Macroeconomics: Total Factor Productivity, Human Capital, and Technology
Macroeconomics: Total Factor Productivity, Human Capital, and Technology
Macroeconomics: Total Factor Productivity, Human Capital, and Technology
1
PowerPoint by Beth Ingram
University of Iowa Copyright © 2005 John Wiley & Sons, Inc. All rights reserved.
Key Concepts
Total Factor Productivity
Human Capital
Technological Progress
Foreign Direct Investment
Effect of shift in production function
K0 K1
Capital
4
Human Capital
Skills and knowledge that accumulate over
time, embodied in people
6
Human Capital
KLow KHigh
Capital
Human Capital
Increase means more output, even at current
levels of physical capital and labor
Increase means higher steady state level of
output and capital
May explain cross-country growth differentials
Contribution to Growth
Review
Cross-country differentials in per capita
output are substantial
Role of physical capital
Role of human capital
Significant fraction of differential is
unexplained – we call this “TFP”
Other elements of TFP
14
Institutions
Property Rights
Regulatory Institutions
Macroeconomic Stabilization
Social Insurance
Conflict Management
Political Rights
15
Political Stability
Bottom 10 Top 10
LIBERIA NETHERLANDS
AFGHANISTAN SWEDEN
BURUNDI NORWAY
SOMALIA MALTA
SUDAN LUXEMBOURG
GEORGIA ICELAND
COLOMBIA FINLAND
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Corruption
Bottom 10 Top 10
ICELAND
Congo, Dem. Rep. (Zaire)
NORWAY
LIBERIA
NETHERLANDS
SOMALIA
IRAQ CANADA
MYANMAR SINGAPORE
TURKMENISTAN SWEDEN
TAJIKISTAN FINLAND
CAMEROON DENMARK
ANGOLA SWITZERLAND
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Rent Seeking
Activity in which value-added produced by
one person is taken by another
Examples
Water subsidies
Sugar tariffs
Insider contracts or trading
Concerns
Absorbs resources (labor and capital)
Acts as a tax
Rent seeking crowds out production
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R&D
Growth can be sustained through
technological progress
Role of Research and Development in
promoting technological progress
Example of South Korea
20
800
R&D per Capita, 1997
600
400
200
0
0 5000 10000 15000 20000 25000 30000 35000
GDP per Capita, 1997
22
Source : Oliner and Sichel (2000) The resurgence of Growth in the late 1990s : Is IT
the story? Federal Reserve Board mimeo
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Summary
Effect of increases in TFP
Effect of human capital accumulation
Other influences on growth
Institutions
Technological Progress
FDI
IT capital accumulation
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