Download economic growth

Regional Economic Policies
Prof. Cristina Brasili
2014-2015
Growth Theory
Economic Growth and the factors
which contribute to it
1.Economic Growth
We would like to respond to the question posed by
Helpman in 2004:
“What makes some countries rich and others
poor?”
1.Economic Growth
 In the pre-industrial period production and
population growth followed a malthusian model
“extensive” economic growth:
 Growth close to 0
 Unchanged standard of living
1. Economic Growth
World per capita GDP over the last 2000 years in 1990 dollars
7000
6.012
6000
5000
4000
3000
445
667
2000
1000
0
Source: an elaboration of Maddison's data
Economic Growth
 The phases of economic development after the
start of the industrial revolution
“Intensive” modern growth began with the
industrial revolution:
-production grew more than the population which
meant that there was
An increase in productivity
 Around 1820 the world's population reached one
billion
1. Economic Growth
Maddison identified five phases of economic
development after the start of the industrial
revolution:
1. 1820-1870
2. 1870-1913
3. 1913-1950
4. 1950-1973
5. 1973 to today
1.Economic Growth
There are four principal causes of growth:
1. Technological progress
1. The accumulation of physical capital
1. The growth of knowledge
1. The progressive integration of the world economy
Structural changes in the economy and the
availability of natural resources have also played
important roles in growth
1.Economic Growth
The motors of economic growth:
Technological progress
The industrial revolution involved changes
in productivity, resources and the
productive processes.
- Mechanisation of work
- Natural vegetal, animal and mineral
resources and raw materials, later replaced
by artificial ones
- The substitution of natural sources of
energy by artificial ones (Watt's steam
engine, mechanical energy obtained from
coal)
1.Economic Growth
- Between 1820 and 1990 income increased
14 fold in real terms, while energy
consumption increased 7 fold.
- However there was a 14 fold increase in
useful energy consumption
1.Economic Growth
Technological innovation takes place at
different scales:
- incremental improvements
(or learning by doing)
- Completely new inventions
(or
changing the technological paradigms
Rossi S. 2009) and their general use
1.Economic Growth
The wave of technological progress
- textiles 1762-94
-railways 1830-47
-mass production techniques and the
automobile industry, late19th - early 20th
Century
-Information technology 19611981
1.Economic Growth
Modern economic growth is characterised by:
 Rapid growth in per capita productivity
 Increase in the productivity of the workforce
 Profund changes in the economic structure
 Changes in the social structure and the
governing ideology
 The more developed nations tend to take over
other countries
 Economic growth only affects a limited area
1.Economic Growth
Modern growth causes a significant
increase in international inequality.
The present inequalities have their
origin in the period of sustained
growth.
1.Economic Growth
In 1820 there were similar conditions
for development, but the per capita
GDP in Europe was three times that
of Africa, while today it is 13 times
greater.
1.Economic Growth
Long term growth and the economic
cycle
Reasonably large fluctuations in
growth inside the long term trends of
a period.
Gap between actual and potential
production
1.Economic Growth
Economic cycle
Fluctuations due to shocks which
impact the aggregate demand
for consumption and investment (as in the
present crisis) or shocks which affect the
total supply (increases in the price of the
productive factors)
1.Economic Growth
Growth and the economic cycle: the cases
of the USA, Japan and the Congo
- USA: a regular annual growth rate of 1.9%.
Today a US citizen has a standard of living
which is 12 times greater than that of a US
citizen in 1870
- Japan: slow growth until 1950. After WWII an
annual growth rate of 4.5%. For a man of 70
his standard of living has increased more
than eight fold during his lifetime
1.Economic Growth
Growth and the economic cycle: the cases of
the USA, Japan and the Congo
- Congo: the population grew very rapidly
between 1950 and 2003, at 2.7% per
year, while production only grew by 0.8%
annually. This means that the per capita
GDP fell by -1.9% per year and was
halved over a period of 38 years
1.Economic Growth
Growth and the economic cycle:
over a long period of time small
differences in the annual growth
rate result in great differences in
income
1.Economic Growth
Economic growth: Past rates of economic
growth explain at a statistically significant
level (correlation 0.65) the present levels of
development (for the period between 1960
and 2003 for 156 countries)
However the conditions have changed in
many countries with the passage of time
1.Economic Growth
Economic growth: it is important to study
paths of growth
If however the levels of growth are compared
with the rates of growth, there were high
levels of instability in the periods between
1960 and 1980 and between 1980 and 2003
1.Economic Growth
-Human development
An alternative approach to using per
capita income
-Proposed by Amartya Sen
1.Economic Growth
Let us return to the original question:
“What makes some countries rich and
others poor?”
Basically we can reply that the
difference depends on their different
“productivity”
2. Growth Factors
GDP____= GDP___ *
Popolation employed
employed ___ *
total workforce
total workforce
popolation
-productivity of the work
-employment rate
-economic activity rate
Contribute to each component of the per
capita GDP
Growth factors
The most relevant differences in per capita
GDP are connected to important
differences in productivity.
2. Growth Factors
Accumulation of capital plays a central role
in the neo-classical approach: differences in
development are due to the rate of savings,
the structure of individual preferences and
the total productivity of the different factors.
2. Growth Factors
 The theory of endogenous growth
emphasises the importance of the
accumulation of human capital and
technological progress.
 Furthermore, accumulation of capital,
technological progress and increasing
knowledge do not “contribute” to growth
but are, indeed, GROWTH itself.
2. Growth Factors:
Immediate and fundamental
income
Endogenous
Partially
endogenous
Exogenous
endowment of the production factors
international integration
geographical characteristics
Fonte: Rodrik, Princeton University Press, 2003
productivity
istitutions
Useful indicators of economic development
INDICATORS
SOURCE
Per Capita GDP in ppp
National statistical institutions (ISTAT for Italy), EUROSTAT,
ONU, WB, PWT, OECD
HDI indices for human development
UNDP (Human Development Report)
Gini indices
National statistical institutions, EUROSTAT, ONU, WB, PWT,
OECD
Poverty indices
UNDP (Human Development Report)
Employment rate
National statistical institutions, EUROSTAT, ONU, WB, PWT,
OECD
Activity rate
National statistical institutions, ONU, WB, EUROSTAT, PWT,
OECD
Unemployment rate
National statistical institutions, ONU, WB, EUROSTAT, PWT,
OECD
Structure of the production system
National statistical institutions, WB EUROSTAT, ONU,
OECD
Openness of the system
National statistical institutions, WB EUROSTAT,
Useful indicators of economic development (continued)
INDICATORS
SOURCES
Indicators on FDI
National statistical institutions
Indicators on education and training
National statistical institutions, ONU, WB, EUROSTAT,
UNESCO OECD
Indicators on R&D and economic creativity
National statistical institutions, ONU, WB, EUROSTAT,
OECD
Indicators on savings
National statistical institutions, WB
Indicators on investment
National statistical institutions, WB
Environmental indicators
ONU, WB, UNDP, HDU, OECD
Health indicators
OMS, ONU, WB
demographic indicators
OMS, OIL, WB
Institutional indicators
ONU, WB, Trasparency International etc.
BEYOND GDP: A NEW WELL-BEING INDEX
Presentation and discussion of the “Stiglitz-Sen-Fitoussi” report, Bologna,
December 2009
At the conference “Beginning with “beyond GDP”, Enrico
Giovannini, the president of Istat, stated:
In Istanbul the Prime Minister of Bhutan, Lyonpyo Jigmi y Thinley,
stated: “We have used GDP to determine wrongfully what is in fact the
state of well-being of a country … GDP is necessary but inadequate, and
we need to develop additional indices that would tell a more
comprehensive, a more holistic story about how human society is
progressing … The human being has two needs, the needs of the body and
the needs of the mind, and what we have focused on so far is mostly the
body, perhaps only the body … So, it’s a paradigm shift that we need to
make”.
In some ways we have concentrated too much on material wellbeing and not enough on immaterial factors. Thus we need to
change the paradigms.”
To study:
Capitoli Primo e Secondo, pp.9-64
Capitolo Ottavo pp.196-229
La crescita delle nazioni, fatti e teorie
di Vittorio Daniele, Rubbettino Editore, 2008
Fonte: nostre elaborazioni su dati ISTAT-COEWEB