Welcome

Anti Essays offers essay examples to help students with their essay writing.

Sign Up

Growth Theory Through the Lens of Development Essay

Open Document

Below is an essay on "Growth Theory Through the Lens of Development" from Anti Essays, your source for research papers, essays, and term paper examples.

Growth Theory through the Lens of Development Economics Abhijit Banerjee and Esther Duflo Massachusetts Institute of Technology

Abstract Growth theory traditionally assumed the existence of an aggregate production function, whose existence and properties are closely tied to the assumption of optimal resource allocation within each economy. We show extensive evidence, culled from the microdevelopment literature, demonstrating that the assumption of optimal resource allocation fails radically. The key fact is the enormous heterogeneity of rates of return to the same factor within a single economy, a heterogeneity that dwarfs the cross-country heterogeneity in the economy-wide average return. Prima facie, we argue, this evidence poses problems for old and new growth theories alike. We then review the literature on various causes of this misallocation. We go on to calibrate a simple model which explicitly introduces the possibility of misallocation into an otherwise standard growth model . We show that, in order to match the data, it is not enough to have misallocated factors: there also needs to be important fixed costs in production. We conclude by outlining the contour of a possible non-aggregate growth theory, and review the existing attempts to take such a model to the data. JEL numbers O0, O10, O11, O12, O14, O15, O16, O40 Keywords: Non-aggregative growth theory; aggregate production function; factor allocation; non-convexities.

Growth Theory through the Lens of Development Economics
Abhijit V. Banerjee and Esther Duflo∗ December 2004

1

Introduction: Neo-classical Growth Theory

The premise of neo-classical growth theory is that it is possible to do a reasonable job of explaining the broad patterns of economic change across countries, by looking at it through the lens of an aggregate production function. The aggregate production function relates the total output of an economy (a country, for example) to the aggregate amounts of labor, human capital...

Show More


Citations

MLA Citation

"Growth Theory Through the Lens of Development". Anti Essays. 14 Dec. 2018

<http://trenmayamx.com/free-essays/Growth-Theory-Through-The-Lens-Of-728948.html>

APA Citation

Growth Theory Through the Lens of Development. Anti Essays. Retrieved December 14, 2018, from the World Wide Web: http://trenmayamx.com/free-essays/Growth-Theory-Through-The-Lens-Of-728948.html