Transcript
Factor Market IntegrationGrowth
Lecture 6
Last Week
Costs & BenefitsOCA Theory
Capital Market Integration
capital
MPK
payment to home labour
K0
r0
payment to home
capital
• MPK = marginal productivity of capital• Total output = area underneath MPK curve
• Capital owner get r × K
• Labour gets the rest
rMPK(K=1)
K=1
Microeconomics of Capital Market Integration
r’
r0*
r0
r’
K0 K0* K0+K0*
K’
MPK
MPK* MPK
MPK*
1 2 3 4 5 6 7 8 9 10 11 10 9 8 7 6 5 4 3 2 1
C D FMPK
MPK*
MPK*
MPK
MPK
r0
r’
r0*r’
BA
p p’
K’
K0 K0* K0+K0*
Total Gains = B + C
G H
IJ
Welfare Effects of Capital ‘Migration’
Labour Market Integration: Simplest Framework
Labour market integration
The same analysis applies as before: welfare increases by B+C.
6
Washington DC
May 15, 2006
Rainer Muenz
Migration from and to Europe
Net migration rates of European countries,1950-1960per 1,000 inhabitants
Europe: emigration and immigration
1950--1960
Net migration rates of European countries
8
Washington DC
May 15, 2006
Rainer Muenz
Migration from and to Europe
Net migration rates of European countries,1990-2000per 1,000 inhabitants
.
unter -75 (4)
-75 bis 0 (13)
0 bis +75 (24)
über +75 (1)
Europe: emigration and immigration
1960--1990
Net migration rates of European countries
8
Washington DC
May 15, 2006
Rainer Muenz
Migration from and to Europe
Net migration rates of European countries,1990-2000per 1,000 inhabitants
.
unter -75 (4)
-75 bis 0 (13)
0 bis +75 (24)
über +75 (1)
Europe: emigration and immigration
1990--2000
Net migration rates of European countries
Idea
Logic of Growth Effects
Summary
European integration (or any other policy)
→ Allocation effect
→ Improved efficiency
→ Better investment climate
→ More investment in machines, skills and/or technology
→ Higher output per person.
European Growth Phases, 1890-1992
Period Real GDP Real GDP/Capita
Real GDP/Hour1890-1913 2.6 1.7 1.6
1913-1950 1.4 1.0 1.9
1950-73 4.6 3.8 4.7
1973-1992 2.0 1.7 2.7
Whole Period
1890-1199
2.5 1.9 2.6
Solow Model
Solow Diagram
Induced Capital Formation
Integration Induced Investment Rate Rise
Long-Term Growth Impact of Integration
K/L =Knowledge/L
euros/L
GDP/L
s(GDP/L)
δ(K/L)
Y/L*
K/L*
B
A
s’(GDP/L)
Integration improves efficiency → improves investment climate → higher investment rate (s rises to s’) → faster growth (knowledge capital accumulates more rapidly)
C
Summary
Markets ever more integrated
Growth Effects Matter
Next Week
The Common Agricultural and Fisheries Policies, history,
theory, and analysis.
El-Agraa, A.M., The European Union: Economics and Policies, 6th ed., pgs. 232–261, 337.142
AGR.
top related