Economics principles tools and applications 9th by sullivan sheffrin perez chapter 08

8.1 ECONOMIC GROWTH RATES 5 of 5Are Poor Countries Catching Up?. All Rights ReservedAPPLICATION 1 GLOBAL WARMING, RICH COUNTRIES, AND POOR COUNTRIES APPLYING THE CONCEPTS #1: How may glo

Trang 1

Trang 2

Learning Objectives

8.1 Calculate economic growth rates.

8.2 Explain the role of capital in economic growth.

8.3 Explain the importance of technological progress to economic growth.

8.4 Discuss the sources of technological progress.

8.5 Assess the role of government in assisting economic growth.

Trang 3

Trang 4

▼FIGURE 8.1

What Is Economic Growth?

Economic growth means an expanded production possibilities curve (PPC)

Trang 5

Measuring Economic Growth

• Real GDP per capita

Gross domestic product per person adjusted for changes in prices It is the usual measure of living standards across time and between countries

• Growth rate

The percentage rate of change of a variable from one period to another

Trang 6

8.1 ECONOMIC GROWTH RATES (3 of 5)

Measuring Economic Growth

• Rule of 70

A rule of thumb that says output will double in 70/x years, where x is the percentage rate of growth

Trang 7

Comparing the Growth Rates of Various Countries

Trang 8

8.1 ECONOMIC GROWTH RATES (5 of 5)

Are Poor Countries Catching Up?

• Convergence

The process by which poorer countries close the gap with

richer countries in terms of real GDP per capita

Each point on the graph represents a different currently developed

country

Notice that the countries with the lowest per capita incomes in 1870

(shown along the horizontal axis) are plotted higher on the graph

In other words, the tendency was for countries with lower levels of

initial income to grow faster

SOURCE: M Obstfeld and K Rogoff, Foundations of International Macroeconomics (Cambridge, MA: MIT Press, 1996), Table 7.1.

Trang 9

APPLICATION 1

GLOBAL WARMING, RICH COUNTRIES, AND POOR COUNTRIES

APPLYING THE CONCEPTS #1: How may global warming affect economic growth?

The effects of global warming on economic development are very complex

• The effect of increases in temperature seem to be confined to poor countries

• In Latin and South America, each 1 degree Celsius increase resulted in a 1.2 to 1.9 percent decline in per capita income

• Exports also declined between 2.0 and 5.7 percent

• By deferring global warming into the future, poor countries may have time to develop and avoid the worst of the impact

Trang 10

APPLICATION 2

BEHAVIORAL INCENTIVES IN DEVELOPMENT

APPLYING THE CONCEPTS #2: How can we persuade very poor people in developing countries to immunize their children?

Trang 11

An increase in the supply of capital will shift the

production function upward, as shown in Panel

A, and increase the demand for labor, as shown

in Panel B

Real wages will increase from W1 to W2, and

potential output will increase from Y1 to Y2.

Trang 13

How Do Population Growth, Government, and Trade Affect Capital Deepening?

PRINCIPLE OF DIMINISHING RETURNS

Suppose output is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed

Beyond some point—called the point of diminishing returns—output

will increase at a decreasing rate.

If the government raises taxes by $100 and the people tend to save 20 percent

of changes in income, then private savings and investment will fall by $20.

However, if the government invests the funds, then total investment—private and public— will increase by $80.

Trang 14

8.3 THE KEY ROLE OF

Trang 15

8.3 THE KEY ROLE OF

How Do We Measure Technological Progress?

Trang 16

APPLICATION 3

SOURCES OF GROWTH IN CHINA AND INDIA

APPLYING THE CONCEPTS #3: How can we use economic analysis to understand the sources of growth in different countries?

China and India are the two most populous countries and have also grown very rapidly in recent years

From 1978 to 2004, GDP in China grew at the rate of 9.3 percent per year while India’s GDP grew at a lower rate of 5.4 percent per year

Economists Barry Bosworth from the Brookings Institution and Susan Collins from the University of Michigan used growth accounting to answer this question

• China’s rapid growth was caused by more rapid accumulation of physical capital and more rapid technological progress

• China invested much more in physical capital and was able to increase its technological progress at a more rapid rate

Trang 17

8.3 THE KEY ROLE OF

Using Growth Accounting

• Growth accounting is a useful tool for understanding different aspects of economic growth

• As an example, economic growth slowed throughout the entire world during the 1970s

• Using growth accounting methods, economists typically found the slowdown could not be attributed to changes in the quality or quantity of labor inputs or to capital deepening

• Either a slowdown in technological progress or other factors not directly included in the analysis, such as higher worldwide energy prices, must have been responsible

• This led economists to suspect that higher energy prices were the primary explanation for the reduction in economic growth

Trang 18

Using Growth Accounting (4 of 4)

Labor productivity

Output per hour of work, labor productivity is a simple measure of how much a typical worker can produce given the amount of capital in the economy and the state of technological progress

From 1947 to the worldwide oil crisis in 1973, labor productivity grew rapidly Productivity growth fell in the remainder of the 1970s and slowly increased over the next two decades

Since 2007, productivity growth has also slowed from recent trends, partly due to the recession

Economists have used growth accounting to help explain these trends in productivity growth in the United States Economic research suggests that the oil shocks in the 1970s reduced technological progress but the information revolution in the 1980s and 1990s led to a resurgence of technological progress.

SOURCE: Bureau of Labor Statistics, 2015.

Trang 19

APPLICATION 4

THE END OF GROWTH?

APPLYING THE CONCEPTS #4: Can we predict future productivity growth from past historical episodes?

Trang 20

8.4 WHAT CAUSES

Research and Development Funding

The United States spends more total money than any other

country on research and development

However, when the spending is measured as a percentage of

each nation’s GDP, Japan spends more

A big part of U.S spending on research and development is in

defense-related areas

SOURCE: National Science Foundation, National Patterns of R&D Resources,

2002, Washington D.C.

Trang 21

The view that a firm will try to come up with new products and more efficient ways to produce products to earn monopoly profits

The Scale of the Market

• Adam Smith stressed that the size of a market was important for economic development

• In larger markets, firms have more incentives to come up with new products and new methods of production The lure of profits guides the activities of firms, and larger markets provide firms the opportunity to make larger profits

• This supplies another rationale for free trade With free trade, markets are larger, and there is more incentive to engage in technological progress

Trang 22

Education, Human Capital, and the Accumulation of Knowledge

Education can contribute to economic growth in two ways

• First, the increased knowledge and skills of people complement our current investments in physical capital

• Second, education can enable the workforce in an economy to use its skills to develop new ideas or to copy ideas or import them from abroad

New Growth Theory

• New growth theory

Modern theories of growth that try to explain the origins of technological progress

Trang 23

APPLICATION 5

THE ROLE OF POLITICAL FACTORS IN ECONOMIC GROWTH

APPLYING THE CONCEPTS #5: How do varying political institutions affect economic growth?

Growth can, and has, occurred in both authoritarian and participatory governments

Transformative economic growth like the Industrial Revolution usually requires participatory institutions

• Sustained technological progress is disruptive and authoritarian regimes have difficulty dealing with the change

• The old monarchies of Europe fell and were replaced with democracies or limited monarchies

• Can China maintain strong economic growth without political transformation?

Trang 24

APPLICATION 6

CULTURE, EVOLUTION AND ECONOMIC GROWTH

APPLYING THE CONCEPTS #6: Did culture or evolution spark the Industrial Revolution?

In studying the economic history of England before the Industrial Revolution, Professor Clark discovered an interesting fact

• He found that children of the more affluent members of English society were

more likely to survive than those of the less affluent

• With the slow growth of population over several centuries, this differential survival of the wealthy had the effect of creating downward mobility for the rich, as their sons and daughters increasingly populated the society

This change had profound effects on English society The cultural habits of the rich filtered through the entire society

• Social virtues such as thrift, prudence, and hard work became more commonplace, while impulsive and violent behaviors were reduced

• Eventually, these changes in culture became sufficiently pronounced that a qualitative change took place in society

Trang 25

8.5 A KEY GOVERNMENTAL ROLE: PROVIDING THE CORRECT INCENTIVES AND PROPERTY RIGHTS

What is the connection between property rights and economic growth?

• Without clear property rights, there are no proper incentives to invest in the future—the essence of economic growth

What else can go wrong?

•Governments in developing countries often:

•Adopt policies that effectively tax exports

•Pursue policies that lead to rampant inflation

•Enforce laws that inhibit the growth of the banking and financial sectors

Results:

• Fewer exports

• Uncertain financial environment

• Reduced saving and investment

With the right incentives, individuals and firms in developing countries will take actions that promote economic growth

Trang 26

APPLICATION 7

LACK OF PROPERTY RIGHTS HINDERS GROWTH IN PERU

APPLYING THE CONCEPTS #7: Why are clear property rights important for economic growth in developing countries?

Throughout the developing world, property is often not held with clear title Without clear title, property cannot be used as collateral for loans

Result: The poor living on very valuable land may be unable to borrow against that land to start a new business

Producing palm oil in Peru is very profitable, but it depends upon the ability to borrow funds

Production of coca paste—an ingredient to cocaine—does not take as much time and does not depend on finance.

Switching farmers away from production of coca paste to palm oil also requires improvements in finance, which are very difficult without clear property rights

Trang 27

New growth theory

Real GDP per capita

Rule of 70

Saving

Technological progress

Trang 28

APPENDIX A A MODEL OF CAPITAL DEEPENING (1 of 4)

PRINCIPLE OF DIMINISHING RETURNS

Suppose output is produced with two or more inputs, and we increase

one input while holding the other input or inputs fixed Beyond some

point—called the point of diminishing returns—output will increase at a

decreasing rate.

Holding labor constant, increases in the stock of capital increase output,

but at a decreasing rate

Trang 29

▼FIGURE 8A.2

Saving and Depreciation as Functions of the Stock of Capital

Trang 30

Change in the stock of capital = salving - depreciation =

Trang 31

A higher saving rate will lead to a higher stock

of capital in the long run Starting from an initial

capital stock of K1, the increase in the saving

rate leads the economy to K2.

Trang 32

Technological progress shifts up the saving function and

promotes capital deepening.

Định dạng
Số trang	32
Dung lượng	4,32 MB