14. The problem of economics grwoth and development

14. The problem of economics grwoth and development - The...

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The Problem of Economic Growth and Development 11 November 2010 1 Reading pp.36-46, chapter 3 of Barro. 2I n t r o d u c t i o n In 2000, the rich countries of the world have a real GDP/capita around US$30,000. This high output/person means that the average household in these countries could enjoy a high standard of living — a decent house, a car probably, a couple of TV sets, education through secondary school and beyond, a high standard of health care, etc. Such high standards of living prevail in North America, most Western European countries and a few other places including Australia, New Zealand, Japan, Singapore, Taiwan, South Korea, and Hong Kong. Residents of other places are not so fortunate. Real GDP/capita in Mexico in 2000 was US$9100, China US$3900, India US$2600, and Nigeria US$740. To catch up with the high standard of living in the rich countries, these places need a high growth rate of GDP/capita. In 2006, real GDP growth in China was 10.1%. With a population growth rate of about 0.6%, Real GDP/capita growth was at 9.5%. Write y t as the growth rate of real GDP/capita in year t .Suppo s ei tg row sa t arateo f g each year. Then in year t + T ,rea lGDP/cap itais y t + T = y t (1 + g ) T y t + T y t =(1+ g ) T ln y t + T y t =ln(1+ g
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Figure 1: Economic Growth in China Say y t + T is two times y t . The natural log of 2 is 0.69. Then 0 . 69 = Tg T = 0 . 69 g . This equation gives the number of years for real GDP/capita to double for a g ivengrowthrate g . g 0.01 0.02 0.05 0.07 0.10 T 69 34.5 13.8 9.8 6.9 Number of years for GDP/capita to double Alternatively, at g =0 . 01 , the average person would be twice as well o f as his grandfather. At g =0 . 05 , the average person would be 2 5 =32 times as well o f as his grandfather! The bene f ts of sustained economic growth are tremendous. The major ques- tion of economic growth (and indeed for all of economics) is, what can we—our
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14. The problem of economics grwoth and development - The...

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