The lessons of growth theory

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The lessons of growth theory
can make a positive difference in the lives of
hundreds of millions of people.

• These lessons help us
• understand why poor countries are poor
• design policies that can help them grow
• learn how our own growth rate is affected by
  shocks and our governments policies

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Huge effects from tiny differences

• In rich countries like the U.S., if government
  policies or shocks have even a small impact on
  the long-run growth rate, they will have a huge
  impact on our standard of living in the long
  run

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Huge effects from tiny differences
100 years
50 years
25 years
624.5
169.2
64.0
2.0
1,081.4
243.7
85.4
2.5
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Huge effects from tiny differences

• If the annual growth rate of U.S. real GDP per
  capita had been just one-tenth of one percent
  higher during the 1990s,
• the U.S. would have generated an additional 449
  billion of income during that decade

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International Evidence on Investment Rates and
Income per Person
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International Evidence on Population Growth and
Income per Person
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Examples of technological progress

• 1970 50,000 computers in the world2000 51
  of U.S. households have 1 or more computers
• The real price of computer power has fallen an
  average of 30 per year over the past three
  decades.
• The average car built in 1996 contained more
  computer processing power than the first lunar
  landing craft in 1969.
• Modems are 22 times faster today than two decades
  ago.
• Since 1980, semiconductor usage per unit of GDP
  has increased by a factor of 3500.
• 1981 213 computers connected to the
  Internet2000 60 million computers connected to
  the Internet