Growth theory

The growth theory is a branch of economics that deals with the explanation of the causes of economic growth is concerned and the economic development of a country.

The classic indicator for economic growth is the gross domestic product (GDP), the absolute change of which or the change per capita can be viewed, the latter being commonly used in growth models. This is because the economic situation of a representative (average) citizen is of interest.

A classic feature of many growth theories is the long-term view (see term ). Short-term questions about the utilization of a country's production potential are the subject of business cycle theory .

Historical development

Classic growth theory

While the perception of a stationary economy was predominant for a long time and was also discussed in the theories of classical political economy , the first theories regarding economic growth emerged as early as the end of the 17th century and established mercantilism . Gustav Cassel first put the idea of ​​a "steadily progressing economy" into a formula. First, the equality of saving and investing was postulated. The classical economics looked at the factors of production floor , labor and capital .

Marxist growth theory

Capital contains Karl Marx's theory of growth.

Growth and accumulation are central components of Marxist economic theory . Karl Marx argues in Volume I of Capital that individual companies are forced to accumulate in competition . This is also called "grow or die" or today's Marxist theorists growth imperative discussed. Thanks to the falling rate of profit , according to the Marxist crisis theories or collapse theories, there is stagnation due to overproduction and ultimately the collapse of the capitalist system. In Volume II of Capital , however, Marx developed a theory of the cycle relationships of a growing economy, which Wilhelm Krelle describes as "one of the most important growth theoretical achievements of the 19th century".

Keynesian theories of growth

Modern growth theories developed after World War II , initially of a Keynesian nature. An early theory is the Harrod-Domar model developed by Roy F. Harrod and Evsey Domar . The Keynesian models emphasize the importance of aggregate demand . Post-Keynesian growth models are formulated with, among other things, Stock-Flow Consistent Models .

Neoclassical growth theory

In 1928, Frank Plumpton Ramsey published a paper which derived the growth rate as the result of intertemporal utility maximization ( Keynes-Ramsey rule ). It was later extended to the Ramsey – Cass – Koopmans model . In 1956 Robert M. Solow published his neoclassical growth model (cf. Solow model ), for which he received the Swedish Reichsbank's Prize for Economics in 1987 . The model quickly became a widely used and tested tool for economists. Long-term growth of the per capita sizes is possible in equilibrium due to exogenous technological progress. The empirical analysis of which production factors make which contribution to growth is called growth accounting.

Endogenous growth theory

→ Main article : Endogenous growth theory

In the mid / late 1980s, growth theory received a new boost. In particular, the work of Paul Romer established a new type of growth models, the so-called endogenous growth models. The distinguishing feature of endogenous growth models is that the production function enables increasing returns to scale . There are many reasons for increasing economies of scale, e. B. learning-by-doing or transference effects . Examples of endogenous growth models are the AK model , the Romer model or the Jones model .

N. Gregory Mankiw , Romer and Weil expanded the standard Solow-Swan model in 1992 . They added the human capital factor to the production function . They defined human capital in terms of school enrollment rates . Your model gives a slower convergence speed than in the Solow model. The supporters of the endogenous growth theory (Paul Romer, Philipp Aghion, Peter Howitt, et al.) Have completely abandoned the group of exogenous growth models. Endogenous growth models are based on the assumption that there are no decreasing marginal yields. Paul Romer justifies this assumption in his work from 1986 with the thesis that technical knowledge is not only available to the inventor, but is also available to all other members of society through transfer effects. Grossman, Aghion and others expanded this model type in such a way that, driven by monopoly competition, companies have advantages from the constant inventiveness. Technical progress becomes endogenous.

Endogenous growth models have been developed by a variety of scientists including Robert E. Lucas , Paul Romer , Philippe Aghion , Peter W. Howitt , Gene M. Grossman , Elhanan Helpman , Robert J. Barro, and Xavier Sala-i-Martin .

Unified Growth Theory

→ Main article : Unified Growth Theory

Although the endogenous growth theories still provide much insight and research is being carried out in this area, there was also some criticism of this class of models, which motivated the search for other approaches.

In 2000 Galor and Weil dealt with the relationship between population growth , population size, technological progress and human capital. These variables fertilize each other and a very long-term growth with the overcoming of the Malthusian trap can be partly explained.

Some growth models of population dynamics are applied to economic growth or to business cycles in general.

Production factors and growth accounting

The neoclassical models explain the contribution of the individual production factors to growth with the help of growth accounting . An increased use of the factor labor (for example through population growth ) leads to an increase in production. How large the contribution of labor input to growth actually is depends on the production elasticity. While the production factor soil still played a role in classical economics , since the beginning of the 20th century soil has mostly been counted as capital and only two production factors, labor and capital, are assumed. Particularly in environmental and resource economics, the importance of nature and raw materials as part of the soil factor is also examined.

Since all factors of production are scarce , a price must be paid for their use, which is wages for labor , interest for capital and rent for land . The share of growth that cannot be ascribed to the increase in production factors is referred to as total factor productivity and is mostly ascribed to technical progress .

Labor as a factor of production

The factor of production work ( English labor ) is limited in its conventional definition to paid work , which is aimed at income generation. The labor input depends, for example, on the situation on the labor market . The Labor Economics examines the relationship between supply and demand of employment and wages , as well as the causes and effects of unemployment . The term jobless growth or "employment-free growth" (also jobless recovery ) describes economic growth or economic recovery from a recession , which, however, is not sufficient to create jobs. The term was coined in the USA in the 1990s to describe the economic situation at the end of the term of office of US President George HW Bush .

The relationship between economic growth and employment growth is a traditional theory in economics , but is sometimes controversial. Ralf Fücks writes in his book Grow intelligently - The green revolution : “The often rumored thesis of» jobless growth «does not stand up to empirical examination. The connection between economic growth and employment is still intact. The number of people in employment in Germany reached an all-time high in autumn 2012. Contrary to popular belief, employment relationships subject to social security have increased more than »mini jobs«. Jeremy Rifkin , on the other hand, in his book The End of Labor , takes the view that rationalization , automation and economic growth can lead to an increase in unemployment . In an interview he stated: “In the long run, work will disappear. [...] We are in the midst of an upheaval that even surpasses the industrial revolution. […] Today's computers and information technology make more and more people completely superfluous. Even the cheapest human labor is more expensive than the machine. "

Production factor capital

The capital or the capital stock includes the assets that are used in production, e.g. B. Machines and office buildings. Capital is necessary to be able to produce goods and services. Production per employee increases with capital intensity , depending on the marginal return on capital. The higher the production already, the lower this yield and thus the growth potential. In contrast to labor, capital can be accumulated . At the same time, it wears out and over time has to be written off and replaced. A part of the production must therefore be used for the maintenance of the capital in order to be able to keep the production at least constant. As a result of the decreasing marginal yield, it is therefore not possible to accumulate any amount of capital as long as there are no technical innovations.

In the Solow model there is a theoretical limit for the production of an economy, at which the investments are equal to the depreciation (assuming constant labor and technology). This point is the steady state . This steady state is significantly influenced by the savings rate . The higher the savings rate and thus the savings, the more capital can be replaced. Because more is saved, consumption decreases. This trade-off results in an optimal point at which consumption is permanently at its maximum (i.e. the capital necessary for production can be permanently replaced). In the optimum, the savings rate is equal to the production elasticity of capital. This fact is called the golden rule in the Solow model .

Soil production factor (including nature and raw materials)

The production factor soil comprises the earth's surface used economically . Originally it comprised the arable land , but in the course of the exploitation of mineral resources it was initially expanded to include this. In view of the increasing scarcity of means of production such as water , the environmental production factor is now also taken into account in the sustainability debate . The independent importance of land and land values for questions of distribution is particularly emphasized by Georgism , which refers to Henry George, who died in 1897, and his book Progress and Poverty .

The importance of natural raw materials is also emphasized in ecological economics and energy economics . The Solow residual could be explained by including the production factor energy in addition to labor and capital.

Technical progress and total factor productivity

The Solow model only looked at the factors labor and capital, but their increase could only explain 20 percent of the growth. The contribution to growth not explained by labor and capital remained as a so-called Solow residual, which was initially a “measure of our ignorance”. Hence, the Solow model has been criticized for leaving a major factor unexplained. Today the residual is referred to as total factor productivity . It absorbs all contributions to growth that cannot be explained by the production factors labor and capital.

The residue is usually attributed to technical progress . These technological innovations can be, for example, new products, improved production processes, the development of new raw material resources or new organizational structures . This was of Joseph Schumpeter attributed by " creative destruction to oust" old structures. In particular, ecological economists criticize the fact that this concept of technical progress as "an informal force that can increase productivity at will" is not an appropriate description of reality. The size of the Solow residual was instead due to the fact that Solow's energy and materials were not taken into account.

Simple growth model formally presented

Without depreciation

In each year it is given: The gross domestic product (GDP) , the gross fixed capital formation and the capital stock at the beginning of the year. The capital stock increases through the investments. The “steady state” is defined as a growth state in which all variables grow with the same growth rate . ${\displaystyle t}$ ${\displaystyle Y_{t}}$ ${\displaystyle I_{t}}$ ${\displaystyle K_{t}}$ ${\displaystyle g}$

The following applies in discrete time representation:

(1) ${\displaystyle Y_{t}=(1+g)\cdot Y_{t-1}}$

(2) ${\displaystyle I_{t}=(1+g)\cdot I_{t-1}}$

(3) ${\displaystyle K_{t}=K_{t-1}+I_{t}=(1+g)\cdot K_{t-1}}$

From (3) results:

(4) ${\displaystyle I_{t}=g\cdot K_{t-1}}$

From (2) and (4):

${\displaystyle I_{t}={I_{t+1} \over 1+g}={g\cdot K_{t} \over 1+g}}$

With by dividing: ${\displaystyle Y_{t}}$

${\displaystyle {I_{t} \over Y_{t}}={{K_{t} \over Y_{t}}\cdot g \over 1+g}}$

or

${\displaystyle i^{*}={k^{*}\cdot g \over 1+g}}$,

when is the steady state investment rate and the steady state capital coefficient . ${\displaystyle i^{*}}$ ${\displaystyle k^{*}}$

With depreciation

Taking into account the depreciation , the change in the capital stock results from gross investments minus depreciation (with depreciation rate ): ${\displaystyle \delta }$

(3 ') ${\displaystyle K_{t}=K_{t-1}-\delta \cdot K_{t-1}+I_{t}=(1+g)\cdot K_{t-1}}$

Therefore the following results for the investments:

${\displaystyle I_{t}={g\cdot K_{t}+\delta \cdot K_{t} \over 1+g}}$

With by dividing: ${\displaystyle Y_{t}}$

${\displaystyle {I_{t} \over Y_{t}}={{g\cdot K_{t}+\delta \cdot K_{t} \over Y_{t}} \over 1+g}}$

or

${\displaystyle i^{*}={k^{*}\cdot (g+\delta ) \over 1+g}}$,

when again is the steady-state investment rate and the steady-state capital coefficient. ${\displaystyle i^{*}}$ ${\displaystyle k^{*}}$

This formula is used by the International Monetary Fund in its 2005 study on investment behavior (see web link). He speaks of a “standard neoclassical growth model”, although most of the equations above are tautological, meaning that they apply to very different growth models , including the Harrod-Domar model . However, the applicability of this model is now called into question in a current working paper by the IMF itself.

literature

• Lutz Arnold: Growth Theory . Vahlen Verlag, Munich 1997, ISBN 3-8006-2242-4 .
• Lucas Bretschger: Growth Theory . 2004, ISBN 3-486-20003-8 .
• Elhanan Helpman: The Mystery of Economic Growth. 2004, ISBN 0-674-01572-X .
• Hans-Rimbert Hemmer and Michael Frenkel: Fundamentals of the growth theory . Verlag Vahlen, Munich 1999, ISBN 3-8006-2396-X .
• Hans W. Holub, Veronika Eberharter, Gottfried Tappeiner: The rise and fall of modern growth theory. 2004, ISBN 3-486-21255-9 .
• Charles I. Jones: Introduction to Economic Growth . 2002, ISBN 0-393-97745-5 .
• Heinz König (Hrsg.): Growth and development of the economy. ISBN 3-445-01671-2 .
• Alfred Maußner: Growth Theory . 1996, ISBN 3-540-61501-6 .
• Paul M. Romer: Endogenous Technological Change. In: Journal of Political Economy. Volume 98, No. 5, 1990, pp. 71-102.
• Joseph Schumpeter : Theory of Economic Development. A study of entrepreneurial profits, capital, credit and the business cycle. 6th edition. Berlin 1964.
• Stephan Seiter: Recent developments in growth theory and growth policy . 2005, ISBN 3-89518-499-3 .
• Robert M. Solow : A Contribution to the Theory of Economic Growth. In: Quarterly Journal of Economics. Volume 70, No. 1, 1956, pp. 65–94.

Web links

• Growth theory - article in the Gabler Wirtschaftslexikon
• Post-Keynesian Growth Theory - Article in the Gabler Wirtschaftslexikon
• Neoclassical growth theory - Article in the Gabler Wirtschaftslexikon
• Evolutionary growth theory - Article in the Gabler Wirtschaftslexikon
• Keynesian Growth: the Cambridge version.
• Analysis of the IMF on global savings and investment behavior (English, PDF, 285 KiB)
• Jan Priewe and Katja Rietzler (December 2010): Germany's declining investment dynamics 1991–2010 - starting points for a new growth model. Expertise on behalf of the Economic and Social Policy Department of the Friedrich-Ebert-Stiftung. Chapter 4: Investments and theories of growth, ISBN 978-3-86872-548-3 , pp. 44ff pdf in Chapter 4 Overview of growth models

Individual evidence

1. ↑ Growth theory - definition in the Gabler Wirtschaftslexikon.
2. ^ Murray Milgate, Shannon C. Stimson: After Adam Smith . A Century of Transformation in Politics and Political Economy. Princeton University Press, ISBN 978-0-691-14037-7 , pp. 186-216 .
3. ^ Gustav Cassel: Theoretical Social Economy. 4th edition Leipzig 1927, p. 51.
4. ^ Karl Marx : Das Kapital, Volume 1 . In: Marx-Engels works . No. 23 . Dietz, Berlin 1965, p. 618 ( mlwerke.de ).
5. ^ Joachim Radkau : Growth or Decline: A Basic Law of History? In: Irmi Seidl , Angelika Zahrnt (Ed.): Post-growth society: Concepts for the future . Metropolis, Marburg 2010, ISBN 978-3-89518-811-4 , pp. 37-52 .
6. ^ Richard Smith: Beyond Growth or Beyond Capitalism . In: Real-world economics review . tape 53 , p. 28-42 ( paecon.net [PDF]).
7. ^ John Bellamy Foster , Fred Magdoff: What every environmentalist needs to know about capitalism . In: Monthly Review . tape 61 , no. 10 , 2010, p. 1-30 ( monthlyreview.org ).
8. ^ Myron J. Gordon, Jeffrey S. Rosenthal: Capitalism's growth imperative . In: Cambridge Journal of Economics . tape 27 , no. 1 , 2003, p. 25-48 , doi : 10.1093 / cje / 27.1.25 .
9. ↑ ^{a b} Wilhelm Krelle : Theory of economic growth. Springer-Verlag, Berlin / Heidelberg 1988, pp. 43-58, ISBN 978-3-662-10443-9 .
10. ^ Roy F. Harrod: An Essay in Dynamic Theory . In: The Economic Journal . Volume 49, number 193, 1939, pp. 14-33, doi : 10.2307 / 2225181 .
11. ^ Evsey Domar: Capital Expansion, Rate of Growth, and Employment . In: Econometrica . Volume 14, Number 2, 1946, pp. 137-147, doi : 10.2307 / 1905364 .
12. ^ Wynne Godley , Marc Lavoie : Monetary Economics. An Integrated Approach to Credit, Money, Income, Production and Wealth. Palgrave Macmillan, New York 2012, ISBN 978-0-230-30184-9 .
13. ^ Claudio H. Dos Santos, Gennaro Zezza: A simplified, 'benchmark', Stock-Flow Consistent Post-Keynesian growth model . In: Metroeconomica . tape 59 , no. 3 , 2008, p. 441-478 , doi : 10.1111 / j.1467-999X.2008.00316.x .
14. ^ Frank Plumpton Ramsey: A mathematical theory of saving . In: The Economic Journal . 1928, p. 543-559 .
15. ^ David Cass: Optimum growth in an aggregative model of capital accumulation . In: The Review of Economic Studies . 1965, p. 233-240 .
16. ^ TC Koopmans: On the concept of optimal economic growth. The econometric approach to development planning . Chicago 1965.
17. ^ ^{A b c} Robert Merton Solow : A Contribution to the Theory of Economic Growth. In: Quarterly Journal of Economics . Volume 70, 1956, pp. 65-94 ( doi: 10.2307 / 1884513 ).
18. ^ Manfred Gärtner: Macroeconomics. 2nd Edition. Pearson Education, Harlow 2006, pp. 248f.
19. ^ ^{A b} Charles Hulten: Growth Accounting . In: NBER Working Paper . w15341, 2009, doi : 10.3386 / w15341 .
20. ↑ ^{a b} Rudiger Dornbusch, Stanley Fischer, Richard Startz: Macroeconomics , Section 3.1 Growth Accounting , Oldenbourg Verlag, 2003.
21. ^ Philippe Aghion and Peter Howitt: Endogenous Growth Theory . MIT Press, 1997.
22. ^ ^{A b} Mason Gaffney: Neo-classical Economics as a Strategem against Henry George . In: Fred Harrison (Ed.): The Corruption of Economics . Shepheard-Walwyn Publishing Co., London, pp. 29-164 ( masongaffney.org [PDF]).
23. ^ Paul Krugman, The Myth of Asia's Miracle , Foreign Affairs. 73 (6), p. 68
24. ↑ Jörn Altmann: Economic Policy: A Practice-Oriented Introduction. Lucius & Lucius DE, 2007, ISBN 978-3-8252-1317-6 , p. 51.
25. ↑ Ricardo J. Caballero, Mohamad L. Hammour: Jobless growth: appropriability, factor substitution, and unemployment. National Bureau of Economic Research, 1997
26. ^ Ralf Fücks: Intelligent growth - The green revolution , Carl-Hanser-Verlag Munich, 2013, p. 120
27. ↑ Jeremy Rifkin, Interview about the end of work with the Stuttgarter Zeitung, April 29, 2005 ( Memento of May 3, 2005 in the Internet Archive )
28. ↑ O. Blanchard, G. Illing: Macroeconomics. 5th, updated and expanded edition. 2009, p. 324.
29. ↑ O. Blanchard, G. Illing: Macroeconomics. 5th, updated and expanded edition. 2009, p. 335 f.
30. ↑ O. Blanchard, G. Illing: Macroeconomics. 5th, updated and expanded edition. 2009, p. 338 ff.
31. ↑ O. Blanchard, G. Illing: Macroeconomics. 5th, updated and expanded edition. 2009, p. 342 ff.
32. ^ Rüdiger Lutz (editor): Innovation ecology. A practical handbook for environmentally conscious industrial management. Verlag Bonn aktuell 1992, ISBN 3-87959-455-4
33. ↑ Mason Gaffney : The Hidden taxable capacity of land: enough and to spare . In: International Journal of Social Economics . tape 36 , no. 4 , doi : 10.1108 / 03068290910947930 .
34. ↑ Dirk Löhr, Fred Harrison (Ed.): The End of the Rent Economy - How we can create global welfare and build a sustainable future . Metropolis , 2017, ISBN 978-3-7316-1226-1 .
35. ^ ^{A b} Reiner Kümmel : The Second Law of Economics: Energy, Entropy, and the Origins of Wealth . Springer, New York / Dordrecht / Heidelberg / London 2011.
36. ^ R. Kümmel, J. Henn, D. Lindenberger: Capital, labor, energy and creativity: modeling innovation diffusion . In: Structural Change and Economic Dynamics . Volume 13, Number 4, December 2002, pp. 415-433, doi : 10.1016 / S0954-349X (02) 00008-5 .
37. ^ ^{A b} R. Kümmel, D. Lindenberger: How energy conversion drives economic growth far from the equilibrium of neoclassical economics . In: New Journal of Physics . Volume 16, number 12, 2014, 125008, doi : 10.1088 / 1367-2630 / 16/12/125008 .
38. ^ Robert U. Ayres , Benjamin Warr: Accounting for growth: the role of physical work . In: Structural Change and Economic Dynamics . Volume 16, number 2, June 2005, pp. 181-209, doi : 10.1016 / j.strueco.2003.10.003 .
39. ^ Robert U. Ayres , Benjamin Warr: The economic growth engine: how energy and work drive material prosperity . Edward Elgar, Cheltenham / Northampton 2009.
40. ↑ I. Ozturk: A literature survey on energy-growth nexus . In: Energy Policy . Volume 38, number 1, January 2010, pp. 340-349, doi : 10.1016 / j.enpol.2009.09.024 .
41. ^ Paul Krugman, The Myth of Asia's Miracle , Foreign Affairs. 73 (6), p. 68
42. ^ "Measure of our ignorance". M. Abramovitz: The Search for the Sources of Growth: Areas of Ignorance, Old and New . In: The Journal of Economic History . Volume 53, Number 2, June 1993, pp. 217-243, doi : 10.1017 / S0022050700012882 .
43. ^ Robert M. Solow : Perspectives on Growth Theory. In: Journal of Economic Perspectives. 8, 1994, pp. 45-54 .: "has led to a criticism of the neoclassical model: it is a theory of growth that leaves the main factor in economic growth unexplained"
44. ↑ Joseph Schumpeter: Capitalism, Socialism and Democracy , translated by Susanne Preiswerk. Introduction by Edgar Salin . Francke, Bern 1946.
45. ↑ John Gowdy , Mario Giampietro, Jesus Ramos-Martin and Kozo Mayumi: Incorporating biophysical foundations in a hierarchical model of societal metabolism. In: Richard PF Holt, Steven Pressman, Clive Spash: Post-Keynesian and Ecological Economics. 2009 "amorphous force that can increase the productive power of the economy without limit" (p. 206)
46. ^ Arcand, Berkes, Panizza: Too Much Finance? IMF working paper WP / 12/161 (PDF; 943 kB)