Lucas on Growth
By Arnold Kling
Robert E. Lucas, Jr. (Nobel, 1995), sounding much like Brad DeLong, gives a historical overview of economic growth which is Malthusian up until around 1800 (meaning that population growth ate up, so to speak, increases in production), followed by a steadily increasing standard of living. The theory Lucas uses to tie together these two disparate growth patterns and to explain the transition between the two is Gary Becker’s (Nobel, 1992) theory of quality vs. quantity of children.
Technological advances occurred that increased the wages of those with the skills needed to make economic use of these advances. These wage effects stimulated others to accumulate skills and stimulated many families to decide against having a large number of unskilled children and in favor of having fewer children, with more time and resources invested in each. The presence of a higher-skilled workforce increased still further the return to acquiring skills, keeping the process going.
Lucas goes on to argue that trade rather than aid is the solution to bringing growth to underdeveloped countries.
For backward economies, dealing on a day-to-day basis with more advanced economies is the central element in success. [Trade addresses] the need to get up to world standards, to learn to play in the big leagues. The only way learning and technology transfer can take place is for producers to compete seriously internationally. Learning-by-doing is perhaps the most important form of human capital accumulation.
…of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.
For Discussion. In addition to trade barriers, what internal “barriers to riches” (to use Parente and Prescott’s term) account for the slow rate of knowledge transfer to underdeveloped countries?