Macroeconomics I SLIDE SET 0 SLIDE 1 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
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) - PowerPoint PPT Presentation
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Macroeconomics I SLIDE SET 0 SLIDE 1
Economic Growth: Important Facts
(1) Long Run Growth in the World (2) Balanced Growth in the US? (3) Long Run Effect of Growth
(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
120000
140000
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
0
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.