Laoreet Dolore Magna Aliquam - Michael Cornish

Laoreet Dolore Magna Aliquam - Michael Cornish

Economic Development Lecture 4: Growth Theories II Life Impact | The University of Adelaide University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Overview Structural-change Model (cont.) Patterns of Development Analysis Case Study: The Great Leap Forward

International Dependence Revolution Neocolonial Dependence Theory False Paradigm Dualistic Development Thesis Neoclassical Growth Model Slide 2 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Structural-change Model Patterns of Development Analysis

Realised that the Lewis Model was not exhaustive Many other structural changes required However, did not detail any holistic development agenda in the way Lewis had Slide 3 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Case Study: The Great Leap Forward

1959: Smelt a lot of good steel and accelerate socialist construction Slide 4 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Backyard furnaces Slide 5

University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish 1959: The vegetables are green, the cucumbers plump, the yield is abundant Slide 6 University of Papua New Guinea

Lecture 4: Growth Theories II Michael Cornish Case Study: The Great Leap Forward Conclusions Surplus agricultural worker has clear limits Capital quality has a critical effect on capital-output ratios Transition from traditional to modern sector needs to be facilitated, but cannot be forced Slide 7

University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish International Dependence Revolution Political economy model Developed country dominance of LDCs LDC dependence on developed economies Slide 8 University of Papua New Guinea

Lecture 4: Growth Theories II Michael Cornish International Dependence Revolution Neocolonial Dependence Theory Centre-periphery Ruling elite in LDCs form another centreperiphery subset Centre exploits periphery due to power imbalances Underdevelopment is thus externally rather than internally induced Very radical ! Slide 9

University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish International Dependence Revolution False Paradigm Gap between developed countries and LDCs not a result of exploitation, but misguided and imposed policies Stresses pre-existence of power imbalances within LDCs Slide 10

University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish International Dependence Revolution Dualistic Development Thesis Explores the static parallel between rich and poor 1/ Coexisting but different sets of conditions 2/ Parallel is chronic and not simply transitional

3/ Gap in conditions is widening 4/ Limited trickledown Slide 11 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Neoclassical Growth Theory Supremacy of markets Government interference leads to misallocation of resources Prescribes:

Privatisation Free trade Export-led growth Slide 12 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Neoclassical Growth Theory Three approaches Free-market

Public-choice Market friendly Slide 13 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Neoclassical Growth Theory Solow (Solow-Swan) Growth Model Y = K (AL)AL)1- A = productivity of labour

= elasticity of output derived from capital Assumes diminishing returns to K and L Growth from: Increases in L Increase in K Increases in A Open v closed Slide 14 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish

Neoclassical Growth Theory Graph Divide Y = K (AL)AL)1- by L to get output per worker: y Results in y = f() = K to L ratio Growth of : = sf() (n + d) = sf() (n + d) s = savings rate n = population growth d = depreciation Slide 15 University of Papua New Guinea Lecture 4: Growth Theories II

Slide 16 Michael Cornish University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Neoclassical Growth Theory What happens when we change the savings rate What can we do to permanently improve

output? Improve productivity of L Increase population Slide 17 University of Papua New Guinea Lecture 4: Growth Theories II Michael Cornish Neoclassical Growth Theory Criticisms Assumes decreasing returns to scale

Markets are imperfect Limited capacity of LDC institutional and political structures Conclusions Pro-market approach needs to tailored to LDC environment, government intervention not only good in certain situations, but required Look to the endogenous growth model... Slide 18 University of Papua New Guinea Lecture 4: Growth Theories II

Michael Cornish 1956: Everybody comes to strike sparrows Slide 19 University of Papua New Guinea

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