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CONTENTS Introduction I.1. Why this book? I.2. For whom? I.3. Some facts and puzzles I.3.1 Growth and poverty reduction I.3.2 Convergence I.3.3 Growth and inequality I.3.4 The transition from stagnation to growth I.3.5 Finance and growth I.4 Growth policies I.4.1 Competition and growth I.4.2 Education and distance to frontier I.4.3 Macroeconomic policy and growth I.4.4 Trade and growth I.4.5 Democracy and growth I.5 Four growth paradigms I.5.1 The neoclassical growth model I.5.2 The AK model I.5.3 The product-variety model I.5.4 The Schumpeterian model I.6 Outline of the book Part I: Basic Paradigms of Growth Theory 1. Neoclassical Growth Theory 1.1 Introduction 1.2 The Solow-Swan Model 1.2.1 Population growth 1.2.2 Exogenous technological change 1.2.3 Conditional convergence 1.2.3.1 Convergence in growth rates 1.3 Extension: The Cass-Koopmans-Ramsey model 1.3.1 No technological progress 1.3.1.1 Continuous-time, infinite-horizon 1.3.1.2 The canonical Euler equation 1.3.2 Exogenous technological change 1.4 Conclusion 1.5 Literature Notes 1.6 Appendix A: Steady-state and convergence in the Cass-Koopmans-Ramsey model 1.7 Appendix B: Dynamic optimization using the Hamiltonian 2. The AK Model 2.1 Introduction 2.1.1 The Harrod-Domar model 2.2 The Frankel model 2.2.1 Basic setup 2.2.2 Three cases 2.3 An AK model with intertemporal utility maximization 2.3.1 The setup 2.3.2 Long-run growth 2.3.3 Welfare 2.3.4 Concluding remarks 2.4 The debate between neoclassical and AK advocates in a nutshell 2.5 An open economy AK model with convergence 2.5.1 A two-sector closed economy 2.5.2 Opening up the economy with fixed terms of trade 2.5.3 Closing the model with a 2-country analysis 2.5.4 Concluding comment 2.6 Conclusion 2.7 Literature Notes 3. Product Variety 3.1 Introduction 3.2 Endogenizing technological change 3.2.1 A Simple variant of the product-variety model 3.2.2 The Romer model with labor as R&D input 3.3 From theory to evidence 3.3.1 Estimating the effect of variety on productivity 3.3.2 The importance of exit in the growth process 3.4 Literature Notes 4. The Schumpeterian Model 4.1 Introduction 4.2 A one-sector model 4.2.1 The basics 4.2.2 Production and profits 4.2.3 Innovation 4.2.4 Research arbitrage 4.2.5 Growth 4.2.6 A variant with non-drastic innovations 4.2.7 Comparative statics 4.3 A multisector model 4.3.1 Production and profit 4.3.2 Innovation and research arbitrage 4.3.3 Growth 4.4 Scale effects 4.5 Conclusion 4.6 Literature Notes 5. Capital, Innovation, and Growth Accounting 5.1 Introduction 5.2 Measuring the growth of total factor productivity 5.2.1 Empirical results 5.3 Some problems with growth accounting 5.3.1 Problems in measuring capital, and the tyranny of numbers 5.3.2 Accounting versus causation 5.4 Capital accumulation and innovation 5.4.1 The basics 5.4.2 Innovation and growth 5.4.3 Steady-state capital and growth 5.4.4 Implications for growth accounting 5.5 Literature Notes 5.6 Appendix: Transitional dynamics Part II: Understanding the Growth Process 6. Finance and Growth 6.1 Introduction 6.2 Innovation and growth with financial constraints 6.2.1 Basic setup 6.2.2 Innovation technology and growth without credit constraint 6.2.3 Credit constraints: A model with ex ante screening 6.2.4 A model with ex post monitoring and moral hazard 6.2.4.1 Credit multiplier and R&D investment 6.2.4.2 Innovation and growth under binding credit constraint 6.3 Credit constraints, wealth inequality, and growth 6.3.1 Diminishing marginal product of capital 6.3.2 Productivity differences 6.4 The empirical findings: Levineâ¿¿s survey in a nutshell 6.4.1 Cross-country 6.4.2 Cross-industry 6.5 Conclusion 6.6 Literature Notes 7. Technology Transfer and Cross-country Convergence 7.1 Introduction 7.2 A model of club convergence 7.2.1 Basics 7.2.2 Innovation 7.2.3 Productivity and distance to frontier 7.2.4 Convergence and divergence 7.3 Credit constraints as a source of divergence 7.3.1 Theory 7.3.2 Evidence 7.4 Conclusion 7.5 Literature Notes 8. Market Size and Directed Technical Change 8.1 Introduction 8.2 Market size in drugs 8.2.1 Theory 8.2.2 Evidence 8.3 Wage inequality 8.3.1 The debate 8.3.2 The market-size explanation 8.3.2.1 Equilibrium prices and wages 8.3.2.2 Equilibrium profits and outputs 8.3.2.3 The substitution or scarcity effect 8.3.2.4 The market-size effect 8.4 Conclusion 8.5 Literature notes 9. General Purpose Technologies 9.1 Introduction 9.2 Explaining productivity slowdowns 9.2.1 General Purpose Technologies in the neoclassical model 9.2.2 Schumpeterian waves 9.2.2.1 The Schumpeterian model with labor as R&D input 9.2.2.2 The Helpman-Trajtenberg model 9.3 GPT and Wage Inequality 9.3.1 Explaining the increase in the skill premium 9.3.2 Explaining the increase in within-group inequality 9.3.2.1 GPT and the adaptability premium 9.3.2.2 GPT and the experience premium 9.4 Conclusion 9.5 Literature notes 10. Stages of Growth 10.1 Introduction 10.2 From Stagnation to Growth 10.2.1 Malthusian stagnation 10.2.1.1 Population and per-capita income 10.2.1.2 The effects of a productivity increase 10.2.2 The transition to growth 10.2.2.1 Agriculture and manufacturing 10.2.2.2 Wages and industrialization 10.2.2.3 Sustainable growth 10.2.3 Commentary 10.3 From capital accumulation to innovation 10.3.1 Human capital accumulation 10.3.2 Physical capital accumulation 10.3.2.1 The hybrid model 10.4 From Manufacturing to Services 10.5 Literature notes 11. Institutions and Technological Development 11.1 Introduction 11.2 Do institutions matter? 11.2.1 Legal origins 11.2.2 Colonial origins 11.3 Appropriate institutions 11.3.1 Some motivating facts 11.3.2 A simple model of distance to frontier and appropriate institutions 11.3.2.1 The set up 11.3.2.2 Two sources of productivity growth 11.3.2.3 Growth-maximizing strategy 11.3.2.4 Equilibrium institutions 11.3.2.5 Equilibria and non-convergence traps 11.4 Conclusions 11.5 Literature Notes Part III: Growth Policy 12. Competition and Growth 12.1 Introduction 12.2 From leapfrogging to step-by-step technological progress 12.2.1 Basic environment 12.2.2 Technology and innovation 12.2.3 Equilibrium profits and competition in level and unlevel sectors 12.2.4 The Schumpeterian and â¿¿escape competitionâ¿¥ effects 12.2.5 Composition effect and the inverted-U 12.2.6 Empirical evidence 12.3 Entry 12.3.1 The environment 12.3.2 Technology and entry 12.3.3 Equilibrium innovation investments 12.3.4 The effect of labor market regulations 12.3.5 Main theoretical predictions 12.3.6 Evidence on the growth effects of entry 12.3.7 Evidence on the effects of (de) regulating entry 12.4 Conclusion 12.5 Literature Notes 13. Education and Growth 13.1 Introduction 13.2 The capital accumulation approach 13.2.1 Back to Mankiw-Romer-Weil 13.2.1.1 The model 13.2.1.2 Development accounting 13.2.1.3 Discussion 13.2.2 Lucas 13.2.3 Threshold effects and low-development traps 13.3 Nelson-Phelps and the Schumpeterian approach 13.4 Schumpeter meets Gerschenkron 13.4.1 A model of distance to frontier and the composition of education spending 13.4.1.1 A toy model 13.4.1.2 Cobb-Douglas growth technologies 13.4.1.3 Back to Krueger and Lindahl 13.4.2 Cross-country and cross-US-states evidence 13.4.2.1 Cross-country evidence 13.4.2.2 Cross-US-states evidence 13.5 Conclusion 13.6 Literature Notes 14. Volatility and Risk 14.1 Introduction 14.2 The AK approach 14.2.1 The Jones-Manuelli-Stacchetti model 14.2.2 Counterfactuals 14.3 Short versus long-term investments: the AABM model 14.3.1 The argument 14.3.2 Motivating evidence 14.3.3 The AABM model 14.3.3.1 Aggregate volatility 14.3.3.2 Timing and payoff functions 14.3.3.3 Growth equation 14.3.3.4 Perfect credit markets and the opportunity cost effect 14.3.3.5 Cyclicality of R&D under imperfect credit markets 14.3.3.6 Credit constraints, volatility and growth 14.3.4 Confronting the credit constraints story with evidence 14.3.5 An alternative explanation for the procyclicality of R&D 14.4 Risk diversification, financial development and growth 14.4.1 Basic framework 14.4.2 Analysis 14.4.3 Equilibrium dynamics 14.5 Conclusion 14.6 Literature Notes 15. Trade, Productivity, and Innovation 15.1 Introduction 15.2 Preliminary: back to the multi-sector closed-economy model 15.2.1 Production and national income 15.2.2 Innovation 15.3 Opening up to trade, abstracting from innovation 15.3.1 The experiment 15.3.2 The effects of openness on national income 15.3.2.1 The selection effect 15.3.2.2 Scale effect 15.3.2.3 Backwardness 15.4 The effects of openness on innovation and long-run growth 15.4.1 Step-by-step innovation 15.4.2 Three cases 15.4.3 Equilibrium innovation and growth 15.4.4 Scale and escape entry 15.4.5 The discouragement effect of foreign entry 15.4.6 How trade can enhance growth in all countries. 15.4.7 How trade can reduce growth in one country 15.5 Conclusion 15.6 Literature notes 16. Environmental Policy 16.1 Introduction 16.2 The one-sector AK model with an exhaustible resource 16.3 Schumpeterian growth with an exhaustible resource 16.4 Environment and directed technical change 16.4.1 Basic setup 16.4.2 Equilibrium outputs and profits 16.4.2.1 Production with a given allocation of labor 16.4.2.2 The allocation of labor between clean and dirty production 16.4.3 Taxing dirty production 16.4.4 Equilibrium innovation 16.4.4.1 Innovation when only clean output is produced 16.4.4.2 16.4.5 Growth and the cost of taking dirty output 16.4.6 Evidence of directed technical change effects in the energy sector 16.4.7 Concluding remarks 16.5 Literature Notes 16.6 Appendix: Optimal Schumpeterian growth with exhaustible resource 17. Democracy and Growth 17.1 Introduction 17.2 Democracy, income and growth in existing regressions 17.2.1 Irrelevance results when controlling for country fixed effects 17.2.2 No apparent correlation between democracy and public policy 17.3 Democracy, entry and growth: a simple model 17.3.1 Production and profits 17.3.2 Entry and incumbent innovation 17.3.3 Politics and the equilibrium probability of entry 17.3.4 Main prediction 17.4 Empirical analysis 17.4.1 Data and regression equation 17.4.2 Basic results 17.5 Conclusion 17.6 Literature Notes 18. Conclusion 18.1 Summary 18.2 Open questions 18.2.1 Dynamics of institutions 18.2.2 Growth policy design 18.2.2.1 The Hausmann-Rodrik-Velasco approach 18.2.2.2 Back to growth regressions 18.2.2.3 Sectoral policy and the Kremer mechanism 18.2.3 Growth through the lens of development economics 18.2.4 Culture and growth 18.2.4.1 The Doepke-Zilibotti model Appendix: Basic Elements of Econometrics A.1 The simple regression model A.2 The Ordinary Least Squares (OLS) estimator A.3 Multiple regression analysis A.4 Inference and hypothesis testing A.5 How to deal with the endogeneity problem? A.6 Fixed effects regressions A.7 Reading a regression table References Problem Sets Indexes

Library of Congress Subject Headings for this publication:

Economic development.