Analysis of economic growth in Germany based on the growth models of Solow-Swan, Kaldor and Romer

Hartleib, Martin (2012) Analysis of economic growth in Germany based on the growth models of Solow-Swan, Kaldor and Romer. Honours thesis, Murdoch University.

Abstract

This thesis analyses West Germany's economic growth from 1971 to 1990 and the economic growth of the reunited Germany from 1992 to 2011 using the growth models of Solow (1956) - Swan (1956), Kaldor (Kaldor 1957; Kaldor and Mirrlees 1962; Kaldor 1966) and Romer (1986).

Applying the Solow (1956) - Swan (1956) model, it was found that TFP growth was the main driver of Germany's growth during both time periods. However, Germany's economic growth after the reuni_cation was signi_cantly weaker than it had been before the reuni_cation, mainly because TFP growth and capital accumulation was lower. The _ndings of this thesis also show that uctuations in TFP can be explained by the propositions put forward by the Real Business Cycle theory. The German's experience based on the both periods of study is consistent with the analysis found in Plosser (1989) in that there is a positive relationship between GDP growth and TFP growth.

The application of the technical progress function of Kaldor and Mirrlees (1962) suggested that Germany experienced more technical progress during the second time period than during the _rst one. For the reunited Germany capital accumulation contributed 0.68 to every one percent increase in RGDP, whereas for West Germany it contributed 0.44 to every one percent increase in RGDP. The regression (Kaldor's technical progress function) results suggested that lower TFP growth for the second time period was due to lower capital investments. In addition, it was found that West Germany's production process from 1971 to 1990 was slightly more capital intensive than the production process of Germany from 1992 to 2011.

The thesis also tested Kaldor's (1966) three growth laws on the growth experience of the reunited Germany. It was found that only the _rst proposition was con_rmed, suggesting that the manufacturing sector was the driver of Germany's economic growth. No evidence was found for Kaldor's (1966) second and third propositions.

The application of Romer's (1986) growth model was unsuccessful. Neither the use of the number of patents granted, R&D expenditure or R&D personnel as a proxy for knowledge did show a statistically signi_cant relationship with TFP growth or with the evolution of the net capital stock. Therefore, it is concluded that in Germany knowledge accumulation does not lead to technological progress or capital accumulation. If the number of patents granted, R&D expenditure or R&D personnel did not played a positive impact on TFP growth, then what is a signi_cant sector? One such sector could be "learning-by-doing" as proposed by Arrow (1962).

Item Type:	Thesis (Honours)
Murdoch Affiliation(s):	Murdoch Business School
Supervisor(s):	Taylor, Ranald
URI:	http://researchrepository.murdoch.edu.au/id/eprint/12673

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