May 2008

Nobel Laureate Amartya Sen writes about the food crisis in an Op-Ed in the New York Times today.

"There is also a high-tech version of the tale of two peoples. Agricultural crops like corn and soybeans can be used for making ethanol for motor fuel. So the stomachs of the hungry must also compete with fuel tanks."

As usual onFridays, from  Raj Nallari and Breda Griffith's lecture notes.

Theoretical considerations of gender inequality and economic growth (3)

Endogenous growth theory in particular provides a framework for analyzing the effects of gender inequalities on economic growth.  Endogenous growth theory arose from a seminal paper by Romer (1986) that challenged the main assumption of the neo-classical growth model, i.e. the law of diminishing returns.  Because of diminishing returns to a factor, the per capita growth rate was zero. Furthermore, the law of diminishing returns also implied that poor countries grew faster than rich countries and economies grew faster the farther they were from their steady state. Romer used the 1982 Summers and Heston data set to show that a regression of the growth rate of 114 countries on their initial level of income gave a positive coefficient.  This finding was in stark contrast with the neo-classical model that suggested that a regression of the growth rate on the initial level of income would give a negative coefficient. Romer’s conclusion was that the neo-classical model did not fit the data and, furthermore that it was intellectually unsatisfactory.  In contrast, endogenous growth theory that assumes constant returns to a factor, finds no automatic relationship between how poor an economy is and how rich it can grow. Disparity between countries is allowed to persist and does not disappear as suggested by the neo-classical growth model.