Economic Growth: Important Facts

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Economic Growth: Important Facts

(1) Long Run Growth in the World (2) Balanced Growth in the US? (3) Long Run Effect of Growth

Differentials (4) Spanish Economic Growth Compared

(5) World Income Distribution (Stability and Differences Rich/Poor)

(6) Heterogeneity of Economic Growth and Changes in the World Income

Distribution

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(1) Economic Growth in the Very Long Run

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(2) US (Balanced) Growth Since 1890

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(3) Long Run Effects of Growth Differentials

-The real per capita GDP in the United States has been growing at a rate of 1.8% per year since 1870.

-This performance has given the US the second highest level of per capita GDP in the world (after Luxembourg, a country with a

population of only about 400.000 inhabitants)

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• If, starting in 1870, the US had grown at a rate of 0,8% (similar to the one experienced over the same period in India (0,64) or Pakistan (0,88) ), now the US would have a per capita GDP 72% LOWER than the actual value.

• To put it another way, if the growth rate had been lower by just 1 percentage point per year, today’s US GDP per capita would have been close to that of Argentina or Romania.

• On the other hand, if, starting in 1870, the US had grown at a rate of 2,8% (close to the long run growth experienced by Japan(2,95% from 1890 to 1990) and Taiwan(2,75% from 1900 to 1987), now the US would have a per capita GDP 3,8 times higher than the actual value.

Long Run Effects of Growth Differentials

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0

20000

40000

60000

80000

100000

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1850 1900 1950 2000 2050

Year

GD

P/p

erso

n (1

996

US

$)

US

US(0,8%)

US (2,8%)

Argentina

Romania

Long Run Effects of Growth Differentials

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• Japan GDP per capita in 1990 was about 20 times its level in 1890

• US GDP per capita in 2000 was more than 10 times its level in 1870

• Spain GDP per capita in 2007 was nearly 3 times its level in 1969

Long Run Effects of Growth Differentials

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(4) Spanish Economic Growth Since 1970

• Spain’s growth from 1970 to 2007 has averaged 2,67%, while Germany’s has averaged 1,85% and Europe’s 2,04%.

GDP per capita

$0

$5.000

$10.000

$15.000

$20.000

$25.000

$30.000

1960 1970 1980 1990 2000 2010

Year

GD

P/p

ers

on

in

2000 U

S$

Spain

Europe

Germany

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(5) The World Income Distribution in 1960 and 1990/2000

• Indicators of (the stability) of the World Income Distribution

• On the Differences between Rich and Poor

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Log GDP/person 1960

Log

GD

P/p

erso

n 20

00

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The Difference between Rich (Productive) and Poor (Unproductive)

Countries

• If Tanzania were to grow at the long term US rate of 1,8% per year, it would take 235 years to reach the 2000 US per capita GDP.

• The range of growth rates from 1960 to 2000 goes from -2% ((Democratic Republic of Congo) to 6.4% (Taiwan). Forty year differences in growth rates of this magnitude have enormous consequences for standards of living.

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Spreads in Per Capita GDP• An average American produces:

-In 239 days what an average Spaniard produces a year

-In 105 days what an average Argentinian produces a year

-In 20 days what an average Pakistani produces a year

-In 1,59 days what an average Zimbabwan produces a year

-In 79 days what an average citizen of the world produces a year

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Days the US needs to produce the equivalent to other countries

total GDP

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50

100

150

200

250

300

350

400

Day

s

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(6) Differences in Growth Performance

• Heterogeneity in economic growth rates

• Geographic growth patterns

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Growth rate of per capita GDP 1960-2000

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As a rough generalization for regional growth experiences:

-Sub-Saharan Africa started relatively poor in 1960 and grew at the lowest rate, so it ended by far the poorest area in 2000.

-Asia started only slightly above Africa in many cases but grew rapidly and ended up mostly in the middle.

-Latin America started in the mid to high range, grew somewhat below average, and therefore ended up mostly in the middle along with Asia.

-OECD countries started highest in 1960, grew in a middle range or better, and therefore ended up still the richest.

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  1960 1970 1980 1990 2003

World 3797 5967 7463 7936 9749

South East Asia 2056 2706 4659 5998 8945

Sub-Saharan Africa 1423 1837 2113 2207 2626

Brazil 2670 3976 6669 6834 7204

India 870 1154 1350 1897 2990

China 445 500 751 1678 4970

Zimbabwe 2277 2880 3227 3448 2438

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Per capita GDP in 1960

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Per capita GDP in 2006

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