The University of Alberta DEPARTMENT OF ECONOMICS Technology, Institutions, and Economic Growth Rick Szostak Winter 2001 Tory 9-13F, 492-7645 Office Hours: Tues, Thurs 3:30 - 4:30 (or talk to me after class) The purpose of this course is to provide a survey of the causes and consequences of economic growth. The survey will be very broad, touching not only on the efforts of a wide range of economists, but also on insights from other disciplines. There is no appropriate textbook for this course. The instructor has compiled a very accessible package of readings, which together cover most of the key questions to be addressed. This package is available in the bookstore. Students must nevertheless realize that the lecturer will cover a great deal of material not dealt with in the readings (the instructor will also guide the student through the (few) more difficult readings). Grading Mid-Term Exam Thursday March 1 25% Book Review due Thursday, March 22 25% Final Exam Thursday, April 19, 9:00 am 50% A penalty of 1% per day (of the course grade), will be imposed on late book reviews without exception. Book Review For the book review, the student will select a book related to the course material (economic growth, methodology, technology, or institutions). Books should have been published within the last decade. Students must have instructor approval of the book they choose, and must relate it to the subject matter of the course in their review. The review should be about ten typed pages in length. Reviews must include a description of the main points raised by the book, a critique of the conclusions drawn by the author(s), and a discussion of the relationship of this work to the broader literature. You must discuss whether assumptions made and (especially) conclusions drawn are justified. The key to getting a good mark on the book review is analysis; simply telling me what the book says will not do. Students should be clear in their reviews as to when they are presenting the author's view and when they are presenting their own. While most of the grade will be based on content, points will be deducted for poor grammar. (I am one who believes that university students should be able to construct sentences.) Course Outline and Reading List I. In section I we survey some key elements of formal economic theory and empirical work a. Formal Growth Theory — How has formal growth theory evolved in recent decades? — What insights does it provide about the causes of growth? — What elements does it ignore? (many) Readings: "The Poor and the Rich", The Economist, May 25, 1996, 23-5, "The Renaissance of Economic Growth Research", excerpt from Brian Snowdon and Howard R. Vane, Conversations With Leading Economists 1999, pp.60-87 Nelson, Richard R. "Introduction" in the Sources of Economic Growth, 1996, pp.1-6 b. Convergence/Divergence — Do the rich get richer, or do poor countries catch up? Reading: Barro, Robert J. "Economic Growth in a Cross-Section of Countries", Quarterly Journal of Economics, 1991, pp.407-443 c. Convergence Within Countries — What is the relationship between growth and inequality? Reading: Barro, Robert J. "Inequality and Growth in a parcel of countries", Journal of Economic Growth, March 2000, pp.5-32 (not in our library) d. Growth and Fluctuations — What is the relationship between economic growth and business cycles? (and inflation) Readings: Taylor, John, "Stabilization Policy and Long-Term Economic Growth" in R. Landau, T. Taylor, and G. Wright eds., The Mosaic of Economic Growth, 1997, pp.125-49 Solow, Robert, "The Role of Macroeconomic Policy" in J. Fuhrer and J. Little eds., Technology and Growth, 1996, pp. 298-301 e. Growth and Trade — Does openness to trade encourage growth? f. Characteristics of Economic Growth — What other developments are generally associated with economic growth? II. We will have had some cause to notice the limitations of formal economic analysis in section I, and will discuss in this section the possibility of expanding the scope of our analysis of economic growth. a. Methodology — (How) can we supplement the insights gleaned from the theory and methods surveyed in section I? (by, for example, using 'evolutionary' theory or different methods) Reading: excerpts from Szostak, Rick, Econ-Art: Divorcing Art From Science in Modern Economics, 1999, pp.149-69, pp.185-8 b. Growth and Ethics — Is growth good? (we will focus on cultural and environmental side-effects, as well as implications for leisure) Readings: excerpts from Szostak, Rick Unifying Human Ethics (unpublished ms., 2000), pp. 424-440 Ekins, Paul "Growth, Limits to", pp.289-97 in Warren Samuels et al, ed. The Elgar Companion to Institutional and Evolutionary Economics (not in our library) III. Technological innovation is widely recognized as the major proximate cause of growth: we are many times better off materially than our great grandparents primarily because we have developed better processes and products. But we know less than we could both about the causes of technological change, and how exactly it affects the wider economy. a. General observations on the causes of technological change — What factors are conducive to technological innovation? — What factors affect the direction of innovation? — What factors affect the rate of diffusion of an innovation? Readings: Mowery, David C and Rosenberg, Nathan, Paths of Innovation: Technological Change in 20-th Century America, ch.1, pp.1-10 Mokyr, Joel The Lever of Riches, 1990, ch.7, "Understanding Technological Progress", pp.151-93 "Theory of Technology", pp.320-5, in Samuels, ed., Elgar Companion Grossman, Gene N., "Discussion" in Fuhrer and Little eds., Technology and Growth, 1996, pp.83-9 b. Public policy and technology — Can/Should we affect the course of technological innovation? — What role do patents play? Reading: Mowery, David, "The Practice of Technology Policy", pp.513- 557 in Paul Stoneman, ed., Handbook of the economics of innovation and technological change, 1995 c. Technology and Employment — Does innovation occur evenly through time? (no) — Do different types of innovation have different impacts on employment? (yes) — Do these impacts vary over the short versus long term? (yes) Reading: Szostak, Rick "Technological Innovation and the Causes and Cures for Unemployment", Policy Options, July/Aug, 2000, pp.30-2 d. Technology and Trade — How does technological innovation affect trade flows between nations? — How does a nation's openness to trade influence innovation? Reading: Krugman, Paul, "Technological Change in International Trade", pp.343-65,in Paul Stoneman, ed., Handbook of the economics of innovation and technological change, 1995 e. Other Topics — technology and science — human creativity — technology and health — technology and the Third World — technology and investment IV. Institutions fit poorly into formal models and most sorts of empirical research. Yet the types of governments, regulations, public policies, educational systems, firms, and worker incentives (among many other institutions) which exist undoubtedly have a huge impact on economic growth. a. General — What are institutions? — How are institutions chosen? (is there a tendency toward 'better' institutions?) — Can we identify general 'rules' of institutional change? — How important are institutions? — Which institutions are most important? — How have economists studied institutions? Readings: North, Douglass C. "Institutions", Journal of Economic Perspectives" Winter 1991, pp.97-112 Alston, Lee J. "Empirical Work in Institutional Economics: An Overview" in Alston, Eggertson, and North, eds., Empirical Studies in Institutional Change, 1996, pp.25-30 Samuels, Warren, ed., The Elgar Companion to Institutional and Evolutionary Economics (not in our library) — "Institutionalism Old and New", pp.397-402 — "Institutions", pp.402-406 — "Routines", pp.249-253 — "Rules", pp.253-263 b. Political Economy — How does the political process generate economic institutions? Reading: North, Douglass and Weingast, Barry "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England" Journal of Economic History, Dec 1989, pp.803-32 c. Property Rights and Markets — How important are property rights to economic growth? — How best should we protect property rights? — How should governments treat markets? Reading: Libecap, Gary Contracting For Property Rights, 1989, chs.1,2, pp.1-28 d. Labor Markets —(How) do institutions affect the aggregate productivity of labor? Reading: "Labor markets", pp.1-7, "Worker participation", pp.385-91 in Samuels, ed., The Elgar Companion to Institutional and Evolutionary Economics (not in our library) e. Firms and Industries We will first look at how firms and industries (must) rise and fall in the growth process, and then discuss how institutions affect this process. Reading: Harberger, Arnold C., "A Vision of the Growth Process", American Economic Review, March 1998, pp.1-32. f. Education and Transport — How important are these, and how do/should societies encourage developments here? Reading: Szostak, Rick, "The Economic Impact of Road and Waterway Improvements", Transportation Quarterly, Fall 1996, pp. 127-42 V. The Course is focussed on a broad study of economic growth for all times and places. Nevertheless, we will close by applying what we have learned to contemporary questions concerning the 'new economy' and 'productivity slowdown'. Readings: 4 one-page articles from the Economist and Globe and Mail. Econ 222-B1, Course Outline, Winter 2001 Rick Szostak (222b1jan2001-co-rsz Page 1