538PART NINETHE REAL ECONOMY IN THE LONG RUNThe next chapter examines in more detail how the economy’s financial mar-kets coordinate saving and investment. It also examines how government policiesinfluence the amount of saving and investment that takes place. At this point it isimportant to note that encouraging saving and investment is one way that a gov-ernment can encourage growth and, in the long run, raise the economy’s standardof living.To see the importance of investment for economic growth, consider Figure24-1, which displays data on 15 countries. Panel (a) shows each country’s growthrate over a 31-year period. The countries are ordered by their growth rates, frommost to least rapid. Panel (b) shows the percentage of GDP that each countrydevotes to investment. The correlation between growth and investment, althoughnot perfect, is strong. Countries that devote a large share of GDP to investment,such as Singapore and Japan, tend to have high growth rates. Countries that
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Liberal democracies, South Korea Singapore Japan Israel Canada Brazil West Germany Mexico United Kingdom Nigeria United States India Bangladesh Chile Rwanda