This course provides an introduction to modern economic growth theory. We shall start with a discussion of some of the most prominent empirical facts about the long-run evolution and the cross-country differences of income levels and economic growth rates, and we shall use these facts to motivate the central questions of economic growth theory. We shall then introduce the aggregate production function and the capital accumulation equation, two of the basic ingredients of any growth model. Subsequently, the simplest neoclassical growth model, the Solow-Swan model will be studied. We shall also discuss the empirical methods of growth accounting and convergence regressions and we shall analyze how the results derived by these methods complement the predictions of the Solow-Swan model.

In the second part of the course we will formulate and analyze the Ramsey-Cass-Koopmans model and the Diamond model of economic growth. These are the most important neoclassical growth models and they are widely used in macroeconomics. Whereas the former model assumes that saving decisions are made by infinitely-lived dynasties of household, the latter assumes that there exists an infinite sequence of overlapping generations of finitely-lived households.

The third part of the course will deal with some aspects of the so-called `new growth theories’ which have been developed during the last two decades. We shall deal in particular with the role of human capital formation in explaining the cross-country income differences, and with models of technological change. As for the latter we shall analyze both models of expanding product variety (horizontal innovations) and Schumpeterian models of quality improvement (vertical innovations).

Participants in this course should be familiar with the following concepts and methods from microeconomics, macroeconomics, and mathematics:

• Microeconomics: basics of the theory of the household (budget constraints, utility functions, utility maximization, marginal rate of substitution, elasticity of substitution); basics of the theory of the firm (production functions, production costs, profit maximization, cost minimization); basic general equilibrium theory (Walrasian equilibrium, perfect competition, market clearing, welfare analysis, Pareto-efficiency).
  
• Macroeconomics: basic national accounting (gross domestic product, aggregate consumption, aggregate gross and net investment).
  
• Mathematics: basic calculus (differentiation and integration); basic linear algebra (matrices, eigenvalues, eigenvectors); finite dimensional optimization problems (necessary and sufficient optimality conditions, Lagrangian method); basics of the theory of difference and differential equations (interpretation of these equations, concept of a solution of such an equation).
  

This course will be based on selected chapters from the book manuscript Introduction to Modern Economic Growth by Daron Acemoglu. This manuscript can currently be downloaded here and will probably be available in print by the time of the summer school.