Global Marshall Plan by Yunker James A.;

Author:Yunker, James A.;
Language: eng
Format: epub
ISBN: 9780739192313
Publisher: Lexington Books

where PT is the terminal year population, P0 is the initial year population, T is the number of inclusive years between 0 and T, and g is the constant rate of geometric growth, g is computed as:

For purposes of the validation simulation, the observed population figures for the nations are utilized. For the policy simulations, the populations of the nations after 2010 must be estimated. The geometric growth rate of population between 1980 and 2010, as computed by (3.35), provides the initial value of this parameter. Population for each nation from 2010 to 2060 is calculated from the population growth equations (3.30)-(3.31). The benchmark γ is set equal to zero, implying no change in the growth rates of population across nations between 2010 and 2060. Just as reductions in military spending would improve the success prospects of a Global Marshall Plan, so too would reductions in population growth. In fact, population growth rates have been declining somewhat for most nations over the recent past. Nevertheless, it would be unduly optimistic to build this trend into the policy simulations by specifying the benchmark γ value to be a negative number.

Two parameters occur in equation (3.33), which represents growth in the generalized capital stock K of a nation: δ is a standard depreciation factor, and χ is the proportion of a nation’s share S in the global transfer function that is effectively converted into generalized capital (the “conversion effectiveness coefficient”). Unfortunately, there is no empirical basis for either of these parameters. Physical depreciation is rarely taken into account in studies pertaining to aggregate capital accumulation (i.e., capital accumulation at the national level). In most macro-econometric models, equations such as (3.33) are considered definitions (identities) not to be estimated. Obviously, physical capital does depreciate, but modeling of this factor is apparently more successful at the individual firm level than at the national level. The benchmark value for δ is therefore 0, indicating that physical depreciation is not taken into account in the benchmark case.

As for the conversion effectiveness coefficient, χ, there is obviously no empirical basis for this since no such thing as a Global Marshall Plan has ever been attempted in the real world. In the absence of such a program, no empirical basis exists for estimating the value of this parameter. The benchmark value for χ is 1, indicating full conversion of share amount into generalized capital. Clearly this is a very optimistic assumption, as is the assumption that physical depreciation does not apply to the stock of generalized capital (δ = 0). The effect of less optimistic assumptions (δ > 0 and χ < 1) will be investigated in sensitivity analyses, as reported in Chapter 4 below.

Table 3.3

GMP Model Benchmark Parameter Values

Symbol Explanation Value

α* adjusted elasticity of output with respect to generalized capital 0.2

ν degree of homogeneity of Cobb-Douglas production function 1.0

k1 initial-period ratio of generalized capital to output in richest nation 25

ξ K differential vs. A differential coefficient (source of per capita income differentials) 0

τ0 initial-period rate of change of disembodied technological progress (A coefficient) 0.

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