Chapter 9: Global Economic Growth and Development
🌍 Introduction
Economic growth is central to understanding prosperity.
Concerns: U.S. regulations may restrict growth.
First, we must define & measure economic growth.
📈 9.1 How Do We Define Economic Growth?
Definition: Increase in per capita real GDP (annual rate).
Graphical view: Outward shift in Production Possibilities Curve (PPC).
International Example:
India GDP > Italy, but India is poorer due to much larger population.
Importance of Growth Rates:
Small differences compound massively over decades.
Rule of 70: Doubling time = 70 ÷ growth rate.
China (8.1%) doubles in ~9 years.
India (4.5%) doubles in ~16 years.
Costs & Benefits:
Benefits → higher living standards, more consumption.
Costs → pollution, stress, inequality.
⚙ 9.2 Productivity, Saving, and New Technologies
Growth Equation:
Growth = Capital growth + Labor growth + Productivity growth.Labor Productivity: Real GDP ÷ workers (or hours worked).
Saving & Investment:
Consume less today → save more → future capital & growth.
New Growth Theory:
Tech & innovation are independent growth drivers.
More rewards → more technological progress.
Research & Development (R&D):
Patents (20 years) protect inventors, encourage innovation.
Innovation: Turning invention into practical value = real wealth creation.
Human Capital:
Education & skills raise productivity & living standards.
Example: U.S. H-1B visa cap for skilled workers fills almost immediately.
🧑🤝🧑 9.3 Immigration & Property Rights
Immigration: Brings labor, skills, and consumer demand → fuels growth.
Property Rights: Secure ownership encourages:
Capital accumulation.
Entrepreneurship & innovation.
🌐 9.4 Economic Development
Definition: Study of raising living standards in low-income nations.
Poverty Perspective:
~50% of people live at subsistence level.
~10% live on <$2/day.
U.S. poverty line > average global income.
Population Growth:
Current world: 7.5B → 10B by 2050 (mostly developing nations).
Malthus predicted food shortages → proven wrong (food grew faster).
Demographics & Development:
Growth → smaller families, falling birthrates.
Modernization lowers infant mortality & reliance on children for old-age care.
Stages of Development:
Agriculture
Manufacturing
Services
Keys to Development:
Strong property rights.
Educated population.
Creative destruction (new replaces old).
Limited protectionism.
🏦 9.5 Stagnant Growth in Developed Nations?
Secular Stagnation: Prolonged weak growth in advanced economies.
History:
Began in Europe (“Eurosclerosis”), spread to U.S. by 2010s.
Generational Trends:
1960s: ~2.5% annual per capita growth → ~64% rise in 20 years.
2000s: ~1% annual growth → ~22% rise in 20 years.
Causes:
New tech not raising productivity much.
Slow growth of capital & labor.
Lower payoffs from human capital investments.
Restrictive government/regulatory policies.
Case: Japan → shrinking workforce + aging capital = long-term stagnation.
📌 Issues & Applications
Income Inequality & Growth:
OECD: inequality reduces growth, but only slowly (50 yrs = 1% GDP drop).
Critics: inequality encourages investment & saving → growth.
Regulations & Growth:
“Ease-of-doing-business” rankings tied to growth.
Both number and quality of regulations matter.
✅ Key Takeaways
Economic growth = rising per capita GDP.
Small growth rate differences matter massively over time.
Productivity, saving, technology, and human capital drive long-term growth.
Immigration & property rights fuel growth.
Development requires education, property rights, openness, and innovation.
Developed nations face stagnation due to demographics, tech slowdowns, and policy issues.