03 Production and Growth Ch25.pdf - Production and Growth...

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Production and Growth Chapter 25 1
In this Chapter Economic Growth The real economy in the long run Economic growth around the world The role and determinants of productivity Economic growth and public policy Labor input and population growth Summary 2
Economic Growth Macroeconomic growth theory studies the evolution of real ?𝐷𝑃 per person over extended periods of time. The following diagram displays (estimated) real ?𝐷𝑃 per capita in six different countries over the very long-run. Key insight from the diagram is that economic growth is a relatively recent phenomenon (starting around 1700 ). A problem is that the lines for different countries are very hard to distinguish. 3
Long-Run Real GDP per Capita I 4
Economic Growth The ?𝐷𝑃 growth rate measures how rapidly real ?𝐷𝑃 per person grew in the typical year: ? 𝑡 = 1 + 𝑔 𝑡 ? 𝑡−1 𝑔 𝑡 = ? 𝑡 − ? 𝑡−1 ? 𝑡−1 1 + 𝑔 𝑡 = ? 𝑡 ? 𝑡−1 Note that the following approximation holds: 𝑔 𝑡 ≈ ln 1 + 𝑔 𝑡 = ln ? 𝑡 ? 𝑡−1 = ln ? 𝑡 − ln ? 𝑡−1 The last equation implies that a series with constant exponential growth will generate a linear plot when using a logarithmic scale (also called a ratio scale). 5
Long-Run Real GDP per Capita II 6
Economic Growth around the World 1. When looking at real ?𝐷𝑃 , we observe great differences between countries . 2. Within a country, there are large differences in the standards of living over time (cf. Table 1 in Chapter 25). 3. Moreover the growth experiences of countries differ (that is their growth paths look very different). 7
Economic Growth around the World 1. Great differences between countries 8
Economic Growth around the World 2. Large differences in living standards over time 0 10000 20000 30000 40000 50000 60000 Real GDP per Capita in the U.S. (2011 US\$) 1000 2000 4000 8000 16000 32000 64000 Real GDP per Capita in the U.S. (2011 US\$) 9
Economic Growth around the World 2. Large differences in living standards over time (ctd.) 10
Economic Growth around the World 3. Differences in growth experiences across countries. 11
Economic Growth around the World 4. Income shares for capital and labor show no trends. Capital receives one third, labor two thirds of total income. 5. Real interest rates show no trend. 6. Real wages grow at the same rate as labor productivity (i.e. two percent in the U.S.). Note: ???𝑖??𝑙 ?ℎ??𝑒 =