Studied by 0 people
Looks like no one added any tags here yet for you.
Key statistic
Real GDP per Capita
GDP
measurs the income earned in the economy in a given year
Real GDP
separates changes in the quantity of goods and services from the effect of a rising price level
Real GDP per capita
isolates the effect of changes in the population
The rule of 70
Tells us how long it takes for a variable to double.
Source of long-run growth
Rising productivity
Labor productivity
(productivity)
output per worker
Productivity
real GDP / number of people working
Source of productivity growth
Increase in physical capital
Increase in human capital
Technological progress
Physical capital
human-made resources (buildings, machines, etc.)
Human capital
the improvement in labor created by the education and knowledge embodied in the workforce
Technological progress
an advance in technical means of production of goods and services
Aggregate production function
a hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker, human capital per worker, and technology.
Aggregate production function exhibits
→ diminishing returns to physical capital
When the amount of human capital per worker and the state of technology are held fixed, each successive increase in the amount of physical capital per worker leads to a smaller increased productivity.
Diminishing
it holds true, when the amount of human capital per worker and the technology are held fixed
Diminishing return may disappear if we increase the amount of human capital per worker, or improve the technology, or both.
Growth Accounting
estimates of the contribution of each major factor in the aggregate production function to economic growth
Total factor productivity
the amount of output that can be produced with a given amount of factor inputs
Central to economic growth
Economy can produce more output (same quantity of physical capital, human capital, and labor)
Total factor productivity increases
economy can produce more output (same quantity of physical capital, human capital, and labor)
Productivity paradox
the observation that despite rapid advancements in technology—especially in information technology (IT)—measured productivity growth does not always increase at the expected rate.
Productivity paradox explanation
measurement issues
time lags in adoption
misallocation of resources
Diminishing returns to innovation
Shifts in economic structure
Why growth rates differ
Savings and investment spending
Education
Research and development (R&D)
Government promoting economic growth (6 channels)
Government subsidies to INFRASTRUCTURE
Government subsidies to EDUCATION
Government subsidies to R&D
Maintaining a well-functioning financial system
Protection of property rights
Political stability
Infrastructure
roads, power lines, ports, information networks, and other underpinnings for economic activity
Property rights
legal rights held by owners of valuable items to dispose of those as they choose
Intellectual property rights
the rights of innovators to accrue the rewards of their innovations
Patents
government-created temporary monopolies given to innovators for the use or sale of their innovations.
East Asia
High growth rates
very high savings rates
very good basic education
substantial technological progress
Convergent hypothesis
differences in real GDP per capita among countries tend to narrow over time
poorer economies will grow faster than richer ones, leading to a reduction in income disparities between nations.
Why catch up
Diminishing returns to capital
Technology diffusion
Higher marginal returns on investment
Types of convergence
Absolute (unconditional) convergence
Conditional convergence
Absolute (unconditional) convergence
The idea that all economies automatically converge in GDP per capita, regardless of policies or institutions.
Critics argue this is unrealistic because structural differences (education, governance, infrastructure) matter.
Conditional convergence
Countries converge only if they have similar economic policies, institutions, and access to technology.
Empirical studies suggest that nations with stable policies and investment in education & infrastructure tend to grow faster and catch up.
Latin America
Poor economy
Irresponsible government action that eroded savings through high inflation
Lack of emphasis on education
Political instability
Africa
Poor economy
Government corruption
Civil wars and political instability
Unfavorable geography
Impulses economic growth
Very high savings rates
Very good basic education
Substantial technological progress
countries playing catch-up with countries that already have high real GDP per capita.
for relatively poor countries if the convergence hypothesis holds true.
country is able to benefit from adopting the technological advances already used in advanced countries.
Impulses
Very high savings rates
Does it impulse or restrain economic growth?
Impulses
Very good basic education
Does it impulse or restrain economic growth?
Impulses
Substantial technological progress
Does it impulse or restrain economic growth?
Impulses
countries playing catch-up with countries that already have high real GDP per capita.
Does it impulse or restrain economic growth?
Impulses
for relatively poor countries if the convergence hypothesis holds true.
Does it impulse or restrain economic growth?
Impulses
country is able to benefit from adopting the technological advances already used in advanced countries.
Does it impulse or restrain economic growth?
Restraints
Government corruption
Does it impulse or restrain economic growth?
Restraints
Civil wars and political instability
Does it impulse or restrain economic growth?
Restraints
Unfavorable geography
Does it impulse or restrain economic growth?
Restraints
Irresponsible government action that eroded savings through high inflation
Does it impulse or restrain economic growth?
Restraints
Lack of emphasis on education
Does it impulse or restrain economic growth?
Restraints economic growth
Government corruption
Civil wars and political instability
Unfavorable geography
Irresponsible government action that eroded savings through high inflation
Lack of emphasis on education
Political instability
sustainable long-run economic growth
long-run growth that can continue in the face of a limited supply of natural resources and the impact of growth on the environment
Equal growth
Rising real GDP per capita has translated into real income for most people.
2 Requirements
economic growth still raises the standard of living of the great majority of the population
gives rise to a global middle-class
Resource scarcity
leads to high prices, and these high prices provide strong incentives to conserve the resource and find alternatives.
Natural resources and growth
“Neo-Malthusian” theories claim that economic growth will be severely limited by lack of resources.
Economists believe that modern economies handle scarcity fairly well.
Neo-Malthusian Theories
population growth would outpace food production, leading to widespread poverty and resource scarcity.
Modern Neo-Malthusians extend this argument, claiming that economic growth is unsustainable due to limited natural resources and environmental degradation.
Neo-Malthusian Theory reasoning
Resource depletion
Environmental limits and climate change
Food supply constraints
Overpopulation and carrying capacity
Limits to technological progress
Climate change
changes in Earth´s climate brought about by human activities
Impact → pollution, loss of wildlife habitats, extinction of species, and reduced biodiversity.
Local environmental degradation
easier to reduce
Environment
Local environmental degradation
Global environmental degradation
Paris agreement 2015
196 countries agreed to reduce their greenhouse gas emissions in an effort to limit the rise in Earth’s temperature to no more than 2 degrees Celsius.
China and India agreed to limit their emissions
Rich countries committed to help poorer countries pay the cost.
America to withdraw
