La Tech: Econ 201 "Production and Growth" Chap 25

Productivity is determine by four primary factors:

1. Human capital per worker. 2. Natural resources per worker. 3. Physical capital per worker. 4 Technological knowledge.

An outward-oriented growth strategy gives countries:

Access to goods, services, and the idea from foreign countries, thereby boosting living standards and productivity.

Average Income in N Years =

Current Average Income * (1+G)^N -g represents the growth rate of real GDP per person (in decimal form -- that is, 1.4% is emtered as 0.014) -n represents the number of years

The disparity in the growth of productivity reflects the fact that capital is subject to:

Diminishing returns (that's is, the increase in output generated by an increase in capital is less than the increase in output generated by previous increases in capital.)

Human Capital related to Technological Knowledge

Human capital measures the resources expended transmitting society's technological knowledge to workers.

Less developed countries hoping to boost productivity and economic growth should pursue policies that:

Increase physical capital per worker, human capital per worker, and technological knowledge.

Productivity

Output per unit of labor input

Formula for calculating the OUTPUT PER WORKER

Output per worker = total output / number or workers

Physical Capital per worker is equal to:

Physical Capital per worker = the ratio of physical capital to labor Ex) Physical capital per worker in 2024 = Physical capital in 2024 / labor in 2024

Government can encourage human capital accumulation among further generations by:

Proving incentives for education and health (for example, cash payments to families whose children go to school and visit the ,edicts clinic on a consistent basis)

Physical capital accumulation can be encouraged by

Reducing taxes on income from saving, protecting the property rights of firms acquiring new capital, and encouraging foreign investment in the domestic economy.

Foreign direct investment

Refers to a capital investment that in owned and operates by a foreign entity.

Foreign portfolio investment

Refers to an investment that is financed with foreign money but operated by domestic resident.

Technological Knowledge

Society's understanding of how the world works. Ex) A unique fertilizer that can be spread on the grasslands to induce thicker coats on the sheep.

The change in a small economy's physical capital per worker and labor productivity from one year to the next illustrates:

The general principle that a higher level of capital per worker leads to higher labor productivity.

Natural Resources

The inputs into the production of goods and services that are provided by nature, such as land,bodies of water, forests, and mineral deposits. Ex)The grasslands supporting the sheep whose wool is used for weaving.

Human Capital

The knowledge and skills that workers acquire through training, education, and experience. Ex) The accumulated weaving experience of the workforce.

Economy's labor PRODUCTIVITY is equal to:

The ratio of output to labor hours devoted to the production of the output Ex) Labor Productivity in 2024 = Output in 2024 / Labor Hours in 2024

Physical Capital

The stock of tools, machinery, equipment, and structures that are used to produce goods and services. Ex) The looms used to weave the textiles.

The Catch-up Effect

When higher productivity growth in countries with less capital per person helps those countries grow faster and "catch up" to the per-capita incomes of countries with more capital per person.