Economic GrowthAround the World

Bhawani Nandan Prasad

MBA Marketing and Strategy

Effects of Growth

• Astounding material progress in the last 100 years

• Change reflects sustained growth of incomes per head

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GDP or National Product

• National Income is measured by a country’s GDP or ‘Output’

• Facts about GDP and GDP growth:

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Looking Across Two Millennia

Agreed findings:

• From the end of the Roman Empire to roughly year 1500, there was essentially no growth of output per capita in Europe.

• From about 1500 to 1700, growth of output per capita turned positive, about 0.1% per year

• On the scale of human history, the growth of output per capita is a recent phenomenon.

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Modern Economic Growth

Period Richest g

1580 – 1820 Netherlands 0.2%

1820 – 1890 U.K. 1.2%

1890 - U.S.A. 2.2%

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Post World War II

• 1948 -1972

Japan 8.2% Germany 5.7% U.S. 2.2%

• 1965-1990

Asian Tigers:

Japan, S. Korea, Singapore, HK, Thailand, Malaysia, Indonesia, Taiwan:

g = 5.5% for the group

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Comparing Economies Across Time and Space

China-India comparison

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Growth Arithmetic

The magic of compounding:

Even a small increase in the growth rate makes a big difference if it is sustained

Why growth matters

Anything that affects the long-run rate of economic growth – even by a tiny amount – will have huge

effects on living standards in the long run.

1,081.4%243.7%85.4%

624.5%169.2%64.0%

2.5%

2.0%

…100 years…50 years…25 years

percentage increase in

standard of living after…

annual growth rate

of income per capita

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What is GDP, PPP?

• Use of GDP deflator to correct for nominal changes

• Use of PPP to correct for price inequalities

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Rapidly Increasing Inequality

• Most important fact about global incomes:

• Enormous differences

• Growth rate differentials responsible for rapid increases in disparity

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Table 7.1Mankiw: Macroeconomics, Sixth

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Useful Links

• http://www.imf.org/external/datamapper/index.php

• http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries/XD-XO?display=graph

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