Transcript Chapter 9 Global Economic Growth and Development

Chapter 9
Global Economic
Growth and
Development
Copyright © 2010 Pearson Addison-Wesley. All rights reserved.
Introduction
What do Australia, Bulgaria, Germany, and Japan all have in
common?
The answer is that they are among more than 20 nations
throughout the world that now off significant financial
incentives for women to bear children.
Their objective is to provide a stronger foundation for future
economic growth.
In this chapter, you will learn about the measurement of
economic growth, about the importance of growth rates, and
about the key factors that determine economic growth.
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Learning Objectives
• Define economic growth
• Recognize the importance of economic
growth rates
• Explain why productivity increases are
crucial for maintaining economic growth
• Discuss the fundamental factors that
contribute to a nation’s economic
development
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How Do We Define Economic
Growth?
Figure 9-1
Distance of shift
represents an increase
in productive capacity
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How Do We Define Economic
Growth? (cont'd)
• Economic Growth
– Increase in per capita real GDP measured by its
rate of change per year
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Figure 9-2 The Historical Record
of U.S. Economic Growth
Source: U.S. Department of Commerce.
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Growth: Better, more affordable shelter
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Growth: More comfort
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Growth: Same Big Mac, but more affordable
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How Do We Define Economic
Growth? (cont'd)
• Is economic growth bad?
– Some psychologists contend that growth makes
us worse off.
– As with all activities there are costs along with
benefits to growth.
• Question
– If your leisure time increases 1
hour/week and your commute
time to work increases by 2
hours/week, are you better off?
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Table 9-2 Costs and Benefits
of Economic Growth
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A small difference can make a big
difference in growth
Table 9-3 One Dollar Compounded Annually at Different Interest Rates
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How Do We Define Economic Growth?
(cont'd)
• The Rule of 70
– A rule stating that the appropriate number of
years required for per capital real GDP to double
is equal to 70 divided by the average rate of
economic growth
– Exercise:
– Growth = 2%, years to double = ?
– Growth = 3.5%, years to double = ?
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Productivity Increases: The
Heart of Economic Growth
Economic growth = Rate of growth of capital +
Rate of growth of labor +
Rate of growth in the productivity
of capital and of labor
• Labor Productivity
– Total real domestic output (real GDP) divided by
the number of workers (output per worker)
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Saving: A Fundamental Determinant
of Economic Growth
• To have more consumption in the future,
you must consume less today and save the
difference between your consumption and
your income.
• Key: Present
vs.
Future
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Figure 9-4 Relationship Between Rate of
Saving and Per Capita Real GDP
Source: World Bank.
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Economic Development (cont'd)
• The relationship between population
growth and economic development
– Growth leads to smaller families, lower birth
rates.
– The more economic development occurs, the
slower the population growth rate.
– Birth rates decline with modernization.
• Reduced infant mortality
• People do not rely on children to take care of them in
old age
• Why a conflict between work and having babies?
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Economic Development (cont'd)
• Keys to economic development
– Establishing a system of property rights
– Developing an educated population (not high
population growth)
– Letting “creative destruction” (free market) run
its course
– Limiting protectionism (opposite of free trade)
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Figure 9-6 The Relationship Between Economic
Growth and Tariff Barriers to International Trade
Source: World Bank.
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Myth #9: Life is worst today, why
me?
• Sure, let’s send you back to the 1950s (gogo years)…pick a year yourself
• You can’t find a laptop, cell phone, DVD,
iPod, can drinks (only in glass bottles)
• You have to work half an hour to pay for a
burger (but 10 minutes today)
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