Economic Growth v. Development F Development is defined by a broad collection of indicators...
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Economic Growth v. Development Development is defined by a broad collection of indicators – Output per person, education, health, freedom, fertility, quality of life, institutions, etc. Growth is narrowly defined as the percent change in per capita output (measured by per capita GDP or GNP) Economic development (and to lesser extent, growth) affect and are affected by population growth. PRODUCTION makes wealth possible
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Transcript of Economic Growth v. Development F Development is defined by a broad collection of indicators...
Economic Growth v. Development Development is defined by a broad collection of
indicators– Output per person, education, health, freedom,
fertility, quality of life, institutions, etc. Growth is narrowly defined as the percent change in
per capita output (measured by per capita GDP or GNP)
Economic development (and to lesser extent, growth) affect and are affected by population growth.
PRODUCTION makes wealth possible
GDP/GNP
Calculating Nominal GDP:
2001 ($1 per hot dog x 100 hot dogs) + ($2 per hamburger x 50 hamburgers) = $200
2002 ($2 per hot dog x 150 hot dogs) + ($3 per hamburger x 100 hamburgers) = $600
2003 ($3 per hot dog x 200 hot dogs) + ($4 per hamburger x 150 hamburgers) = $1200
YearPrice ofHot dogs
Quantity ofHot dogs
Price of Hamburgers
Quantity ofHamburgers
2001 $1 100 $2 50
2002 $2 150 $3 100
2003 $3 200 $4 150
Growth and GNP or GDP (a) GNP v. (b) GDP
– Value of final goods and services produced in a year
(a) by citizens of a given country (b) within the political boundaries of a given
country
Per capita GNP = GNP/Population Per capita GDP = GDP/Population
– Growth Rate Approximation % change GNP - % change population
Real v. Nominal GDP/GNP
Because both prices and output change over time, we apply a correction to the GDP that essentially holds prices constant. This is called REAL GDP (or GNP).
Real GDP (or GNP) must be used to compare production levels over time.
GNP/GDP Problems Omits non-traded goods
– household production– illegal production and other “informal” market
production Goes up when bad things happen
– war– oil spills– sickness
Fails to reflect resource non-renewable resource consumption
GNP/GDP Problems, Continued
Currency conversion problems Real v. Nominal
– Choice of base year emphasizes certain products and de-emphasizes others.
The Variety of Growth Experiences
Country Period
Real GDP perPerson atBeginning of Period
Real GDP perPerson at End of Period
Growth Rate(per year)
Japan 1890-1997 $1,196 $23,400 2.82%
Brazil 1900-1990 619 6,240 2.41
Mexico 1900-1997 922 8,120 2.27
Germany 1870-1997 1,738 21,300 1.99
Canada 1870-1997 1,890 21,860 1,95
China 1900-1997 570 3,570 1.91
Argentina 1900-1997 1,824 9,950 1.76
United States 1870-1997 3,188 28,740 1.75
Indonesia 1900-1997 708 3,450 1.65
United Kingdom 1870-1997 3,826 20,520 1.33
India 1900-1997 537 1,950 1.34
Pakistan 1900-1997 587 1,590 1.03
Bangladesh 1900-1997 495 1,050 0.78
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Country.shp-99 - 13101310 - 35403540 - 75407540 - 1452014520 - 26980
N
EW
S
Percent of Age Group Enrolled in Tertiary Education
LowIncome
LowerMiddleIncome
UpperMiddleIncome
UpperIncome
0
5
10
15
20
25
30
35
40
45
50
LowIncome
LowerMiddleIncome
UpperMiddleIncome
UpperIncome
Tertiary Enrollment
Population Growth Rates
Population Growth Rates
0.00
0.50
1.00
1.50
2.00
2.50
3.00
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
Year
² Low-income economies
² Middle-income economies
²High-income economies
Population Composition
World Population Distribution
² Low-income economies
² Middle-income economies
²High-income economies
0
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000
6,000,000,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
Year
²High-income economies
² Middle-income economies
² Low-income economies
Percent Under Age 14
Age Structure: % Under Age 14
0
10
20
30
40
50
60
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
PC GNP
Total Fertility Rate
Total Fertility Rate
0
1
2
3
4
5
6
7
8
9
0 5,000 10,000 15,000 20,000 25,000 30,000
PC GNP
Labor Market Structure
Formal Sector– most desired place to work
– higher wages
– unemployment exists
Informal Urban Sector– lower paid
– absorbs new migrants
Rural Market– still the major employer in many countries
Labor Force Growth Rates
LowIncome
LowerMiddleIncome
UpperMiddleIncome
UpperIncome
0
0.5
1
1.5
2
2.5
LowIncome
LowerMiddleIncome
UpperMiddleIncome
UpperIncome
Labor Force Growth Rate
Population of Working Age and Labor Force Size
Low
Inco
me
Low
erM
iddl
eIn
com
e
Upp
erM
iddl
eIn
com
e
Upp
erIn
com
e0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
1,800,000,000
2,000,000,000L
owIn
com
e
Low
erM
iddl
eIn
com
e
Upp
erM
iddl
eIn
com
e
Upp
erIn
com
e
Population 15-64
Labor Force
Structural Patterns in Employment
As agriculture declines in the course of development, labor migrates to the cities and enters the formal or informal labor market.
LowIncome
LowerMiddleIncome
UpperMiddleIncome
UpperIncome
0
10
20
30
40
50
60
70
80
LowIncome
LowerMiddleIncome
UpperMiddleIncome
UpperIncome
Urban Population as % of Total
Can Industry Absorb a Rapidly Growing Labor Force?
Suppose 20% in Urban Sector and 80% in Rural Sector (Initially)
Suppose 3% labor force growth rate Question: What percent growth in urban
jobs are necessary for complete absorption? See Excel Worksheet Example
