Question

A)Explain why Moses Abramowitz also referred to the term “a” as a “measure of ignorance”.

B) Explain why the term economic development is regarded as normative. How do scholars, researchers and development institutions suggest that economic development be measured?

C)Specify the final equation of the Solow model, and list its most powerful implications.

D) How do these implications compare with the implications of the modern growth theories?

Answer 1

1. Moses Abramovitz - Measure of ignorance

Given an estimate of the contribution of technological progress, Total Factor Productivity (TFP) or Multi-Factor Productivity is
ˆx (t) = g (t) - aK (t) gK (t) - aL (t) gL (t)

g_{t, t+1 is the growth rate of output between t, and, t+1}

ˆx is termed as the measure of ignorance

TFP is an important factor in the process of economic growth. TFP growth is estimated as a residual. It uses index number techniques. It is a measure of ignorance, with scope for measurement error.

TFP can be measured by dividing total output by total input.

Total input is an aggregation of labour, and, the physical capital. It overlooks inputs such as land. Inputs in the production process are accounted for.

TFP growth = Amount of growth in real output

It is not explained by the growth in inputs. TFP residual is a measure of ignorance. Not TFP, but TFP growth is of primary interest.

2. Normative Economic development

The conception of development combines four types of approaches:

• Normative approach characterizes the development by ethical ends, and, relates them to the collective, and, individual commitments to the development tasks
• The propositional approach that translates normative approach into concrete policies
• A prospective approach characterizes the perspective of advancing towards the normative horizon. This, in the midst of challenges, restrictions, and, potentialities marked by the factual approach.
• clarifies the structural traits of innovation-driven, and, knowledge-based economy; as well as those of related power relations, the broad context that shapes development issues

3. Final equation of Solow model

The Solow model is a simple model in the final analysis. The standard of living slowly approaches the long-run steady state.

Growth is always positive but slowly declines to zero. Technological progress can be derived from the Cobb Douglas function. k is the accumulated capital. At steady state, accumulated capital is zero.

• Steady-state investment depends on the saving rate
• A new steady state has higher output per worker, and, higher capital per worker
• Rich countries have a higher saving rate, and, lower population growth rates than poor countries when all countries are in their steady state
• It is an exogenous growth model

4. Solow, Ramsey, and, the Golden Rule model are exogenous models. AK model is an endogenous growth model. There is a variation in per capita income across economies. Economic growth rates vary substantially across countries. Growth rates are generally not constant over time. Position in the distribution of per capita income is not immutable. Growth in the volume of international trade, and, growth in output are closely related.