Robert Lucas continues his discussion on income and growth differentials among nations, specifically talking about the popular model that was used in the discussion, the Solow Model. (Also known as the exogenous growth model, neo-classical growth model or Solow-Swan growth model).
Lucas admires and gives praise for the form of the model, yet he describes it as an unfit model. Lucas focuses on the “convergence debate.” A expectation that while countries grow at different rates, the poor should grow at a faster rate until they will eventually reach about the same levels of income. This theory was written in the 1952 paper “Economic Backwardness in Historical Perspective” by Alexander Gershenkron. Lucas points out that this has not happened and the Solow model seems to only apply to developed nations.
Lucas goes on to give an easy-to-understand explanation on why this convergence hasn’t happened; because the poor migrate to rich areas of development for better jobs, more income, etc. And rarely, do the rich migrate to poorer areas or nations.
B for Tom - check for typos!
ReplyDeleteThis is very big deal (although you're all learning, so you can be forgiven for not knowing it).
This lecture is so important that macroeconomists like me have it in book form, and still refer to it.
This is the first time anyone has ever made the point that once you grasp the scale of economic growth, it's hard to view anything else in macroeconomics mattering much. It's why, from day 1 in this class, I talk tangentially about current events and policy, but keep coming back to growth, and well-being, and the sweep of three centuries of improved living standards, and the hope that a higher level of well-being can be had by all.