Economic growth

Copyright 2013 Pearson Education, Inc. Publishing as Addison-Wesley

THE FACTS

TO BE

EXPLAINED

Chapter 1

Marco Savioli


The facts to be explained

Egypt, Indonesia, and Brazil currently have higher life expectancy than did members of the British nobility at the beginning of the 20th century

Countries such as South Korea made the transition from pauper to industrial power in a single generation

The average African household consumed 20% less in 1998 than it did 25 years previously

Will limitations on resources make it impossible for the four-fifths of the worlds population still living in relative poverty to catch up?


Differences in the level of income among countries

Gross domestic product (GDP) is a measure of the value of all the goods and services produced in a country in a year

Many aspects of economic well-being are not measured by GDP. Despite of drawbacks, GDP remains a rough-and-ready measure of standard of living

Data are expressed in terms of a common unit of currency US dollars for the year 2005, purchasing power parity (PPP) exchange rates


Measuring and comparing GPD using purchasing power parity

Gross domestic product (GDP): value of all goods and services produced in an economy in a year (excluding intermediate goods used in the production of final goods)

Price index such as the consumer price index (CPI) or the GDP deflator can be used to compare dollar quantities at two different points in time

Purchasing power parity (PPP) exchange rates are based on the prices of a standardized basket of goods and services (both traded and non-traded)

Journalistic reports often translate the average wage of a worker using market exchange rates


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Table 1.3 The Effect of Using PPP on

Comparisons of GDP


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Table 1.1 Top Eleven Countries in Year 2009

According to Three Different Measures


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Figure 1.1 The Parade of World Income

The 20% of world population that lives in the richest countries receives 60% of world income


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Figure 1.2 GDP per Capita in the

United States, 18702009

Power of compound growth:GDP per capita in 2009 was 12.3 times as large as GDP per capita in 1870


Working with growth rates


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Figure 1.3 The Effect of Using a Ratio Scale

Ratio scale (or logarithmic scale): equal spaces on the vertical axis correspond to equal proportionaldifferences in the variable being graphed; growth rate = slope


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Figure 1.4 GDP per Capita in the United

States, 18702009 (Ratio Scale)

Experience almost unique in world history


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Figure 1.5 GDP per Capita in the United

States, the United Kingdom, and Japan,

18702009


Growth vs business cycles

Growth is a long-run phenomenon

Short-run fluctuations are business cycles

It may take a decade to figure out that a trend growth rate has changed

It would be hard to say much about it even once a year

But over time it is the long-run trend that determines how rich a country is


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Figure 1.6 The Distribution of Growth Rates,

19752009


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Figure 1.7 GDP per Capita by Country Group,

18202008

The pace of growth accelerated and the gap has widened

Japan overtook many countries

China more than doubled India and Africa

Before 1960 data are sketchier: governments collected less info, country borders shifted

Data on group of countries


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Figure 1.8 World Inequality and Its

Components, 18201992

Most of inequality increase before WWII

Between-country inequality is the most important

Within-country inequality roughly constant


Growth before 1820

Data are even sparser

Growth of average GDP per capita in the world (Maddison). 1700-1820: 0.07%; 1500-1700: 0.04%

The preindustrial economy was characterized by year-to-year fluctuations often driven by harvest conditions

Income differences among countries very small

Among the European colonies in the West, the richest in 1790 was Haiti, now one of the poorest countries

China: industrial development (8th century) unparalleled elsewhere until the end of the 18th

century; after China became increasingly insular

Economic growth

Documents

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industrial power

power of compound growth

growth ratescopyright

world population

intermediate goods

world historycopyright