Topics in economic growth

1
Topics in economic growth
2
Overview

• Theories of economic growth
• Convergence and the developing world poverty trap
• Natural resources, location and growth
• Other issues

3
Theories of economic growth

• Classical theory the dismal science
• Neo-classical theory driven by exogeneous
  technology change
• New growth theory technological change drives
  growth but it depends on choices made by society

4
Convergence

• Are poorer countries catching up with the richer
  countries?

5
The World Economy No Convergence
100000
Hong Kong
Norway
Barbados
Mauritius
10000
Jordan
Bangladesh
Argentina
GDP per capita in 1992 (USD)
China
Poland
Suriname
1000
Rwanda
Philippines
Niger
Mozambique
45
100
100
1000
10000
100000
GDP per capita in 1970 (USD)
6
The High-Income CountriesConvergence
100000
Luxembourg
United States
Japan
Hong Kong
Switzerland
Singapore
GDP per capita in 1992 (USD)
10000
Ireland
New Zealand
Iceland
Israel
45
1000
1000
10000
100000
GDP per capita in 1970 (USD)
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Overall

• Seems to be evidence of convergence among the
  richer nations but the poorer nations are caught
  in a poverty trap
• Why?
• There is some evidence that poorer countries do
  not save enough to raise their capital per worker
  (they may save about as much as richer countries
  but not enough to catch up)

8
The Saving Rate Varies Directlywith Income

0,80
United Arab Emirates
0,60
Gabon
Singapore
Thailand
0,40
Angola
Brazil
0,20
Saving rate 1970-1995
Zaire
Denmark
0,00
Egypt
Mexico
Argentina
Uganda
-0,20
Albania
-0,40
Lebanon
-0,60
10
100
1000
10000
100000
GNP per capita in 1995 (USD)
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Other issues in the poverty trap

• Population growth tends to be higher in poorer
  countries
• Education levels are lower in poorer countries
• Poorer countries tend to have less foreign
  investment
• Poorer countries tend to have less stable
  political regimes
• Poorer countries tend to be less open to trade

10
Do natural resources and location matter?
Geography matters
Being situated in the tropics tends to reduce a
countrys annual rate of economic growth per
capita by more than 1 percentage point, other
things being equal
Being landlocked similarly tends to reduce growth
by more than half a percentage point
A heavy dependence on natural resourcesseems to
be harmful to growth
11
More Primary Exports Go Along with less Income
100000
Finland
Norway
Sweden
Denmark
Iceland
Seychelles
New Zealand
Saudi Arabia
10000
Mexico
GNP per capita in 1995 (USD)
Venezuela
Cote d'Ivoire
1000
Ecuador
Congo
Nigeria
Rwanda
100
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
1,00
Share of primary exports in total exports in 1995
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Why is there a curse of natural resources?

• Does natural wealth crowd out human investment?
• Does natural wealth simply make growth less
  necessary less likely to develop the political
  and economic institutions for growth?
• Is there always a curse Botswana 80 of exports
  are diamonds, Nigeria 90 of exports are oil (in
  mid to late 1990s).

13
Botswana, Ghana, and Nigeria GNP per capita,
1970-1995 (current US)
14
Other issues

• Education improving human capital or signaling?
• Natural resources will we run out?
• Population the aging of Australia and the
  developed world will this limit growth?