Model Pertumbuhan

Neoklasik dan
Masalah Konvergensi
Hello!
Kelompok 3:

Aldi Kindicenna
Dwi Ariestiyanti
Ilham Ramdhan
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Neo-Classical
Growth Model
 The Basic concept
 Neo-Classical School: basic premise (DEMAND ADJUSTS TO
SUPPLY)
 Emphasis on the supply side characteristics of the growth
process (supply-side driven)
 Three key elements in the model; labour supply, capital
stock and technical progress
 Assumes efficient market allocation throughout
 i.e. complete knowledge, agents are price takers, no
barriers to mobility of factors
 Therefore disparities are temporary and will disappear as
the allocation (of factors) approach their pareto-optimal
level.
 One Sector Neo-Classical
Growth Model Output per
worker (Y/L)

Y/L = f(K/L)

Based on the Cob-Douglas production function

(constant returns to scale), no technical change and Y/L* K/L>Y/L
output is determined entirely by capital and labour Y/L>K/L
inputs, includes law of diminishing returns.
Y  F K , L 
t t t

yt  k t  (1   )lt 0 K/L* Capital per worker (K/L)

yt  lt   (kt  lt )
Note:
Y = F(K,L) implies Y/L = f(K/L) provided F(K,L) is homogeneous of degree one. A
Cobb-Douglas production function with constant returns to scale is such a
function and is often used in growth models.

Conclusions
 Y grows without limit as supplies of L and K increase
 Y/L only increases with K deepening
 When K/L reaches equilibrium point no further increase in 5
rate of Y/L
 Growth Equation with
Technological Change Output per
(Y/L)2 = f(A2,K,L)

worker (Y/L)

(Y/L)1 = f(A1,K,L)
 To bring more realism, the effect of technical progress
on output growth is introduced Y/L2

 Technical knowledge is a separate element in the Y/L1 Upward shift in the

output/labour ratio due
to technical progress
production function. K and L benefit equally from any
technical progress that occurs
Y  F A , K , L 
t t t t

yt  g  kt  (1   )lt 0 K/L1 Capital per worker (K/L)

y t  lt  g   ( k t  lt )
Note:
Y = F(K,L) implies Y/L = f(K/L) provided F(K,L) is homogeneous of degree one. A
Cobb-Douglas production function with constant returns to scale is such a
function and is often used in growth models.

Reasons for regional disparities in growth

Technical progress varies
k varies
l varies 6
Sources of growth and factor migration
Region’s output
growth

Growth in Growth in Technical

capital stock labour force progress

Investment Net flow of Net in- Population Inflow of Investment

by region’s capital into migration of growth technical in R&D and
residents the region workers knowledge education
from other
regions

Regional Birth and

wage relative death rate
Regional Rate of
to wage rate
savings rate return
in other
relative to
regions
the rate of
return in
other
regions

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 Endogenous Growth Theory
What causes technological progress
 Entrepreneurs sell ideas because of the profit incentive, thus
entrepreneurship is endogenous
 Technical knowledge is attached to workers
 Depends on number of workers & stock of knowledge

How do regions catch up with technology leaders?

 Depends on how far they are behind
 Cheap to copy existing technology, expensive to create new
 Socio-economic infrastructure crucial

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Convergence of regional
per capita incomes
  (beta) convergence when poor
regions grow faster than rich.
  (sigma) convergence is a measure of
per capita income inequality
 Long-run  occurs very slowly 2% p.a.
 Some country’s regions converging
faster than others
 Spillover effects

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 Extending the model
Output/labour
ratio

Technology embodied Endogenous technical

Capital/Labour progress: R&D Human capital
in capital stock
ratio spending
(exogenous)

Creation and transmission

of new ideas

Investment in
new capital

Social and economic Public and private

networks in region: investment in
Regional transmission of education
savings information between
individuals

Determination of labour productivity 10

Armstrong and Taylor (2000) Regional Economics and Policy
Weaknesses of Neo-classical
approach
1. Investors 2. Factor prices 3. Failure to
and workers are not recognise the
are assumed to particularly importance of
be perfectly flexible in demand
informed practice factors both
internal and
external

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2 Export demand
models &
cumulative
growth
Difference between neo-classical and
export-based approaches
Neo-classical model argues that:
 DEMAND adjusts to SUPPLY thus it ignores
demand aspects - but it argues that a region’s
growth cannot be constrained by supply,
where factors are freely mobile”
The export base modelling approach argues that:
 Capital and Labour flow into regions rich in
natural resources
 Thus regions grow at different rates due to
the uneven distribution of resources

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Heckscher- Ohlin Model
Export demand: X  f (P ,Z, P )
d

x s

Export supply: X s  f ( Px , W , Pk , R, C , T )

H-O Theory argues that regions specialise in the

production and export of commodities that use
their relatively abundant factors intensively.

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 Cumulative causation model (Kaldor).
 Model emphasises the cumulative nature of the growth
process
 Kaldor’s original hypothesis argued that growth in per capita
output is determined by a region’s ability to exploit economies
of scale and the type of activity in which it specialises
 Thus manufacturing areas have more scope for productivity
gains than rural areas do.
 AND the process is cumulative since the advanced regions
have an in-built competitive advantage which in turn will
reinforce the region’s specialisation

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 Dixon-Thirlwall model
Regional output
growth

Invent,
Expend on Rate of tech Growth in P of cap
R&D change cap/lab ratio relative to
P of labour

Growth in labour
Productivity
How much
do W
Change in respond to
Change in input excess S/D
P of Reg X for L?
prices (W).

Does the
region prod
Change in How income
goods which Y in export elastic are
Growth in
have close Change in P mkt. the regions
substitutes?
Reg X exports?
of subs

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 Dixon-Thirlwall model
q  a  y1 (1) p  wq (2)

x  b0 p  b1 p f  b2 z (3) y  x (4)

By substituting into eq. 4 and re arranging terms

y   b0 ( w  a)  b1p f  b 2 z  c 0b0 y 1

y   y 0 1 1

y 0

In long-run equilibrium y = y-1 1 1

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D + T model changes in equilibrium
growth rate

yy
yy 1

y 1
yy ** y     y 0 1 1

y   y
*
y
y    y
*

0 1 1
y
0 1 1

y * y 1

y *
y ** y 1

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 Criticisms of the cumulative causation model
 Does not explain type of exports regions will specialise in
 Export Sector is ONLY source of growth (what about intra
regional trade?)
 Complexities of Verdoorn’s law are not fully explained i.e.
how does output growth lead to increased productivity?
 Empirical evidence to support the Verdoorn relationship
is controversial.
 Armstrong and Taylor suggest that the model ignores the
consequences of output growth on a region’s balance of
payments

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 Balance of Payments as a constraint on
regional growth
 Thirlwall (1980), Regional Problems are "Balance of
Payments Problems, Regional Studies
 BOP problems are disguised
 “Favoured regions" prosper exports high IED but imports
lower IED - feeds through to productivity gains - other
regions find it hard to get a foothold
 Krugman - causal relationship other way round output
growth determines export and import elasticities. Thus
an increase in factor supplies will lead to an increase in
output growth.

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New trade theory approach to regional
growth draws on cumulative causation

Three key propositions

Existence of scale economies - single location
Barriers to trade - locate near markets
Agglomeration economies - cluster in some
areas

Regional growth dependant on

Cost of transport
Low labour costs
Degree of agglomeration
Congestion
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 Evidence of the economic benefits of
industrial agglomeration
Hanson (1998), North American economic integration and
industry location, Oxford Review of Economic Policy. Examines
trade US and Mexico - MAQUILADORAS
Head et al (1995), Agglomeration benefits and location choice:
evidence from Japanese manufacturing investment in the US,
Journal of International Economics. Examines why Japanese
investors cluster

Empirical studies of cumulative growth process

Cheshire et al (1996) Urban economic growth in Europe: Urban
Studies. Examines the potential determinants of growth against
actual determinants of growth
Sun et al (1998), Economic growth and regional disparity in China.
Quoted in Armstrong & Taylor (2000) Key factors; favourable
industry mix; access to international trade; attractive to FDI;
higher domestic investment; attitude of government

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Conclusion
No universal agreement between economists about the causes of
regional growth disparities

Neo-classical models stress the supply-side influences on growth those

that lack lack resources

Keyensian models stress the importance of demand for a region’s

export commodities you need to make things people want

Cumulative causation models stress the self-perpetuating nature of

the growth process, once it has started & important role of
productivity.

Growth policy is on the agenda for policymakers as they realise that

regional policy has an important part to play in spreading economic
growth outwards from national and international growth centres.
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Thanks!
Any questions?

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