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The Facts of Growth – The Long Run
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #1
The Facts of Growth – The Long Run
(Real GDP at Purchasing Power Parity)
Annual Growth Rate
Output per Capita (%)
1950-1973
Real Output per Capita
(1992 dollars)
1973-1998
1950
1998
Ratio of Real Ouput
Per Capita
1998/1950
France
4.2
1.6
5,150
19,158
3.7
Germany
4.9
1.8
4,356
20,059
4.6
Japan
8.1
2.5
1,820
19,907
10.9
United Kingdom
2.5
1.9
6,870
19,005
2.8
United States
2.2
1.5
11,170
25,890
2.3
Average
4.4
1.9
5,872
20,804
3.5
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #2
The Facts of Growth – The Long Run
Observations
• Strong growth 1950-1998
• Growth rates have decreased since the mid 1970s
1950-1978 4.4% (GDP/capita doubles every 16 years)
1973-1998 1.9% (GDP/capita doubles every 37 years)
• Convergence in output/capita across countries???
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #3
The Facts of Growth – The Long Run
Convergence in Output/Capita – The OECD
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #4
The Facts of Growth – The Very Long Run
Looking across two millennia
• From the end of the Roman Empire to 1500, no
output per capita growth in Europe
• 1500-1700 -- Small growth in output per capita
(0.1%/year and 0.2%/year 1700 to 1820)
• 1820-1950 -- Modest growth (U.S. = 1.5%)
• The high-growth of the 1950s and 1960s is
unusual
Leaders in output/capita change frequently:
Italy  Netherlands  U.K.  US
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #5
The Facts of Growth – The Long Run
Looking Across Lots of Countries – Convergence ???
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #6
The Facts of Growth – The Long Run
Looking Across Countries – A Closer Look
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #7
The Facts of Growth – The Long Run
A Summary
1. Growth is not a historical necessity
There’s been lots of stagnation and decline
2. Convergence of OECD countries to the U.S.
may be the prelude to leapfrogging
3. The rapid post WWII growth was atypical
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #8
The Facts of Growth – The Long Run
Thinking About Growth: A Primer (The Solow
Model)
The Aggregate Production Function
Y = F (K, N)
Y = Aggregate Output
K = Capital
N = Labor
F: Depends on technology
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #9
The Facts of Growth – The Long Run
Returns to Scale and Returns to Factors
Constant returns to scale:
2Y = F(2K,2N)
xY = F(xK,xN)
Double all inputs  Double output
Decreasing returns to factors (capital & labor):
•
Increases in K and N lead to smaller and
smaller increases in output
•
Diminishing Marginal Productivity of Labor (MPL)
•
Diminishing Marginal Productivity of Kapital (MPK)
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #10
The Facts of Growth – The Long Run
Output and Capital per worker: Y/N and K/N
xY  f ( xK , xN )
1
x
N
Y
K
 F ( ,1)
n
n
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #11
The Facts of Growth – The Long Run
Output and Capital per worker: Diminishing MPL
Y/N = (K/N, 1)
Output per worker, Y/N
D´
C´
B´
A´
A
B
C
D
Capital per worker, K/N
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #12
The Facts of Growth – The Long Run
The Sources of Growth
Output per worker, Y/N
• An improvement in technology shifts
the production function up
F(K/N, 1)
B´
F(K/N, 1)
A´
A
Capital per worker, K/N
Blanchard: Macroeconomics
Chapter 10: The Facts of Growth – The Long Run
Slide #13