The Science of Everything Podcast Episode 106: Theories of Economic Growth and Development
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May 31, 2020 A fast tour through major theories of economic development from Harrod-Domar to modern endogenous growth. Short takes on capital-driven models, diminishing returns, and knowledge spillovers. Discussion of coordination failures, poverty traps, and how institutions, migration, and market size shape divergent growth paths.
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Model Savings With Household Optimization
- Endogenize savings by modelling household utility to understand policy effects on investment.
- James Fodor highlights the Ramsey model as the micro-founded way to derive an optimal savings rate via consumer intertemporal choice.
Knowledge Spillovers Can Reverse Diminishing Returns
- Endogenous growth adds knowledge spillovers so technology growth links to economic scale and investment.
- Fodor presents Romer’s learning-by-doing externalities producing constant returns and scale effects, but empirical issues remain.
Multiple Steady States Create Poverty Traps
- Coordination failures create multiple steady states so identical economies can end up either rich or poor.
- Fodor defines steady states and shows how nonlinear feedbacks produce several equilibria (high-income vs low-income traps).