Growth and Welfare
Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM
- Chair: John Van Reenen, Massachusetts Institute of Technology
Balanced Growth Despite Uzawa
AbstractThe evidence for the United States points to balanced growth despite falling investment-good prices and a less-than-unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that the introduction of human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We present a class of aggregate production functions for which a neoclassical growth model with capital-augmenting technological progress and endogenous schooling converges to a balanced growth path.
The Costs and Benefits of Leaving the Eurpoean Union
AbstractWhat would be the economic effects of the UK leaving the European Union on living standards of British people? We focus on the effects of trade on welfare net of lower fiscal transfers to the EU. We use a standard quantitative static general equilibrium trade model with multiple sectors, countries and intermediates, as in Costinot and Rodriguez-Clare (2013). Static losses range between 1.13% and 3.09% of GDP, depending on the assumptions used in our counterfactual scenarios. Including dynamic effects could more than double such losses.
A Unified Approach to Estimating Demand and Welfare
AbstractThe measurement of price changes, economic welfare, and demand parameters is currently based on three disjoint approaches: macroeconomic models derived from time-invariant utility functions, microeconomic estimation based on time-varying utility (demand) systems, and actual price and real output data constructed using formulas that differ from either approach. The inconsistencies are so deep that the same assumptions that form the foundation of demand-system estimation can be used to prove that standard price indexes are incorrect, and the assumptions underlying standard exact and superlative price indexes invalidate demand-system estimation. In other words, we show that extant micro and macro welfare estimates are mutually inconsistent, and neither is consistent with the data. We develop a unified approach to demand and price measurement that exactly rationalizes observed micro data on prices and expenditure shares while permitting exact aggregation and meaningful macro comparisons of welfare over time. We show that all standard price indexes are special cases of our approach for particular values of the elasticity of substitution, constant demand for each good and a constant set of goods. In contrast to these standard index numbers, our approach allows us to compute changes in the cost of living that take into account both changes in the demand for individual goods and the entry and exit of goods over time. Using barcode data for the U.S. consumer goods industry, we show that allowing for the entry and exit of products, changes in demand for individual goods, and a value for the elasticity of substitution estimated from the data yields substantially different conclusions for changes in the cost of living from standard index numbers.
- E1 - General Aggregative Models
- O4 - Economic Growth and Aggregate Productivity