Introduction

• economic growth brings wealth, which increases well-being of a society

  • economic growth: measured as an increase of people’s real income

  • ratio between peoples income and the prices of what they can buy is increasing

    • goods and services become more affordable, people become less poor

• wealthier nations have:

  • higher infant survival rates, life expectancy, and nutrition

  • more educational opportunities, leisure, and entertainment

  • fewer conflicts like civil wars and riots

  • more material goods

Key Facts

1. GDP per capita varies enormously among nations

2. everyone used to be poor

3. there are growth miracles and growth disasters

Everyone Used To Be Poor

• for nearly all of recorded human history, there was no long-run growth in real per capita GDP

• GDP was approximately equal in all major regions of the world, in other words, poverty was both widespread and equally distributed

• today, GDP per capita is 50x larger in the richest countries than in the poorest

• poverty is the historical norm

• for most of recorded human history, there was no long-run growth in real per capita GDP

• poverty is also the current norm, so the real question is no “how do we explain poverty?”

  • real question is how to explain sudden appearance of relative wealth

GDP Per Capita Varies

• GDO Per Capita: sum of gross value added by all resident producers in the economy plus any product taxes (less subsidies) not included in the valuation of output, divided by mid-year population

  • growth is calculated from constant price GDP data in local currency

• most of the world’s population is poor relative to the US

• about a billion people have incomes of less than $3 per day

• about 70% of the world’s population lives in countries with a GDP per capita equal to or less than $12,472, about the level in China

• average GDP per capita was $14,517 in 2014

• 73% of the world’s population live in countries with a GDP per capita less than the average