ECO105_LEC04 - Notes for Lecture 4 On Closing the Per...

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Notes for Lecture 4: On Closing the Per Capita Income Gap Between Developing and Industrial Countries [October 2, 2007] Economic Concepts: economic growth, per capita GDP and per capita GDP growth, the development [prosperity] gap, the concept of convergence, compound interest and the Rule of 72, the four ‘Mission Impossible” scenarios by Thirlwall, the Larry Summer’s Challenge, obstacles to economic growth, goal of poverty reduction and the Human Development Index, the story of William Lewis in the Power of Productivity. Central Theme This lecture considers the possibilities of, and the prospects for, convergence by the low and middle income countries, taken together, towards the real GDP per capita levels of the middle and high industrial countries. Development/Prosperity Gap [Standard of Living Gap] The development gap refers to the disparities between the levels of GDP per capita [in U.S. dollars] for the developing countries versus the industrial countries. This comparative standard of living measurement may be based on conversions taken via the average foreign exchange rate method or through the purchasing-power-parity methodology as discussed in an earlier lecture. The real per capita incomes for the largest countries [on the basis of population] in the world were presented during the lecture. This list showed that Bangladesh and Nigeria, both countries with a population in excess of 100 million, had real per capita incomes of the order of $250 U.S. in 1995 dollars; India, with a population of nearly one billion, a per capita income level of $340 U. S. and the United States, with a population of 273 million, a per capita income of $27,000. The Three Goals of Growth Including Economic Convergence As a first perspective, a country’s increase in economic growth i.e., increases in real GDP, is usually listed as the most important economic goal for most countries, including the developing countries as explained in Lecture 1. . As a second and more important perspective, a country’s increase in its economic standard of living is considered more important i.e., an increases in the rate of real per capita GDP for the country. However, in the long run, the developing countries wish to approach the economic standards of living in the industrial countries. This is called convergence and involves reducing the real per capita GDP gap between the developing countries and the industrial countries.
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