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OSU / Economics / ECON 4140 / Define law of diminishing returns.

Define law of diminishing returns.

Define law of diminishing returns.


School: Ohio State University
Department: Economics
Course: Economic History of the Americas
Professor: Ethan doetsch
Term: Fall 2016
Tags: Economics and history
Cost: 25
Name: Econ 4140 Week 1-2
Description: Notes for first two weeks of the semester. May not be as clear as following weeks because they were before I accepted a note taking position for another student. I earned a 99% on the first midterm for this class, a 97% on the second.
Uploaded: 12/05/2016
8 Pages 37 Views 4 Unlocks


Define law of diminishing returns.

Exams based on lecture ONLY


Date 8 24

• US GDP per capita has a x60 since 1700

o Brazil & Mexico x14 , Hat 1.75*

→ Global x12 o you get rich when your farmers become manufacturers

• Nes classical Growth Model

Define geography.

y = f(K,L) real GDP factors of Production





& Law of Deminishing Returns if other ç'as LÀ Yat a decreasing rate varicbia .as K7 Yi at a decreasing rate Don't forget about the age old question of What is the matched pairs experiment?



Define institutions.



• Cobb-Douglas Specification

output= AKO 13 => AK L'* - assuming constart returns to scale

q=p=1>P=1-6 d = output elasticity of capital

=%A4%AK p = Output elasticity of labor If you want to learn more check out What are planned contrasts in anova?

B = %Y%AL - also assuming perf. compet. markets If you want to learn more check out What is bask reflected glory?

d=share of out put that goes to capital owners

B = labor share of output *X-U.S. 6=0.3 B =0.7'

☆ historically rather stable; little A Don't forget about the age old question of How many west point graduates fought for the confederacy?

Study SOU

- Date 8 26 16 If you want to learn more check out Is tongue rolling homozygous or heterozygous?

Y=AKALB Cobbs - Douglass cont.

YL = output per worker Ciabor productivity)

YIK = out put per unit of capital (capital productivity

GA L B total factor productivity (TFP) take not. log

InY= luat aluk & Blut If you want to learn more check out How are viruses adsorbed onto the surface of their cognate host cells?

luy-lul = lu Ataluk +Phul-lul

ha (1/2) = hataluk + (1-0) Aal-lul de output per worker

lu (1/2) = A + alik-alul 4/= cap / labor ratio

y luA + 2(lank-enh]

hall/L) = huA talu (1/2) = derrive

A/W =






growth rate


route of labor

of capllab ratio xa

of TFD


& There are a ways to grow output of labor

1. 1 TEP ()

2. 9 capital por worker (Capital Deepening)

•Calcuccting TFP


TEP represents innovation + technological growth in part

there are other factors; things we don't know - everything that influences ec. growth that is not

capital deepening - historically largest contributor to ec. growth

26 16

Date 8 y growth is driven by TFP, better use of capital + labor

Lespecially in mid-20th century (1930s - 1960s)

• but like...how do you ITFP

- tech. A, more know ledge, innovation - division of labor + specialization - economies of scale'

as q↑ ATCL - resource allocation organization

ex. Homestead Act - human capital

skills, abilities of workers

• better education or health


-British NA

relatively poor

fewer slaves

- Saint Domingue (Hati)

-> sugar > $$$ La relatively rich

mostl slaves tho

study soul



- USA, Canada

- Hati relatively rich

Irelatively How did this happen?

Ly next page!


Study sou




Calt. IDK man I think Date 8 29 16

Inst. it might be as simple as

"places that got colonized Theories of very-Long-Run Economic Growth got fucked.com

4 Geography

8/31 damn lol I was

X-climate + worker effort/productivity

Loheat thumidity productivity 4 the Great Reversal

most prospurous places are hot in 1500

today, it's the reverse generally - Diamond "Guns, Germs + Steel

. - agriculture

•Eurasia is first to farm

Lolots of biodiversity domesticated

E-W axis tilt reasy transfer of tech, al climate ..so why not China?

4. Industrial Revolution (Asia came late) 107-Disease Border

•mosquitoes are humanity's worst erlemy


•v investment in human capital

-ya don't live long enough

• sort of true- at least in Sub-Sahasen Africa

Labut can't explain everything 2) Culture

X-Religion "Weber Thesis."

Co calvinism → capitalism nec. growth

- world is black & white, saved unsaved

-"live your calling" "vocation

s - work hard, be saved; don't show off ec. growth bunemployment = corrupt

- -no luxuries *BUT 360 y bt take-off

a savings



Date 8 © Culture (cont.)

X- National Origins

• English colonies are doing well

"-India, bruh. what the fuck kind of

( 3.) Institutions - Structure human interactions, recles of society

•war, crime

s must be STABLE

o-economic institutions

property rights - assets + income go to owner

legal situations must be STABLE

riskl benefits of adding capital -"Good" Economic Institutions,

i. Secure property right: ii, equced access to ecor.omic resources

need many ppl to invest

iij. inclusive, not exclusive

v derermined by -"Good" Political Institutions

i. checks balances ii. pol. power → broad groep wat investment opportunities di limited "rents"

4 monopolies, competition = ppl aven't trying to use govt to get rich

greedy rich people ruin everything

Study Sou


"Korean Experiment"

Date 8 31 16

North Korea South Korea

• property no property/geog

rights & culture

• free market . mo markets

democracy dictatorship


- NK is poor

SK is rich

institutions explain


Africa S. America

N. American


"Colonial Experiment" - former European Colonies

* mortality of Euro Settlers - Selliement | Extractive Carribbeans die easier in tropics

erica don't settle low mortality I high mortality

wes= milder climates similar obring Euro laws . do not bring laws Australia to Euro; low mortality good pol. =

poor bad institutions L

Ļ settle

ec. institutions ? democracy

*built on violence *more examples: • Kill natives but which state power - Carribbean, S. USA, Brazil y know at least the forced labor

chattle slavery

economy is poppin' *0%. "ecomiendan system -Belgian Congo

brights to land AND

native labor forced labor on rubber plantations

(Spanish Mexico) chopping off arms for low productivity

☆ Colonial institutions continue after independence -> Why?

1. Changing institutions is expensive

4 revolutions are rare 2. Local Elite still in charge, benefit from bad institutions

u don't change their 3. Complimentary investments to institutions

's you got all this capital in slaves, who give it up * Settlement colonies get rich * Extractive colonies Stay poor

Date 8 31 16 error term

✓ random noise v= Bo+B, PR +ů - Omi Hed variables


! Study Soun


GDP per capita

• Slope = B, -




Definitions - Prop. Rights o cov(x,y)=E((x-8)(y-7))

1. - x^. yf; y^ , x9 Posi assume cov (PR, 4) = 0

3 coulx,y)

- xdre yd i yt, xd so y-Be + B, BR+

-*, yt, xt, y9

o cor(x,y) 20 Negative Covly, PR) = ccrlbg, PR]+ B cov(PR, PR]+ caule PR) - cov(x,y)=0 Covly,PR)= B, var(PR)

4x+y not related tovar(x)=E((x-x) 2)

{ variance of x var (PR)

B = how much does A in PR so in English this means... effects ing.

of slope is how y + PR more together/ how much PR varies

*AJR: B; → 1 unit A PR >5041 iny * of course, OLS is not convincing

- ble it's only correlation, correlation causation

© reverse causality bald = marriage or marriage = baid

@ omitted variable sage * -50 maybe 94 → TPR blc poor people have no property to

protect, while rich people do - or 3rd mystery variable

B, = Covly, PB)

Study soup

Date 9 o omitled variable

·cov (U, PR)+ 0 violates our assumption

couly, PR) = Bivar (PR) + covku,PR)

Bi= covly, PR)-coulu, PR)- > omitted variable bias

var (PR)


night either şunless z kanou a to

be random


Potential Solution to OVB.

Z → PR y >> instrumental variable

COV (2, PR) 20 } if z1, & then y^, PRY CoV (2, u) = 0 s but you can't prove this right either sunt

LA,J,R's 2 = Settler mortality

treated as random, so corla, z) -O

I O by

V ASSUMITIONS cov ly, mort) = cov ko, mort) +3, cov (PR, mort)+coyla, mort)

- covly, mort) I Bi= cov (PB, mort) colonization isn't random tho

if cov(2, u) #0

1 couly, mort) - couca, mort)

COU (PR, mort) Strike.ex. there IS NO CORRELATION btwn mort + PR cov(PR, mort) -0

Albouy we have bad data on mortality

1. SAJ, R filled in gaps on their own? Curiked - you can fill in gaps another way, t covipo, mort) = 0

•ex, coulú , mort) $0

-ignores human capital, reason for colonization

Settlement colonses get big boost from human capital - property rights don't matter, human capital does

Laeser ex, con

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