MEcon Master of Economics Master of Economics: Economic Growth 3

Question 1

What is 'conditional beta convergence' in the empirical growth literature?

Accepted Answer

Poor countries grow faster than rich ones only after controlling for determinants of each country's own steady state

Answer

Conditional beta convergence holds that a country's growth rate is negatively related to its initial income gap relative to its own steady state, not relative to other countries' steady states.

Question 2

In a two-sector endogenous growth model with physical and human capital, a 'balanced growth path' requires:

Accepted Answer

Both physical and human capital grow at the same constant rate, keeping their ratio constant

Answer

A balanced growth path (BGP) requires all growing variables to grow at constant rates; in a two-capital model this means physical and human capital must grow proportionally to keep the capital ratio stationary.

Question 3

How does the 'curse of natural resources' (resource curse) relate to economic growth theory?

Accepted Answer

Resource-rich countries often exhibit lower long-run growth, possibly due to Dutch disease and institutional deterioration

Answer

The resource curse describes the paradox where resource-abundant countries often underperform, attributed to Dutch disease effects on tradable sectors and rent-seeking that weakens institutional quality.

Question 4

In the Arrow (1962) learning-by-doing model, productivity growth arises from:

Accepted Answer

Productivity improvements that spill over from cumulative investment experience across the economy

Answer

Arrow's model assumes firms become more productive as they accumulate investment experience, but since spillovers make this knowledge non-rival and non-excludable, growth is a by-product of investment rather than intentional innovation.

Question 5

What is the role of 'social capital' in augmented growth models?

Accepted Answer

Trust, norms, and networks reduce transaction costs and improve the efficiency of resource allocation, boosting TFP

Answer

Social capital (Putnam, Knack & Keefer) is incorporated into growth models as a determinant of total factor productivity, operating through reduced transaction costs, better contract enforcement, and cooperative behavior.

MEcon Master of Economics Practice Test

MEcon Master of Economics Practice Test

MEcon Master of Economics Master of Economics: Economic Growth 3