Understanding Economic Growth

Robin Hanson (hanson@econ.Berkeley.EDU)
Wed, 26 Nov 1997 13:55:08 -0800

Why does the economy grow? Why do some places and times grow
faster than others? The relevance to such questions to
topics frequently discussed on this list should be obvious.

There is a large economic literature on economic growth, and
I can assure you that those who contribute to this literature
understand a lot of important things about growth. I urge
anyone who really wants to speculate well on the future
to understand this literature.

I can't say I understand it that well, but I've been reading a
bit the last day or so. Here's some interesting tidbits:

-- Total growth is mainly due to improved productivity via diffusion
of lots of little insights in societies where innovation is accepted.
Scale effects, via standardization, size of markets, etc., are crucial.
The capital/labor share of improved productivity is about 50/50.
-- Per capita growth rates between nations have been highly divergent;
The lower nation that catches up to the higher nation is the
exception; typically the higher pulls away. The lowest nations now
are about as low (in per capital income) as all nations were once.
-- Since 1870, US growth rates have been roughly constant.
-- Britain took off initially most likely due to strong social
controls on birth rates, free markets, and a strong culture of
hobby science. Even then the takeoff was very slow.
-- American then took over because of additionally having a
combination of natural resources and a large integrated market.
British capital was invested in the U.S.
-- The soviets grew fast at first, via huge capital influxes from
high (forced) savings, but this was understandably a one-time effect.
-- Depending on the technology of the time, human vs. other capital
were complements or substitutes. When newly complements, those
higher skilled got extra wages, increasing the income gap,
and education shot up. Computers favor complementarity.
-- Most of the recent Asian growth has been due to high capital
inputs, rather than productivity growth. High capital came from
high savings due to a demographic change, then capital came from abroad.

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614