Lecture_0-1.ppt

Lecture_0-1 - • Hypothetical GDP Paths 7 8 9 10 11 12 1870 1890 1910 1930 1950 1970 1990 2010 year log(GDP per capita Growth 2 Growth 1 Growth 3

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
The Importance of Growth Xavier Sala-i-Martin
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
In 2007, Richest Country in the World: USA per capita income $43,000 Poorestcountry : Liberia with $385 per capita income thus Liberia was 111 times poorer than US!!! The question arises: Why? 1870 : USA per capita income was $2,244 i.e. it multiplied by 19 in 137 years the Growth rate (γ) was close to 2.2% per year. If instead γ had been 1.2 per capita income (y) would have been 10,900$ in 2007!!! (like Mexico or about one fourth of its current level). If if γ had been 3.2 percent then income per capita in 2007 would be 168,000$. No country in history has had this income yet. Thus we see that growth is really important and one percentage point difference in growth rate can make a lot of difference in the long term outcome. Fig 1.1 shows how GDP per capita would evolve for different growth rates γ.
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: • Hypothetical GDP Paths 7 8 9 10 11 12 1870 1890 1910 1930 1950 1970 1990 2010 year log (GDP per capita) Growth 2% Growth 1% Growth 3% Doubling Income Every X years • If g is the growth rate, income doubles every 72/g years – If g=1.2, income doubles every 72/1.2= 60 years – If g=2.2, income doubles every 72/2.2= 32.7 years – If g=3.2, income doubles every 72/3.2= 22 years Doubling Income • Old Chinese philosopher – Put one penny in first square of chessboard and double it for every square. At the end we have 92,233,720,368,547,800 dollars (92 million billions) (=2^63) – If double it only for white squares, then we have “only” 21,474,836 dollars (21 million) (=2^31) Lesson: doubling income every decade, or every two decades or every six decades has ENORMOUS CONSEQUENCES FOR INCOME IN THE LONG RUN. Hence GROWTH MATTERS A LOT...
View Full Document

This note was uploaded on 09/28/2010 for the course ECON ECON W3213 taught by Professor Jonsteinsson during the Spring '10 term at Columbia.

Page1 / 5

Lecture_0-1 - • Hypothetical GDP Paths 7 8 9 10 11 12 1870 1890 1910 1930 1950 1970 1990 2010 year log(GDP per capita Growth 2 Growth 1 Growth 3

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online