Chapter 25: Economic Growth

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Economic GrowthIncrease in real GDP or real GDP per capita over some time periodPercentage rate of growthGrowth as a goalArithmetic of growth: Rule of 70Approximatenumber of yearsrequired to doublereal GDP=70annual percentage rateof growthLO125-*Economic GrowthGrowth in U.S. real GDP 1950-2009Increased 6 fold 3.2% per year Growth in U.S. real GDP per capitaIncreased more than 3 fold2% per yearQualifications Improved products and servicesAdded leisureOther impactsLO125-*Modern Economic GrowthBegan with the Industrial Revolution in late 1700sOngoing increases in living standardsTime for leisureSocial changeDemocracyHuman lifespan doubledLO225-*Modern Economic GrowthBegan in BritainHas spread slowlyStarting date main cause of worldwide differences in living standardsCatching up is possibleLeader countries invent technologyFollower countries adopt technologyCan grow fasterLO225-*Modern Economic Growth Real GDP Real GDP Average annual per capita, per capita, growth rate, Country 1960 2007 1960-2007United States $ 14,766 $42,887 2.3%United Kingdom 11,257 32,181 2.3France 9,347 29,663 2.5Ireland 6,666 41,625 4.0Japan 5,473 30,585 3.7Singapore 4,149 44,619 5.2Hong Kong 3,849 43,121 5.3South Korea 1,765 23,850 5.7Figures are in 2005 dollarsSource: Penn World Table version 6.3, pwt.econ.upenn.eduLO225-*Modern Economic GrowthLO325-*Institutional Structures of GrowthStrong property rightsPatents and copyrightsEfficient financial institutionsLiteracy and widespread educationFree tradeCompetitive market systemLO325-*Determinants of GrowthLO3Supply factors Increases in quantity and quality of natural resources Increases in quality and quantity of human resources Increases in the supply (or stock) of capital goods Improvements in technologyDemand factor Households, businesses, and government must purchase the economy’s expanding output Efficiency factor Must achieve economic efficiency and full employment25-*Accounting for GrowthFactors affecting productivity growthTechnological advance (40%)Quantity of capital (30%)Education and training (15%)Economies of scale and resource allocation (15%)LO325-*Productivity GrowthAverage rate of growth1.5% per year 1973-19952.8% per year 1995-2009Affects real output, real income, and real wagesPay higher wages without lowering profitLO425-*Productivity GrowthMicrochip/information technologyNew firms and increasing returnsSources of increasing returnsMore specialized inputsSpreading of development costsSimultaneous consumptionNetwork effectsLearning by doingGlobal competitionLO425-*Economic GrowthIs economic growth desirable and sustainable?The antigrowth viewEnvironmental and resource issuesIn defense of economic growthHigher standard of livingHuman imagination can solve environmental and resource issuesLO525-*Economic GrowthGrowth is the path to greater material abundanceResults in higher standards of livingIncreases leisure timeAllows for the expansion and application of human knowledge LO525-*Global PerspectiveLO525-*