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Unified growth theory. From stagnation to growth. Sustained economic growth is a recent phenomenon, most of it having occured in the past 200 years World GDP: From year 1 to 1000, no growth From year 1000 to 1820, 50% growth From year 1820 to 2000, 850% growth.
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From stagnation to growth • Sustained economic growth is a recent phenomenon, most of it having occured in the past 200 years • World GDP: • From year 1 to 1000, no growth • From year 1000 to 1820, 50% growth • From year 1820 to 2000, 850% growth
Unified growth theory, Galor (2005) • UGT tries to explain not only the modern rates of growth, but also the period of stagnation before the industrial revolution • This period of stagnation is sometimes referred to as Malthusian stagnation • Malthus (1798): Long-run growth in living standards is impossible • Why? Higher living standards -> Higher population growth (from higher life expectancy and larger families) -> living standards fall because of fixed land supply • However, an economy can escape from Malthusian stagnation if it does not rely on agriculture anymore: e.g., industrialization • Model solved in class
More on unified growth theory • One missing part so far is the demographic transition • When production took off, population growth declined • Why? Because of the greater importance of human capital in the production process • More advanced technologies require more human capital • People started to make fewer children, so that each child ends up with more human capital (quality/quantity tradeoff) • This also increased production per capita by eliminating the negative effect of population growth
