## Professor Meade on Economic Growth

Professor Meade on Economic Growth' By GEORGE H. BORTS Professor Meade's analysis of economic growth is a substantial advance over the growth models which have appeared in the last decade. The core of the analysis, compressed into a fifty page mathe-matical appendix, will be read by students for many years. It is the

## Meade's Model of Economic Growth (With Diagram)

The main feature of Meade’s model is that it lays stress on effect of population growth, capital accumulation and technological progress in determining the growth rate of national and per capita income. This model also provides a deep insight into the mechanism of steady growth and the developing country like India who cherish to achieve it, could get a relief through it.Estimated Reading Time: 9 mins

## All that is Economics: Meade's neo-classical model of growth

Oct 09, 2012 · Meade's neo-classical model of growth. Prof J.E.Meade has constructed a neo-classical model of economic growth which is designed to show the way in which the simplest form of economic system would behave during the process of economic growth.Estimated Reading Time: 7 mins

## James Meade's Contribution to Economics

Economic Policy While James Meade, like most outstanding theorists of all times and places, has contributed to a great number of the lively current controversies in economic theory, his claim to have made an important contribution to the development of economic science rests …

## J.E. Meade Model Economic Growth PDF Economic …

J.E. Meade Model Economic Growth - View presentation slides online. Economic Growth

## Meade’s Neoclassical Model of Economic Growth Economics

In his book, “A Neoclassical Theory of Economic Growth’, Prof. J.E. Meade has put forward a model intended to explain the process of equilibrium growth (i.e., the steady-state growth). In fact, the model attempts to analyze the manner in which the simplest type of classical system would behave under the conditions of equilibrium growth. At the outset Prof. Meade states the following three principal means whereby an economy …Estimated Reading Time: 8 mins

## Meade Model PDF Labour Economics Output …

The basic assumptions for Meade's model are as follows: (1) the economy is question is a closed economy with no relationship to the outside world. (2) there is no government activity involving taxation and expenditure. (3) perfect competition exists in the market. (4) Constant returns to scale prevails in the economy.

## James E. Meade - The History of Economic Thought Website

Major Works of James E. Meade. An Introduction to Economic Analysis and Policy, 1936. "A Simplified Model of Mr Keynes' System", 1937, RES "A Sumary to Replies to Questions on Effects of Interest Rates", with P. Andrews, 1938, Oxford EP National Income and Expenditure with R. Stone, 1944. "A Geometrical Representation of Balance-of-Payments Policy," 1949, Economica

The net output can increase, if technical progress takes place. In fact, investment decisions greatly depend upon entrepreneurial experience, fiscal and monetary policies of the government, socio-cultural factor etc. Anthony Saliba. Further, if the rate of technical progress r were constant, the growth rate of real income per head will depend simply upon whether VS will be rising or falling with the passing of time. A certain proportion of machines becomes prey to depreciation. The element Uk in equation 3 can also be written down as machine stock is since the growth rate of where S is the proportion of the net national income that is saved. For example, the existing stock of machines measured in tons of steel may require replacement to the extent of five per cent each year due to depreciation. Besides, the economy is working under the conditions of perfect competition. Nursultan Zhangeldiuli Esirkegenov. The slope of the curve OQ1 at A is less than at the point G which indicates that the marginal productivity of capital at G is less than marginal productivity at A. In this view, therefore, the conditions under which the growth rate of income will be constant are simply given by the conditions under which the growth rate of capital stock equals the growth rate of the national income. It is because it simply assumes that the operation of monetary policies keeps the prices of consumption goods constant and money wage rate ensures full employment. The production in the economy is assumed to take place under the conditions of perfect competition. This shows that growth rate of output y is a weighted sum of other three outputs i. In consequence, the factor intensities of the two industries producing capital goods and consumption goods would come to differ. On the other hand, the force which tends to depress the per capita real income is the growth rate of population I weighted by one minus the proportional marginal product of labour, i. The production function can be substituted for one another. Meade concentrates on a limited number of relationships. To sum up the neo classical growth model of Meade is based on certain restrictive and unrealistic assumptions. This assumption is truly unrealistic but without it present it becomes very difficult to reach a stage of steady growth. Thus, subtracting the population growth I from the income growth y to get the real income per head, we can write the basic growth relationship in the following form—. Suszie Sue. Meades model are as follows:- 1 The economy is question is a closed economy with no relationship with the outside world. The implication of this is that notwithstanding the state of technical knowledge, the cost-price of a machine is the same as the cost-price of consumption good. Robinson observed that aggregate production function does not provide any information about marginal products of production factor. Hence the basic relationship between the growth rate of real income per head and its three basic determinants can be expressed as:. On the basis of above criticism, it is considered that neo-classical model is an exercise in futility. More specifically, the growth rate of output is the sum of the growth rate in the stock of machines k weighted by the marginal importance of machinery in the productive process U plus the growth rate of labour force l weighted by the marginal importance of labour in the productive process Q plus the growth rate of technical progress r. If the technical progress is neutral in its effect on machinery, the slope of Q 2 at B will be greater then the slope of Q 1 at A in the same proportion as BD is greater than output AD. Under these conditions, V would tend to rise and income per head over time would rise. U, Q, r are independent variables and Y depends on it. Assuming l and r to be given and constant, changes in growth rate would be determined by the behaviour of V,S, and Q over time. Now, the annual proportionate rate of growth of output can be determined by dividing both sides of the above equation by Y and making some meaningful adjustments. Changes in Growth Rate This shows that the level of output increases as the capital stock increases. Meade has constructed a neo-classical model of economic growth which is designed to show the way in which the simplest form of economic system would behave during the process of economic growth. Third, the nature and extent of technical progress exerts a very important influence on the growth rate of real income per head over time. Unlike other growth models of Harrod-Domar, Mrs. In order to introduce saving s in the above equation, uk can be written in another form also. Meade provides a deep insight into the mechanism underlying the process of economic growth. Hence applying this model in the case of under developed nations is almost impossible since the assumptions of perfect competition, full employment of labour and machinery and constant returns to scale do not fit in their economic realities. MPP l —Marginal product of labour. Condition third requires more explanation. Under these conditions, the income distribution would change towards larger profits so that there is a tendency for S to rise still further. Again, Prof. As a starting point of the model, Prof. For this purpose, he analysed the factors responsible for changes in the rate of economic growth. We may, therefore, rewrite our basic growth equation in the following alternative way—. Meade considers the special case where population is constant i. The consumption good satisfies all ultimate human needs of consumption.

The basic assumptions for J. Meades model are as follows:- 1 The economy is question is a closed economy with no relationship with the outside world. Meade calls this phenomenon the assumption of depreciation by evaporation. Hence the production function for the economy would be given by Time is accounted for because with the passage of time the production would increase without any increase in K, L, or N. An increase in Y with time denoted by Y can take place in three ways. First, the machine stockpile may increase if the community starts saving part of their income thereby accumulating real capital. If the increase in the stock of capital taking place in one year is given by Y , the output would increase by VK where V denotes the marginal net physical product of a machine. Secondly, L , the working population , may grow. If L denotes an increase in the amount of labour productivity employed im a single year and W measures the marginal product of labour, the output will increase in that year by WL. Finally, the net output can increase if there is an increase in the technical progress hence enabling increased efficiency. The total increase in net output due to technical progress is given by Y'. Hence the total increase in net output in one year is the sum of the three influences. Combining this we get the equation:. Meade denotes these four proportionate rates of growth as y,k,l and r respectively. Meade denotes this as U and calls it the proportional marginal product of machinery. Under the assumption of constant returns to scale, it is equal to the proportion of national income received in profits. Similarly represents the proportional marginal product of labour and is equal to the proportion of the net national income going to wages under conditions of constant-returns competitive equilibrium. Meade denotes this as Q. Hence equation 1 can be written as. For example if the total real income is increasing by 10 percent every annum but the working population is growing at 8 percent per annum, the income per head is rising by approximately 2 percent per annum. Equation 3 shows that the growth ate of real income per head y l is the output of three factors. Firstly it is raised by the growth rate in real capital k weighted by its proportional marginal product or by the proportion of net national income which would be paid min profits in a competitive equilibrium U. Secondly it is depressed by the growth rate in the working population l weighted by one minus the proportional marginal product of labour l Q. Lastly it is raised by the amount of technology in the economy r. Therefore we have which expresses the same thing in three forms namely the contribution which capital accumulation makes to the growth rate of the final output. Hence the basic relationship between the growth rate of real income per head and its three basic determinants can be expressed as:. Hence percent per annum. The explanation of this is, out of a years income of , if people save units of product and if a once-for-all addition of units to the stock of machines increases annual output in every future year by 5 units, then the initial annual income of will be raised by this years capital accumulation to or by percent during the course of the year. Similarly, the same thing can be expressed by saying that the stock of machines had increased from to or by 5 percent per annum. Then per annum. The same result can be obtained by multiplying the proportion of the national income going to profits U, the proportion of the national income which is saved S and the annual income to capital stock ratio In case of our numerical example it would be :percent per annum. It is simple and attractive as it promises a state of steady economic growth. However it suffers from a few drawbacks First, for a steady state of economic growth to exist, the technological progress should be assumed to be entirely labour-augmenting. This is the special case of Harrod-nuetral technological progress. However this does not seem to exist in the model. Second, the neo classical adjustment mechanism depends on the flexibility of factor prices. But if they are not flexible a lo of difficulty is established. For example, in the Keynesian liquidity trap, the interest rate may fail to go down beyond a minimum level hence preventing the capitaloutput ratio to be high enough to reach growth equilibrium. Third, there is no mention about investment function in the model. It is assumed to be solely determined by savings. Hence Entrepreneurial expectations about the future are not taken into account. Fourth, in the neo-classical models capital is assumed to be jelly-like, homogeneous and malleable. This assumption is truly unrealistic but without it present it becomes very difficult to reach a stage of steady growth. Finally, the technological progress is considered to be totally exogenous which is again extremely unrealistic and has been pointed out by many economists. To sum up the neo classical growth model of Meade is based on certain restrictive and unrealistic assumptions. Hence applying this model in the case of under developed nations is almost impossible since the assumptions of perfect competition, full employment of labour and machinery and constant returns to scale do not fit in their economic realities. Open navigation menu. Close suggestions Search Search. User Settings. Skip carousel.

Meade provides a deep insight into the mechanism underlying the process of economic growth. It analyses the influence of income, capital, labour and technology on development. Muskan Valbani. Here, Y-Net output or net national income. Technical progress which allows more and more output to be produced by a given amount of resources. It can also be possible to incorporate the variable of savings in our basic growth relationship. Meade calls this phenomenon the assumption of depreciation by evaporation. That is, the cost of living index remains unchanged. That is to say, if in a given state of technical knowledge all factors of production in an industry are increased by x per cent, then the output also increases by x per cent. Graphical Representation 8. The element Uk in equation 3 can also be written down as machine stock is since the growth rate of where S is the proportion of the net national income that is saved. In other words, economic growth is greatly influenced by such factors as to finance risky ventures, risky business decisions etc. Related Articles. Actually, any possible change in the relative amount of the factors of production would get compensated by the opposite changes in their relative rates of remuneration. We may, therefore, rewrite our basic growth equation in the following alternative way—. But if they are not flexible a lo of difficulty is established. In consequence thereof the savings will fall. Now there are four major considerations which would govern the behaviour over time of V, S and Q. It is raised by the rate of technical progress. That would represent the steady state of economic growth. List of Architecture Firms. In fact, investment decisions greatly depend upon entrepreneurial experience, fiscal and monetary policies of the government, socio-cultural factor etc. Conditions of Steady Growth According to first and second condition the. Related Articles. Only then we can have a true index of the growth of real income per head. Thus, the essential condition for steady growth is the equality between y and k i. What is Scribd? Jump to Page. The basic assumptions for J. Hence the basic relationship between the growth rate of real income per head and its three basic determinants can be expressed as:. This detracts the model from reality and makes it a theoretical one. It also gives the conditions under which the growth of economy is possible. The higher production curve OQ2 shows at higher level of output is possible with same capital stock provided technological improvements take place with the passage of time. OF 1 is the production function which shows the quantity of output produced in a year with the given quantity of machinery when the technical knowledge is given. K-existing stock of capital or machinery. With the same amount of machinery i. He tries to establish a relationship between population growth and income growth. The total stock of machinery capital is represented on x-axis and total amount of output is on y-axis. To be able to pick out the factors crucial to the changes in the rate of economic growth, Prof. Meade has constructed a neo-classical model of economic growth which is designed to show the way in which the simplest form of economic system would behave during the process of economic growth. There is a critical growth rate of capital stock which makes the growth rate of income equal to growth rate of capital stock. Lawrence Lau. Constant returns to scale exist. Carousel Previous Carousel Next. Did you find this document useful? The stock of machines increases on account of increased savings. That is, V would fall. The second of these three elements which tends to depress the growth rate of real income per head is, of course, the familiar tendency for diminishing returns to labour to set in as more and more labour is applied to any given amount of land and capital equipment.

Prepared by: Hasanah I. Three Principles 1. Capital accumulation resulting from the savings made out of current income. Technical progress which allows more and more output to be produced by a given amount of resources. Assumptions 1. There is a closed economy having no financial and trade links with other countries. Complete Laissez-faire is assumed to prevail in the economy. There exists perfect competition in goods and factor markets. Constant returns to scale exist. The machines constitute the capital goods and all machines are alike. The ratio of labor to machines can easily be changed in short run and long run. The production of consumer goods and capital goods is substitutable. A certain proportion of machines becomes prey to depreciation. Therefore, there rises the need for replacement of machines. The stock of machines increases on account of increased savings. Y can be increased if there is increase in working population L. The net output can increase, if technical progress takes place. While a certain proportion of national income which is accrued to labor in the form of wages is shown by 'Q'. Thus it shows the growth of per capita income. The above equation shows that y - l can be increased with Uk and r. Whereas y - l decreases with l 1 - Q. Determinant of Economic Growth The above equation lead to the three factors: 1. It is raised by growth rate of real capital weighted by proportion of national going to profit. It is depressed by growth rate in the working population weighted by one minus the proportional marginal product of labour. It is raised by the rate of technical progress. As we assumed that all of savings are invested. As Meade assumed the constancy of growth rate of population l and growth rate of technology r , then the changes in y - l would be depending upon the behavior of s, V and Q. Changes in Growth Rate. This shows that the level of output increases as the capital stock increases. The slope of the curve OQ1 at A is less than at the point G which indicates that the marginal productivity of capital at G is less than marginal productivity at A. The higher production curve OQ2 shows at higher level of output is possible with same capital stock provided technological improvements take place with the passage of time. Conditions of Steady Growth If the level of technical progress remains same and population increases at some particular rate, then the steady economic growth requires the fulfillment of following conditions: i The nature of technical progress should be neutral for all the factors of production. Conditions of Steady Growth According to first and second condition the. In this connection, Meade introduces new symbols. They are as: The Sv shows the savings out of profits; the Sw the savings out of wages and Sg represents the savings out of rent. Thus the savings of the economy are as:. Open navigation menu. Close suggestions Search Search. User Settings. Skip carousel. Carousel Previous. Carousel Next. What is Scribd? Meade Model Economic Growth. Uploaded by Hasanah Ameril. Document Information click to expand document information Description: Economic Growth. Did you find this document useful? Is this content inappropriate?