Economic Growth

by Robert J. Barro, Xavier I. Sala-i-Martin

Overview

This graduate level text on economic growth surveys neoclassical and more recent growth theories, stressing their empirical implications and the relation of theory to data and evidence. The authors have undertaken a major revision for the long-awaited second edition of this widely used text, the first modern textbook devoted to growth theory. The book has been expanded in many areas and incorporates the latest research. After an introductory discussion of economic growth, the book examines neoclassical growth theories, from Solow-Swan in the 1950s and Cass-Koopmans in the 1960s to more recent refinements; this is followed by a discussion of extensions to the model, with expanded treatment in this edition of heterogenity of households. The book then turns to endogenous growth theory, discussing, among other topics, models of endogenous technological progress (with an expanded discussion in this edition of the role of outside competition in the growth process), technological diffusion, and an endogenous determination of labor supply and population. The authors then explain the essentials of growth accounting and apply this framework to endogenous growth models. The final chapters cover empirical analysis of regions and empirical evidence on economic growth for a broad panel of countries from 1960 to 2000. The updated treatment of cross-country growth regressions for this edition uses the new Summers-Heston data set on world income distribution compiled through 2000.

Product Details

ISBN-13:	9780262304115
Publisher:	MIT Press
Publication date:	10/10/2003
Series:	The MIT Press
Sold by:	Barnes & Noble
Format:	eBook
Pages:	672
File size:	3 MB
Age Range:	18 Years

About the Author

Robert J. Barro is Robert C. Waggoner Professor of Economics at Harvard University and a senior fellow of the Hoover Institution at Stanford University.

Xavier Sala-i-Martin is Professor of Economics at Columbia University, and visiting professor at the University of Pompeu Fabra, Barcelona.

Table of Contents

Preface		xv
Introduction		1	(1)
The Importance of Growth		1	(4)
Empirical Regularities about Economic Growth		5	(4)
A Brief History of Modern Growth Theory		9	(5)
Growth Models with Exogenous Saving Rates (The Solow--Swan Model)		14	(45)
The Basic Structure		14	(2)
The Neoclassical Model of Solow and Swan		16	(22)
The Neoclassical Production Function		16	(1)
The Fundamental Dynamic Equation for the Capital Stock		17	(2)
The Steady State		19	(1)
The Golden Rule of Capital Accumulation and Dynamic Inefficiency		19	(3)
Transitional Dynamics		22	(2)
Policy Experiments		24	(1)
An Example: Cobb--Douglas Technology		25	(1)
Absolute and Conditional Convergence		26	(5)
Convergence and the Dispersion of Per Capita Income		31	(1)
Technological Progress		32	(4)
A Quantitative Measure of the Speed of Convergence		36	(2)
Models of Endogenous Growth		38	(14)
The AK Model		39	(2)
Endogenous Growth with Transitional Dynamics		41	(1)
Constant-Elasticity-of-Substitution Production Functions		42	(4)
The Leontief Production Function and the Harrod--Domar Controversy		46	(3)
Growth Models with Poverty Traps		49	(3)
Appendix Proofs of Various Propositions		52	(4)
Proof That Each Input Is Essential for Production with a Neoclassical Production Function		52	(1)
Properties of the Convergence Coefficient in the Solow--Swan Model		53	(1)
Proof That Technological Progress Must Be Labor Augmenting		54	(1)
Properties of the CES Production Function		55	(1)
Problems		56	(3)
Growth Models with Consumer Optimization (The Ramsey Model)		59	(37)
Households		60	(7)
Setup of the Model		60	(3)
First-Order Conditions		63	(4)
Firms		67	(3)
Equilibrium		70	(1)
Alternative Environments		71	(1)
The Steady State		72	(2)
Transitional Dynamics		74	(13)
The Phase Diagram		74	(2)
The Shape of the Stable Arm		76	(1)
Behavior of the Saving Rate		77	(2)
The Paths of the Capital Stock and Output		79	(1)
Speeds of Convergence		80	(7)
Appendix 2A Log-Linearization of the Ramsey Model		87	(2)
Appendix 2B Behavior of the Saving Rate		89	(1)
Appendix 2C Proof That γk Declines Monotonically If the Economy Starts from k(0) < k*		90	(2)
Problems		92	(4)
The Open Economy, Finite Horizons, and Adjustment Costs		96	(44)
An Open-Economy Version of the Ramsey Model		96	(5)
Setup of the Model		96	(2)
Behavior of a Small Economy's Capital Stock and Output		98	(1)
Behavior of a Small Economy's Consumption and Assets		99	(1)
The World Equilibrium		100	(1)
The World Economy with a Constraint on International Credit		101	(7)
Setup of a Model with Physical and Human Capital		101	(1)
The Closed Economy		102	(1)
The Open Economy		103	(5)
Variations in Preference Parameters		108	(2)
Economic Growth in a Model with Finite Horizons		110	(9)
Choices in a Model with Finite Horizons		110	(4)
The Finite-Horizon Model of a Closed Economy		114	(2)
The Finite-Horizon Model of an Open Economy		116	(3)
Adjustment Costs for Investment		119	(8)
The Behavior of Firms		119	(3)
Equilibrium with a Given Interest Rate		122	(3)
Equilibrium for a Closed Economy with a Fixed Saving Rate		125	(2)
Some Conclusions		127	(1)
Appendix Overlapping-Generations Models		128	(9)
Households		128	(2)
Firms		130	(1)
Equilibrium		130	(1)
The Steady State		131	(2)
The Golden Rule and Dynamic Efficiency		133	(1)
Dynamics		134	(1)
Altruism, Bequests, and Infinite Horizons		135	(2)
Problems		137	(3)
One-Sector Models of Endogenous Growth		140	(31)
The AK Model		141	(3)
Behavior of Households		141	(1)
Behavior of Firms		141	(1)
Equilibrium		142	(1)
Transitional Dynamics		142	(1)
Determinants of the Growth Rate		143	(1)
A One-Sector Model with Physical and Human Capital		144	(2)
Models with Learning-By-Doing and Knowledge Spillovers		146	(6)
Technology		146	(2)
Equilibrium		148	(1)
Pareto Nonoptimality and Policy Implications		149	(1)
A Cobb--Douglas Example		150	(1)
Scale Effects		151	(1)
Government and Growth		152	(9)
The Public-Goods Model of Productive Government Services		152	(6)
The Congestion Model of Productive Government Services		158	(3)
Transitional Dynamics in an Endogenous Growth Model		161	(5)
A Cobb--Douglas Example		161	(3)
A CES Example		164	(2)
Concluding Observations		166	(1)
Appendix Conditions for Endogenous Growth in the One-Sector Model		167	(2)
Problems		169	(2)
Two-Sector Models of Endogenous Growth (With Special Attention to the Role of Human Capital)		171	(41)
A One-Sector Model with Physical and Human Capital		172	(7)
The Basic Setup		172	(3)
The Constraint of Nonnegative Gross Investment		175	(4)
Different Technologies for Production and Education		179	(19)
The Model with Two Sectors of Production		179	(3)
The Uzawa--Lucas Model		182	(14)
The Generalized Uzawa--Lucas Model		196	(1)
The Model with Reversed Factor Intensities		197	(1)
Conditions for Endogenous Growth		198	(2)
Summary Observations		200	(1)
Appendix 5A Transitional Dynamics with Inequality Restrictions on Gross Investment in the One-Sector Model		201	(3)
Appendix 5B Solution of the Uzawa--Lucas Model		204	(4)
Appendix 5C The Model with Reversed Factor Intensities		208	(2)
Problems		210	(2)
Technological Change: Models with an Expanding Variety of Products		212	(28)
Models with a Variety of Producer Products		213	(18)
Production with a Fixed Number of Products		213	(2)
Expansions in the Variety of Products		215	(3)
Households and Market Equilibrium		218	(2)
Determinants of the Growth Rate		220	(1)
Pareto Optimality		220	(3)
Erosion of Monopoly Power		223	(3)
Romer's Model of Technological Change		226	(5)
Models with a Variety of Consumer Products		231	(6)
Varieties of Consumer Goods		231	(5)
A Comparison of Consumer Variety with Producer Variety		236	(1)
Concluding Observations		237	(1)
Problems		238	(2)
Technological Change: Models with Improvements in the Quality of Products		240	(25)
Sketch of the Model		241	(1)
Behavior of Firms		242	(10)
Levels of Quality in the Production Technology		242	(4)
The Incentive to Innovate		246	(5)
The Behavior of the Aggregate Quality Index		251	(1)
The Market Value of Firms		252	(1)
Households and Market Equilibrium		252	(2)
Innovation by the Leader		254	(5)
The Leader as a Monopoly Researcher		255	(2)
Research by Outsiders		257	(2)
Pareto Optimality		259	(3)
Summary Observations about Growth		262	(1)
Problems		263	(2)
The Diffusion of Technology		265	(20)
A Leader-Follower Model		266	(10)
Behavior of Innovators in the Leading Country		267	(1)
Behavior of Imitators in the Follower Country		268	(4)
Variations in the Cost of Imitation		272	(2)
Empirical Implications for Convergence		274	(2)
Mutual Invention and Imitation		276	(1)
Foreign Investment		276	(3)
Leapfrogging		279	(2)
Summary Observations about Diffusion and Growth		281	(1)
Problems		281	(4)
Labor Supply and Population		285	(45)
Migration in Models of Economic Growth		285	(23)
Migration in the Solow--Swan Model		286	(8)
Migration in the Ramsey Model		294	(6)
The Braun Model of Migration and Growth		300	(8)
Fertility Choice		308	(13)
An Overlapping-Generations Setup		309	(2)
The Model in Continuous Time		311	(10)
Labor/Leisure Choice		321	(5)
Appendix 9A The Form of the Utility Function with Consumption and Work Effort		326	(2)
Problems		328	(2)
Data on Economic Growth, Growth Accounting		330	(52)
Panel Data for Countries		330	(2)
Long-term Data on GDP		332	(9)
Regional Data Sets		341	(5)
Data for U.S. States		341	(1)
Data for European Regions		342	(2)
Data for Canadian Provinces		344	(1)
Data for Japanese Prefectures		345	(1)
Growth Accounting		346	(36)
General Setup		346	(1)
Discrete Time and Variable Shares		347	(1)
Measuring Input Shares and the Growth Rates of Inputs		348	(2)
Results from Growth Accounting		350	(1)
Extensions to Include R&D		351	(1)
Limitations of Growth Accounting		352	(30)
Empirical Analysis of Regional Data Sets		382	(32)
Two Concepts of Convergence		383	(4)
Convergence across the U.S. States		387	(6)
β Convergence		387	(5)
Measurement Error		392	(1)
σ Convergence		392	(1)
Convergence across Japanese Prefectures		393	(5)
β Convergence		393	(4)
σ Convergence across Prefectures		397	(1)
Convergence across European Regions		398	(3)
β Convergence		398	(2)
σ Convergence		400	(1)
Migration across the U.S. States		401	(3)
Migration across Japanese Prefectures		404	(3)
Migration across European Regions		407	(3)
Migration and Convergence		410	(3)
Conclusions		413	(1)
Empirical Analysis of a Cross Section of Countries		414	(104)
Losers and Winners from 1965 to 1985		415	(5)
The Empirical Analysis of Growth Rates		420	(4)
Effects from State Variables		421	(1)
Control and Environmental Variables		422	(2)
Regression Results for Growth Rates		424	(22)
A Basic Regression		424	(12)
Tests of Stability of Coefficients		436	(1)
Additional Explanatory Variables		436	(8)
World Bank Data on GDP		444	(1)
Results from a Single Cross Section		445	(1)
Sources of Growth for Slow and Fast Growers		446	(5)
Empirical Analysis of the Investment Ratio		451	(1)
Empirical Analysis of Fertility and Health		452	(3)
Results for Fertility		453	(1)
Results on Health		454	(1)
Summary and Conclusions about Growth		455	(7)
Appendix on Mathematical Methods		462	(1)
Differential Equations		463	(28)
Introduction		463	(1)
First-Order Ordinary Differential Equations		464	(7)
Systems of Linear Ordinary Differential Equations		471	(20)
Static Optimization		491	(7)
Unconstrained Maxima		491	(1)
Classical Nonlinear Programming: Equality Constraints		492	(2)
Inequality Constraints: The Kuhn--Tucker Conditions		494	(4)
Dynamic Optimization in Continuous Time		498	(12)
Introduction		498	(1)
The Typical Problem		499	(1)
Heuristic Derivation of the First-Order Conditions		500	(3)
Transversality Conditions		503	(1)
The Behavior of the Hamiltonian over Time		503	(1)
Sufficient Conditions		503	(1)
Infinite Horizons		504	(1)
Example: The Neoclassical Growth Model		505	(2)
Transversality Conditions in Infinite-Horizon Problems		507	(1)
Summary of the Procedure to Find the First-Order Conditions		508	(1)
Present-Value and Current-Value Hamiltonians		509	(1)
Multiple Variables		510	(1)
Useful Results in Matrix Algebra: Eigenvalues, Eigenvectors, and Diagonalization of Matrices		510	(2)
Useful Results in Calculus		512	(6)
Implicit Function Theorem		512	(1)
Taylor's Theorem		513	(1)
L'Hopital's Rule		514	(1)
Integration by Parts		515	(1)
Fundamental Theorem of Calculus		515	(1)
Rules of Differentiation of Integrals		516	(2)
References		518	(11)
Index		529

What People are Saying About This

Charles I. Jones

Barro and Sala-i-Martin provide an outstanding and comprehensive treatment of growth theory and empirics — an instant classic! I learn something new every time I pull my copy from the shelf.

Philippe Aghion

Barro and Sala-i-Martin have done a superb job of synthesizing much of the existing theoretical and empirical research on the mechanisms and determinants of economic growth and convergence. Though it incorporates much new material, this updated version is fully accessible to a third year undergraduate student, while remaining of invaluable use to any research scholar seriously interested in growth and development economics.

Robert E. Lucas

Lionel McKenzie's new monograph is a pleasure to read. Only a major contributor to economic theory could teach general equilibrium theory with such clarity and authority. The book is gracefully written and rigorous, and does an elegant job of situating competitive equilibrium theory in the economic and mathematical traditions from which it evolved.

From the Publisher

The MIT Press

The MIT Press

K. Daron Acemoglu

This is an invaluable book for a first graduate course in economic growth. The exposition is clear and easy to follow, but also rigorous. It is an excellent stepping stone for research in the field.