Economic Growth Theory: Capital, Knowledge, and Economic Stuctures

483 Pages·2017·10.674 MB·English

by  Wei-Bin Zhang

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ISBN 978-0-815-38868-5
www.routledge.com aninformabusiness
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9780754645207_cover.indd 1 10/28/2017 6:25:29 PM
ECONOMIC GROWTH THEORY

Economic Growth Theory
Capital, Knowledge, and Economic Stuctures
WEI-BIN ZHANG
Ritsumeikan Asia Pacific University, Japan
First published 2005 by Ashgate Publishing
Reissued 2018 by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY 10017, USA
Routledge is an imprint of the Taylor & Francis Group, an informa business
© Wei-Bin Zhang 2005
Wei-Bin Zhang has asserted his right under the Copyright, Designs and Patents Act,
1988, to be identified as the author of this work.
All rights reserved. No part of this book may be reprinted or reproduced or utilised
in any form or by any electronic, mechanical, or other means, now known or
hereafter invented, including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the publishers.
A Library of Congress record exists under LC control number: 2005927747
Notice:
Product or corporate names may be trademarks or registered trademarks, and are
used only for identification and explanation without intent to infringe.
Publisher’s Note
The publisher has gone to great lengths to ensure the quality of this reprint but
points out that some imperfections in the original copies may be apparent.
Disclaimer
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ISBN 13: 978-0-815-38868-5 (hbk)
ISBN 13: 978-1-351-15944-9 (ebk)
Contents
List of Figures ix
List of Tables xiii
Preface xv
A cknowledgements xix
1 Economic Growth and Growth Theory 1
1.1 Economic Growth 1
1.2 Economic Growth Theory 4
1.3 The Structure of the Book 10
2 The One-Sector Growth (OSG) Model 17
2.1 Behavior of Producers 18
2.2 Behavior of Consumers 22
2.3 On the Generalized Keynesian Consumption Function 27
2.4 Dynamics in Capital-Labor Ratio 32
2.5 Existence of a Stable Steady State 34
2.6 Productivity Improvement, Population Growth and the APS 36
2.7 The Dynamics with the Cobb-Douglas Production Function 41
2.8 The OSG Model with the CES Production Function 46
2.9 The OSG Model with the Leontief Production Function 50
2.10 The OSG Model with General Utility Functions 52
2.11 The OSG Model with Preference Dynamics 59
2.12 The OSG Model in Discrete Time 62
2.13 On the OSG Model 66
Appendix 67
A.2.1 Proving Theorem 2.4.1 67
A.2.2 The General OSG Model in Discrete Time 68
3 Traditional Growth Theories and the OSG Model 73
3.1 The Harrod-Domar Model 74
3.2 The Solow Model and the OSG Model 76
3.3 The Life Cycle Hypothesis and the Generalized Keynesian
Consumption Function in the OSG Model 81
3.4 The Permanent Income Hypothesis and the Generalized
Keynesian Consumption Function 83
3.5 The Ramsey Growth Model 86
3.6 The Ramsey Model and the OSG Model 91
3.7 Poverty Traps Generated in the Solow Model 93
3.8 On the Utility Function in the OSG Model 97
VI Economic Growth Theory
Appendix 100
A.3.1 The Golden Rule of Capital Accumulation in the Solow Model 100
4 Some Extensions of the OSG Model 103
4.1 Exogenous Technological Change 103
4.2 Endogenous Time and the OSG Model 108
4.3 Simulating Evolution of Time Value and Distribution 114
4.4 Public Goods and Returns to Scale 118
4.5 Home Production in the OSG Model 128
4.6 Environment and Growth 131
4.7 Population and Capital Accumulation 137
4.8 Money and Economic Growth 143
Appendix 149
A.4.1 The General OSG model with Endogenous Labor 149
A.4.2 Proving Lemma 4.6.1 155
5 Income Distribution and Growth 157
5.1 Growth with Income Transfers 160
5.2 Does Inequality Accelerate Growth? 167
5.3 Properties of the Dynamic System 170
5.4 The Distribution Policy and the Equilibrium 173
5.5 Human Capital and the Distribution Policy 177
5.6 Dynamics of the Loren Curve and the Kuznets Curve 182
5.7 Endogenous Time in the Two-Group Model 186
5.8 The OSG Model with Multiple Consumers 191
5.9 Simulating the Three-Group OSG Model 193
5.10 The OSG Model with Sexual Division of Labor 195
5.11 On Modeling Group Differences 204
Appendix 205
A.5.1 Stability Conditions in Section 5.3 205
6 Structural Changes and Development 209
6.1 The Uzawa Two-Sector Model 211
6.2 Refitting the Uzawa Model 214
6.3 Behavior of the Two-Sector Model 217
6.4 A Generalization of the Ricardian Growth Model 222
6.5 Discussion on Growth Rates 230
6.6 Simulating Economic Structural Change 231
6.7 The Propensity to Hold Wealth and Economic Structure 235
6.8 Engel’s Law and Structural Change 239
6.9 A Two-Capital Growth Model 240
6.10 Economic Evolution with Multiple Sectors 244
Appendix 244
A.6.1 Proving Proposition 6.4.1 244
Contents vii
7 Growth, Unemployment and Welfare 249
7.1 The Welfare Economy with Unemployment 251
7.2 Dynamics in Capital-Worker Ratios 255
7.3 Equilibrium of the Economy 258
7.4 The Unemployment Policy 261
7.5 The Efficiency Wage Theory 263
7.6 Applying the Efficiency Wage Theory to the OSG Model 268
7.7 Other Causes of Unemployment 273
Appendix 276
A.7.1 A General OSG Model with the Efficiency Wage Theory 277
8 Learning by Doing, Education and Learning by Leisure 281
8.1 The AK-OSG Model with Learning by Doing 283
8.2 The AK-Ramsey Model 286
8.3 The Lucas Growth Model with Education 288
8.4 Growth with Multiple Ways of Learning 294
8.5 Growth Rates and the Education Policy 301
8.6 Lower Propensity to Save and Higher Growth Rates 304
8.7 More Than ‘All Work and No Play Make Jack a Dull Boy’ 306
8.8 The Dynamic Properties of the Model 309
8.9 Leisure and the Equilibrium Economic Structure 310
8.10 Growth, Human Capital and Unemployment 315
8.11 Human Capital and Economic Development 322
Appendix 323
A.8.1 Endogenous Education in the OSG Model 323
A.8.2 The Dynamics in Terms of K(t) and H(t) 327
A.8.3 Proving Proposition 8.8.1 328
A.8.4 Growth with Human Capital and Unemployment 329
9 Research and Learning by Doing 335
9.1 Growth with Learning by Doing and Research 337
9.2 Growth Rates and the Research Policy 346
9.3 Intermezzo for Multiple Equilibria and Poverty Traps 352
9.4 Equilibrium of the Growth Model with Knowledge 358
9.5 The Policy on Scientists’ Payment 364
9.6 The Job Amenities and Economic Structure 367
9.7 Knowledge Accumulation and Economic Structure 369
9.8 Economic Growth with Knowledge and Multiple Groups 372
9.9 On Growth with Endogenous Knowledge 375
10 New Growth Theories and Monopolistic Competition 379
10.1 Development with Monopolistic Competition 381
10.2 Product Variety and Growth 387
10.3 Variety of Consumer Goods and Growth 392
10.4 The Schumpeterian Creative Destruction 396
10.5 Growth with Improvements in Quality of Products 401
viii Economic Growth Theory
10.6 Learning by Doing and Research 408
10.7 The New Growth Theory and Linearized Knowledge Growth 416
11 Complexity of Economic Growth 421
11.1 Preference Change with the OSG Model 421
11.2 Economic Chaos as Conclusion 429
Bibliography 435
Index 453
List of Figures
1.1 An Illustration of Cross-Country Economic Growth 2
1.2 The Dynamics of a Malthusian Economy 7
1.3 The Malthusian Economy with Technological Change 7
2.1 Intensive Form of the Aggregate Production Function 21
2.2 Indifference Curves and the Propensity to Hold Wealth 25
2.3 The Optimal Choice at Time t 27
2.4 Optimal Saving with Different Propensities to Own Wealth 27
2.5 The Impact of Changes in the Interest Rate 28
2.6 The APS is Dependent on A and K/Y 31
2.7 The Generalized Keynesian Consumption Function and Wealth 32
2.8 Evolution of Capital-Labor Ratio in the OSG Model 35
2.9 The Dynamics of Growth Rate in the OSG Model 36
2.10 Impact of Productivity Improvement 38
2.11 The Impact of Changes in A, n and tk 39
2.12 The Dynamics of the OSG Model with a = 0.3 43
2.13 The Rate of Saving in Terms of the Current Income 43
2.14 The Dynamics of k{t), f(t), c(t) and sit) when a = 0.45 43
2.15 The Equilibrium Values of c, s, y and y as A Changes 45
2.16 The Parameter, a, and the Equilibrium Values of c and y 45
2.17 The Equilibrium Value of c is Related to A and a 46
2.18 The CES Production Function with a = b = 1/2, 48
2.19 Sustained Growth with 0 < o < 1 and AAball<T > + n 49
2.20 The Per Capita Leontief Production Function 51
2.21 The Growth Rate of kit) when AA < £k + n 52
2.22 The Growth Rate of k(t) when AA = £k + n 53
2.23 The Growth Rate of kit ) when AA > £k + n 53
2.24 Preference Changes that Keep the APS Constant 61
2.25 The Capital-Labor Ratio and Propensity to Own Wealth 61
2.26 The Dynamic Interdependence Between k(t) and /(/ ) 61
2.27 Continued but Slow Growth 62
2.28 The Dynamics in the OSG Model 66
3.1 Evolution of Capital-Labor Ratio in the Solow Model 78
3.2 Lifetime Consumption and Saving 82
3.3 The Dynamics of the Ramsey Model 89