Models of Economic Growth: Proceedings of a Conference held by the International Economic Association at Jerusalem PDF
Preview Models of Economic Growth: Proceedings of a Conference held by the International Economic Association at Jerusalem
INTERNATIONAL ECONOMIC ASSOCIATION CONFERENCE VOLUMES, Numbers 1-50 NUMBER 30 Models of Economic Growth Models of Economic Growth Proceedings of a Conference held by the International Economic Association at Jerusalem EDITED BY JAMES A. MIRRLEES AND N.H. STERN © International Economic Association 1973 Softcover reprint of the hardcover 1st edition 1973 978-0-333-14115-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended). Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1973 This 50-volume set reprinted 1986 jointly by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world and YUSHODO CO. LTD 29 Saneicho, Shinjuku-ku Tokyo 160 Japan. Tel: 03(357)1411 Distributed exclusively in Japan through Publishers International Corporation (P.I.C.) Published in the United States and Canada by STOCKTON PRESS 15 East 26th Street, New York, N.Y. 10010 ISBN 978-1-349-01652-5 ISBN 978-1-349-01650-1 (eBook) DOI 10.1007/978-1-349-01650-1 Transferred to digital printing 1999 Contents Acknowledgements vii List of Participants ix Introduction James A. Mirrlees xi PART ONE: EXPERIENCE OF GROWTH 1 The Long-Run Movement of the Capital-Output Ratio 3 and of Labour's Share Ernst Helmstiidter Discussion 18 PART TWO: GROWTH AND THE SHORT RUN 2 Effective Demand in the Long Run Hugh Rose 25 Discussion 48 3 Towards a Keynesian Model of Monetary Growth 53 Hirofumi Uzawa Discussion 71 PART THREE: GROWTH OF TECHNOLOGY 4 Inventive Activity, Industrial Organisation and Economic 77 Growth Karl Shell Discussion 97 5 Notes on Endogenous Growth of Productivity 101 C. C. von Weizsiicker Discussion 111 PART FOUR: CAPITAL 6 The Badly Behaved Economy with the Well-Behaved 117 Production Function Joseph E. Stiglitz 7 Recurrence of Techniques in a Dynamic Economy 138 Joseph E. Stiglitz Discussion 162 8 Notes on Problems of Transition Between Techniques 168 Luigi Spaventa Discussion 188 vi Contents 9 On Some Equilibrium Paths F. H. Hahn 193 Discussion 207 PART FIVE: OPTIMAL GROWTH 10 Taxation and Public Production in a Growth Setting 215 Peter A. Diamond Discussion 236 11 Intertemporal National Optimality and Temporal Social 241 Preferences M. Inagaki Discussion 255 12 On the Existence of Optimal Development Programmes in 260 Infinite-Horizon Economies Daniel McFadden 13 Agreeable Plans Peter J. Hammond and James A. Mirrlees 283 Discussion 300 14 Price Properties of Optimal Consumption Programmes 306 Bezalel Peleg and Menahem E. Yaari Discussion 318 PART SIX: DEVELOPING ECONOMIES 15 Models of Dual Economies Avinash K. Dixit 325 Discussion 353 PART SEVEN Summary of the Final Discussion 361 Index 369 Acknowledgements The International Economic Association wishes to express its gratitude to all those organisations and persons who contributed to the realisation of this volume. Thanks are due to the Bank of Israel, which bore practically all the local expenses, and to the Ford Foundation, whose grant made possible the participation of a number of young specialists. The Conference was held in the agreeable surroundings of the Ma'ale Hachamisha Kibbutz near Jerusalem, and the local organisa tion was most efficiently carried out by the Israel Political Sciences Association. The Association would also like to thank Professor Robert Solow, Chairman of the Programme Committee, and the other members of that committee, who were responsible for framing the work of the meeting. In particular our gratitude goes to Professor Michael Bruno who made the local arrangements, and, with the rest of the Programme Committee, undertook the direction ofthe conference in Israel, when Professor Solow was unable to attend. This volume was edited by Professor James A. Mirrlees and Dr N. H. Stem, who was also re sponsible for summarising the discussion. The editors would like to thank Charlotte Stiglitz for making a tape-recording of the dis cussion. List of Participants Mr A. B. Atkinson, University of Cambridge, U.K. Dr Yoram Ben-Porath, The Hebrew University, Jerusalem, Israel Dr Eytan Berglas, Tel Aviv University, Israel Professor Claude Berthomieu, Universite de Lille, France Mrs Krishna Bharadwaj, University of Cambridge, U.K. Dr C. J. Bliss, University of Cambridge, U.K. Dr Jean-Marc Boussard, Institut National de Ia Recherche Agronomique, Paris, France Professor Michael Bruno, The Hebrew University, Jerusalem, Israel Professor Peter A. Diamond, Massachusetts Institute of Technology, Cambridge, U.S.A. Dr Avinash K. Dixit, University of Oxford, U.K. Professor Luc Fauvel, Universite de Paris, France Professor P. Garegnani, University of Pavia, Italy Professor F. H. Hahn, London School of Economics and University of Cambridge, U.K. Professor Ernst Helmstadter, University of Munster, Federal German Republic Professor M. lnagaki, Sir George Williams University, Montreal, Canada Dr David Levhari, The Hebrew University, Jerusalem, Israel Professor Erik Lundberg, University of Stockholm, Sweden Professor James A. Mirrlees, University of Oxford, U.K. Professor Yair Mundlak, The Hebrew University, Faculty of Agriculture, Rehovot, Israel Dr Luigi Pasinetti, University of Cambridge, U.K. Professor D. Patinkin, The Hebrew University, Jerusalem, Israel Dr Bezalel Peleg, The Hebrew University, Jerusalem, Israel Professor Hugh Rose, University of Rochester, N.Y., U.S.A. Professor Karl Shell, University of Pennsylvania, Philadelphia, U.S.A. Dr Eytan Sheshinski, The Hebrew University, Jerusalem, Israel Professor Luigi Spaventa, University of Perugia, Italy Mr N. H. Stern, University of Oxford, U.K. Professor Joseph E. Stiglitz, Yale University, New Haven, U.S.A., and University of Cambridge, U.K. Dr Morris Teubal, The Hebrew University, Jerusalem, Israel Professor Hirofumi Uzawa, University of Tokyo, Japan Professor C. C. von Weizsacker, University of Bielefeld, Federal German Republic Professor Menahem E. Yaari, The Hebrew University, Jerusalem, Israel Introduction James A. Mirrlees It is not self-evident that economists should construct models of economic growth; far less that they should construct more and more complicated models of economic growth. The question is whether the models are likely to prove useful. I write this with some feeling, since some authors leave the purposes of their work unclear, and some critics attack the models without regard to their uses. One should not insist that all professional papers be at pains to explain to every one where they might lead, nor that they be immune to criticism until the allowable applications have been specified. But it seems better to discuss a man's actions than his soul, and I would like to apply the same principle to economic models. Discussion of the uses ofg rowth models is not easy; for the relation ship between an economist's models and economic reality and policy is necessarily tenuous. Since real economies are untidy and compli cated, no one can hope to project the workings of the real economy in his mind: simplification is essential if anything is to be done with our knowledge of it. The art of economics is to choose good simplifi cations. At least in the first place, the choice is made by a leap of intuition. The leap may, as we all know, be casually and carelessly made. It may also be distilled by years of struggle, or achieved by inexplicable inspiration. The result can be criticised and improved. Perhaps some economists would find no significance in the leap of intuition, regarding the development of economic theory rather as a progress from simple initial models back towards the full economic reality. For them, the working out of each particular model, be it a growth model or a general equilibrium model, provides little more than practice, and its contemplation a preparation for adding new complications. The models are to be judged by their fruitfulness, not their usefulness. I am not sure what attraction there may be in that view. At any rate it is not, I think, the usual view of growth theorists. Many of them would willingly acknowledge the leap of intuition to a model used for a specific purpose. Since the aim is not to capture reality, but to gain partial understanding of some particular aspect, they would not suppose - or should not suppose - that a model used once for one purpose is the right one to use for a different problem. Yet simple models - such as the 'one-sector neoclassical' model - are used for many purposes. Any model that has become popular in xii Introduction this sense deserves to be vigorously criticised. If the criticism is telling, perhaps better models will be developed, or we shall become more careful about applying it. No doubt the critic ~ill be more effective if he offers a new model. He will not deserve to be effective if he merely points out that the model is not fully realistic, or that more compli cated models - which may well be less realistic - could lead to more confused conclusions. Consider some of the uses to which growth models have been put. (1) The Historical A growth model can suggest how history could have happened the way it did. The paper by Helmstadter in this volume is an example of the technique. Perhaps the best-known example is the introduction of 'technical progress' into the one-good model, to show how capital accumulation could go on without the rate of profit falling over time. We know now that capital accumulation and a rising rate of profit can coexist in models where there is no technological change, and we are not sure that the rate of profit does not fall. But without question we were made to look at history in new ways. (2) The Predictive In a similar way, models are used to formulate and support conjectures about the effects of major changes in current economic behaviour and policy on the future. Probably there is no other way of discussing how increased saving (brought about by new habits of thriftiness, or changes in taxation) can affect the distribution of wealth and income. The direction and effects of technological change have been the subject of much work of this kind, especially in recent years, though few economists are satisfied with the results so far. Two of the papers in the present volume, by Professors Shell and von Weizsacker, are directed to these questions. (3) The Interpretative The working of the economic system throws up a great deal of information, which economists, in their role as reformers, would like to be able to use, especially to reveal otherwise unsuspected economic possibilities. The most famous proposal here is that the rate of profit earned in an economy can be used as an estimate of the 'social rate of return', that is, as a measure of the effects a society could expect from increased saving. Professor Solow has given considerable atten tion to this idea (Solow [1963], [1967]). His work has been criticised by Pasinetti [1969], whose interest, however, appears to be con centrated on a different interpretation of the asserted equality between the rate of profit and the social rate of return (as an 'explanation of
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