Enlargement South East Asia Latin America Sub-Saharan Africa Market access Redding and Venables (2004) • Access to markets explains 60 to 70 per cent of variation in income across countries • Moving 50 per cent closer to trading partners raises income by 25 per cent • Or: being close to lots of rich neighbours is good for growth Geography and institutions • Colony type depends on initial conditions • Soil quality, climate, disease environnent • Europeans settle in ‘attractive’ regions, extract from ‘un-attractive’ regions • Good institutions emerge in attractive regions (e.g. democracy): N. America • Bad institutions emerge in un-attractive regions (e.g. slavery): S. America The importance of culture: Protestantism
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The Cross-Country Pattern of Protestantism and GDP Per Capita, 1900
What is culture? • Norms of behavior, informal rules • Can shape attitude towards • Work • Education • Investment • Innovation
