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International Economic Lecture 2


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IBE303 - Lecture 2 - July 5th, 2010

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International Economic Lecture 2

  1. 1. Lecture 2<br />Growth Theories<br />July 5th 2010<br />Saksarun (Jay) Mativachranon<br />
  2. 2. Intro<br />Please turn your mobile phones off or switch it to silent modeand please do not pick up your calls<br />Email:<br />
  3. 3. Recap<br />
  4. 4. Economic Growth<br />Measured by Real GDP<br />Real GDP indicates the rate of economic growth but NOT the changes in standard of living<br />Standard of living is measured by Real GDP per person (per capital real GDP)<br />
  5. 5. Sources of Economic Growth<br />Simple concept<br />The amount of goods that can be produced with each unit of input<br />Inputs is generally referred to as “Factors of production”<br />Land<br />Capital Goods<br />Labor<br />Entrepreneurial ability<br />
  6. 6. Example of growth factors<br />Land – all natural resources<br />Easy to obtain resources equal more production (efficient)<br />Capital goods – goods that are used in productions<br />China’s supporting industries result in growth the past decade<br />Labor<br />Longer working hours or higher productivity equals higher output<br />Entrepreneurial ability<br />Companies able to put Land / Capital goods / Labor to good use resulting in higher output<br />
  7. 7. Incentive System for economic growth<br />3 Social institutions that are critical for incentives development<br />Markets<br />Property rights<br />Monetary exchange<br />
  8. 8. Key Learning Points<br />You should be able to;<br />Effect from changes in sources of economic growth<br />Compare and Contrast<br />Classical Growth Theory<br />Neoclassical Growth Theory<br />New Growth Theory<br />
  9. 9. Economic growth<br />
  10. 10. Labor Productivity<br />What is Labor Productivity?<br />Real GDP per labor hour<br />2 factors drive Labor Productivity<br />Physical capital per labor hour<br />Technological change<br />
  11. 11. Productivity Curve<br />Real GDP per labor hour<br />More Technology<br />LP3<br />Less Technology<br />LP2<br />LP1<br />C1<br />C2<br />Capital per Labor Hour<br />
  12. 12. Productivity<br />Slowdown<br />Speedup<br />Technology is applied to deal with issues not related to productivity<br />Encourage saving  leads to capital accumulation<br />Encourage Basic R&D<br />Basic research results in low ROI, this policy is usually from government induced<br />International trade<br />Education<br />
  13. 13. Economic Growth<br />In order for economic to continue growing, societies must encourage<br />Savings and investment in new capital<br />Investment in human capital<br />Discovery of new technologies<br />
  14. 14. Growth theories<br />
  15. 15. The 3 popular theories<br />Classical Growth Theory<br />Neoclassical Growth Theory<br />New Growth Theory<br />
  16. 16. Classical Growth Theory<br />Basic Idea<br />The growth of real GDP per person is temporary<br />Real GDP growth leads to population growth (explosion)<br />Real GDP grows above subsistence level due to population explosion<br />Population growth leads to decline in real GDP<br />Back to subsistence level<br />
  17. 17. Classical Growth Theory<br />
  18. 18. Neoclassical Growth Theory<br />Basic Idea<br />Changes in technology lead to increased saving and investment  increased capital per labor hour<br />Technological growth is not influenced by economic growth<br />Technological advances occurs by trial and error<br />Growth will decline if <br />Technology stops advancing<br />Real interest rates decrease due to capital accumulation<br />
  19. 19. Neoclassical Growth Theory<br />
  20. 20. New Growth Theory<br />Basic idea<br />Discoveries of products and technologies are the result of luck<br />Discoveries lead to profit<br />Competitions eliminate profit<br />
  21. 21. New Growth Theory<br />
  22. 22. New Growth TheoryPerpetual Motion Economy<br />
  23. 23. Thailand economic growth<br />Example<br />
  24. 24. Thailand’s Economic Structure<br />Still an “emerging economy”<br />Heavily dependent on exporting<br />Over 2/3 of GDP came from exporting<br />Well-developed infrastructure<br />Free-enterprise economy<br />Generally pro-investment policies<br />
  25. 25. Questions<br />How are we doing right now?<br />1st quarter  +12%<br />2nd quarter  -1.5% <br />What’s in store for us in 3rd and 4th quarter?<br />Expert still predicts +3.5% to +4%<br />
  26. 26. Real GDP Growth<br />Real GDP Growth:<br />2009: -2.8%<br />2008: +2.6%<br />2007: +4.6%<br />
  27. 27. Next Week<br />Regulation and Antitrust Policy in Globalized Economy<br />Trade Theories<br />