Econ171-EEP151_Topic_3_Growth (1).pdf

Econ171-EEP151_Topic_3_Growth (1).pdf - Econ 171/EEP 151...

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Econ 171/EEP 151: Development Economics Topic 3 – Economic Growth David Roland-Holst University of California, Berkeley Tuesday, Thursday, 11-12:30 A1 Hearst Field Annex
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2 6 September 2017 Recent Experience with Growth of GDPpc Source: Acemoglu, “Introduction to Modern Economic Growth”
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3 6 September 2017 Summary of National Growth Rates Source: Maddison (1979)
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4 6 September 2017 Income and Population Growth Suppose that GDP (y t ) grows at a constant rate of g percent per year. Suppose that population (n t ) grows at a constant rate of r percent per year. What is the growth rate of GDP per capita? Show that it is g − r In other words, population growth is a “tax” on GDP per capita. -1 0 1 2 3 4 5 6 7 China India Turkmenistan Afghanistan Azerbaijan Pakistan Kyrgyz Republic Tajikistan Rest of Asia Uzbekistan Kazakhstan Rest of World Russian Federation Mongolia Avarege United States HighIncome Asia Euro area GDPPC Pop Forecast Real GDP Growth by Country/Region (Baseline, annualized percent change, 2015-2030) Source: World Bank, IMF, IIASA
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5 6 September 2017 Savings and Growth Globally, we have seen dramatic disparities in growth experience. Why? Basic Idea: Abstaining from present consumption is the root of growth. Imagine economy with two kids of goods: consumer goods and capital goods. Income generated during production (wages, rents and profits) is spent on consumption. Who purchases producer goods? Firms. How? - via household saving and intermediation (later). Households do not spend all income on consumption goods – they save. These savings turned into investment by firms who demand capital goods that in turn expand the economy’s production/employment capacity.
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