Why does the economy grow?

Growth theory has always been one of the important pillars of western macroeconomics, at least in the same position as consumption, investment and economic cycle theory. However, the development of growth theory is not smooth sailing, and sometimes there are breakthrough innovations. Helpmann, a professor at Harvard University, wrote the book The Secret of Economic Growth, which made a very accurate and brief summary of the evolution of economic growth theory. Most importantly, this is a brochure. When a large number of economic works fill our eyes and give us pressure, such a small book with a thickness of less than 150 pages is like frozen lemon tea in summer, giving people a relaxed and pleasant reading experience.

As my friend Dr. He Fan said, this is not a popular science book for outsiders. Although there are no formulas and patterns in the book, Helpmann expresses his profound thoughts in concise and easy-to-understand words. If there is no accumulation of relevant knowledge, you can understand this book, but in your eyes it is just an unremarkable product. If you read this book on the premise of understanding the growth theory, you will have a sense of satisfaction and clarity.

The book begins with the question: Why does the economy grow? Why are the economic growth rates different in different countries? The above problems have always been the goal pursued by economists. In Solow's first generation economic growth model, the most important factor is the accumulation of material capital and human capital. With the population growth rate unchanged, the accumulation of material capital has become the most critical factor to determine the economic growth rate. Countries with high savings and investment rates are bound to grow faster, which is the root of the miracle of economic growth in East Asian countries from 65438 to 0997.

In the process of growth accounting, economists find that total factor productivity plays a more important role than material capital and human capital. We often use labor productivity or technology to replace the concept of total factor productivity. Labor productivity is more important than capital and population growth rate, which is the basis for Krugman to judge the lack of sustainability of economic growth in East Asian countries. However, the original growth model assumes that the labor productivity of each country is exogenous.

Romer and Lucas' second-generation economic growth model internalizes technology (labor productivity). Romer believes that the accumulation of knowledge is external, so there is the possibility of increasing returns to scale, which can offset the decline of marginal productivity of capital, so that the gap between the rich and the poor between countries is not narrowed but gradually widened. Lucas believes that because the protection of patents by society cannot be complete, the efforts of enterprises to increase R&D expenditure will also produce externalities. In a word, technology is not only the main reason for the sustained economic growth, but also the main reason for the widening income gap among countries.

Once we look at economic growth from a global perspective, the relationship between trade and growth will naturally arise. Trade may not only promote growth, but also hinder Egypt's growth. But most economists prefer the former. The income gap will inevitably appear in the process of growth. Will growth widen or eliminate this gap? Will the existence of income gap promote or hinder growth? These are inconclusive questions.

Finally, in addition to economic factors, it is still institutional factors that determine growth. Although institutional factors are difficult to quantify, so it is difficult to calculate growth, economists have made innovative efforts and made some progress. In the process of determining economic growth, the influence of institutional factors is greater than economic factors, which is one of the few understandings reached so far.

Helpmann wrote in his book that there are two periods of rapid growth in global economic development. The first period was from 1870 to the first world war, and the second period was from the second world war to 1973 before the oil crisis. In the first period, the G-7 countries rose, and in the second period, some countries in East Asia rose economically and entered the ranks of OECD countries. China missed these two golden periods. How can this not be regrettable?

The speed of growth is important, but the efficiency and cost of growth are the most important. Economic growth should not be at the expense of distorted resource allocation. All income groups should enjoy the fruits of growth. Although China's economy has achieved an average annual economic growth rate of more than 9% since the reform and opening up, the above problems were lacking in China's past economic growth. Whether these problems can be solved is the key to China's sustained high-speed economic growth and great rejuvenation.