Models of Economic Growth and their Implications

Question 1: Patents, vaccines and economic growth

Question 1

Responses to the urgent need for a vaccine during Covid19 pandemic have varied around the world. In March 2020 US President Donald Trump sought to get a German company to relocate to the US to give Americans priority access to the vaccine they were developing. In this regard, patents are very important in the pharmaceutical industry. Without them, or some equivalent intervention, the R&D would not take place.

 

Based on the models of economic growth that you learned in the first semester answer the following questions.

a) What type of market characterises the development, production and distribution of most vaccines and pharmaceutical drugs? [30%]
b) What model of economic growth includes the system of patents as part of the R&D process? Present such model and discuss the equations that you believe are relevant to support your argument.[35%]

c) The pharmaceutical industry is characterized by the process of “creative destruction”. In your own words, explain what this term means. Based on this definition, identify the winners and the losers in the short and long run.

Question 2

 

The Covid19 pandemic has created an unprecedented level of uncertainty in the global economy.  Businesses globally are still facing ed with restrictions and additional costs to ensure the safety of employees and customers.  These restrictions and additional precautions have placed additional difficulty in projecting the future performance of businesses, especially those reliant on heavy foot traffic such as retail and restaurants. Further, as more employers encourage employees to work from home, there is added pressure on the commercial real estate industry as firms recognize the ability to reduce office space. Based on the risk factors outlined above, it is expected there will be a significant increase in the cost of capital.

Given the above and based on the theories learned in the first semester 

a) Discuss the expected impact of Covid19 on investment. Present and explain the equations that you believe are relevant to support your answer. [50%] 
b) Focusing on the UK economy, compare the effects of the Covid19 crisis on investment with those related to Brexit.

Question 3

Explain the following sentence about the production model. 

a) Per capita GDP will be higher in countries that have high quantities of capital per person and use that capital efficiently.  [25%]
b) Describe the concepts of constant returns to scale in capital and labour and compare it to diminishing returns. What are the implications of diminishing returns in the empirical fit of the model? Present and discuss the equations that you believe are relevant to support your answer. 
[25%]
c) In the absence of differences in total factor productivity (TFP), the production model underestimates the differences in income across countries. Present and discuss the equations that you believe are relevant to support your answer. [25 %]
d) Explain the meaning of TFP. Why are some countries more efficient at using the capital and labour at their disposal than others?

Question 4

In a paper published in the Journal Economic Perspective, Aker and Mbiti argue that “Existing empirical evidence on the effect of mobile phone coverage and services suggests that the mobile phone can potentially serve as a tool for economic development in Africa.” (‘Mobile Phones and Economic Development in Africa’, JEP, 2010). Mobile phone is just one of many examples in which ideas invented in one place can, at least potentially, be used to increase income throughout the world.

Based on the models of economic growth that you learned in the first semester address the following.

a) What model of economic growth can exploit the concept of non-rival ideas? Report and discuss the equations that you believe are relevant to support your argument. [35%]
b) In terms of overall economy, what are the consequences of having ideas that can be used by everyone? Present and discuss the equations that you believe are relevant to support your argument.   

c) Explain why the discovery of new ideas can provide a theory of sustained growth. Present and discuss the equations that you believe are relevant to support your argument.