Economic Growth
Long-Run Economic Growth
UGBS 204: Macroeconomics for Business
Economic Growth
Outline
1 Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Outline
1 Economic Growth
Meaning of Economic Growth
Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
What is Economic Growth?
Economic growth relates to long-term changes in real GDP
Can be dened as expansion of the country's potential GDP or national output
It is sustained expansion in the production of goods and services in an economy over time
A steady increase in the market value of goods and services produced by an economy overtime
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
What is Economic Growth?
Economic growth relates to long-term changes in real GDP Can be dened as expansion of the country's potential GDP or national output
It is sustained expansion in the production of goods and services in an economy over time
A steady increase in the market value of goods and services produced by an economy overtime
Economic growth can also be seen as expansion of a country's production possibilities frontier
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
What is Economic Growth?
Economic growth relates to long-term changes in real GDP Can be dened as expansion of the country's potential GDP or national output
It is sustained expansion in the production of goods and services in an economy over time
A steady increase in the market value of goods and services produced by an economy overtime
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
What is Economic Growth?
Economic growth relates to long-term changes in real GDP Can be dened as expansion of the country's potential GDP or national output
It is sustained expansion in the production of goods and services in an economy over time
A steady increase in the market value of goods and services produced by an economy overtime
Economic growth can also be seen as expansion of a country's production possibilities frontier
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
What is Economic Growth?
Economic growth relates to long-term changes in real GDP Can be dened as expansion of the country's potential GDP or national output
It is sustained expansion in the production of goods and services in an economy over time
A steady increase in the market value of goods and services produced by an economy overtime
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Economic Development
Economic development is close related to economic growth
Broadly speaking,the process of economic development refers to sustained expansion in the capacity of an economy to provide for the material wellbeing of its members above and beyond the level of subsistence
While growth of income per capita is an essential for economic development, economic growth does not necessarily lead to economic development
Economic development can be seen as economic growth accompanied by material changes in peoples standards of living
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Economic Development
Economic development is close related to economic growth
Broadly speaking,the process of economic development refers to sustained expansion in the capacity of an economy to provide for the material wellbeing of its members above and beyond the level of subsistence
While growth of income per capita is an essential for economic development, economic growth does not necessarily lead to economic development
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Economic Development
Economic development is close related to economic growth
Broadly speaking,the process of economic development refers to sustained expansion in the capacity of an economy to provide for the material wellbeing of its members above and beyond the level of subsistence
While growth of income per capita is an essential for economic development, economic growth does not necessarily lead to economic development
Economic development can be seen as economic growth accompanied by material changes in peoples standards of living
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Economic Development
Economic development is close related to economic growth
Broadly speaking,the process of economic development refers to sustained expansion in the capacity of an economy to provide for the material wellbeing of its members above and beyond the level of subsistence
While growth of income per capita is an essential for economic development, economic growth does not necessarily lead to economic development
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Outline
1 Economic Growth
Meaning of Economic Growth
Importance of long-term Growth
Sources of Economic Growth
Economic growth and income distribution
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Importance of long-term growth rate
According to World Bank's World Development Indicators, Ghana GDP per capita in 1960 was $182.98
In the 50 years since 1960, annual per capita GDP growth rate was 4.036% so the per capita GDP in 2010 was $1323.1
GDP per capita2010= $182.98(1+0.04036)50
If the growth rate of per capita income over the subsequent 50 years had been only 1 percentage point higher, what will GDP per capita be in 2010?
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Importance of long-term growth rate
According to World Bank's World Development Indicators, Ghana GDP per capita in 1960 was $182.98
In the 50 years since 1960, annual per capita GDP growth rate was 4.036% so the per capita GDP in 2010 was $1323.1
GDP per capita2010= $182.98(1+0.04036)50
If the growth rate of per capita income over the subsequent 50 years had been only 1 percentage point higher, what will GDP per capita be in 2010?
GDP per capita2010= $182.98(1+0.05036)50=2134.6
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Importance of long-term growth rate
According to World Bank's World Development Indicators, Ghana GDP per capita in 1960 was $182.98
In the 50 years since 1960, annual per capita GDP growth rate was 4.036% so the per capita GDP in 2010 was $1323.1
GDP per capita2010= $182.98(1+0.04036)50
If the growth rate of per capita income over the subsequent 50 years had been only 1 percentage point higher, what will GDP per capita be in 2010?
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and standards of living
Per capita income/GDP is the total GDP divided by the total population
It is commonly used as a measure of the standard of living of a country
Economic growth is very important for expanding living standards
Sometimes people measuring economic growth with increases in the per capita GDP
A steady increase in the market value of goods and services produced by an economy overtime
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and standards of living
Per capita income/GDP is the total GDP divided by the total population
It is commonly used as a measure of the standard of living of a country
Economic growth is very important for expanding living standards
Sometimes people measuring economic growth with increases in the per capita GDP
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and standards of living
Per capita income/GDP is the total GDP divided by the total population
It is commonly used as a measure of the standard of living of a country
Economic growth is very important for expanding living standards
Sometimes people measuring economic growth with increases in the per capita GDP
A steady increase in the market value of goods and services produced by an economy overtime
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and standards of living
Per capita income/GDP is the total GDP divided by the total population
It is commonly used as a measure of the standard of living of a country
Economic growth is very important for expanding living standards
Sometimes people measuring economic growth with increases in the per capita GDP
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and standards of living
Rapid economic growth allows countries to more of everything to their citizens
better food and bigger homes more resources for health care universal education for children better pensions for retires
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Outline
1 Economic Growth
Meaning of Economic Growth Importance of long-term Growth
Sources of Economic Growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
...Many roads lead to Rome
There are many dierent successful strategies to sustained economic growth
Britain became world economic leader in the 19th century by pioneering the Industrial Revolution
Japan became world economic superpower by initially imitating foreign technologies
it then developed high level of expertise in manufacturing and electronics
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
...Many roads lead to Rome
There are many dierent successful strategies to sustained economic growth
Britain became world economic leader in the 19th century by pioneering the Industrial Revolution
Japan became world economic superpower by initially imitating foreign technologies
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
...Many roads lead to Rome
There are many dierent successful strategies to sustained economic growth
Britain became world economic leader in the 19th century by pioneering the Industrial Revolution
Japan became world economic superpower by initially imitating foreign technologies
it then developed high level of expertise in manufacturing and electronics
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
The four wheels of growth
Although there dierent individual paths to sustained
economic growth, there are common fundamental factors the underlie all sustained economic expansion
Aggregate production/ GDP (Q) is produced using the following technological relationship: Q=AF(K,L,R)
where A: level of technology in the economy K is productive services of capital
L is labour units R is raw material inputs
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
The four wheels of growth
Although there dierent individual paths to sustained
economic growth, there are common fundamental factors the underlie all sustained economic expansion
Aggregate production/ GDP (Q) is produced using the following technological relationship: Q=AF(K,L,R)
where A: level of technology in the economy K is productive services of capital
L is labour units R is raw material inputs
If GDP is produced with these inputs, growth rate of GDP will come from growth rate of these inputs
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
The four wheels of growth
Although there dierent individual paths to sustained
economic growth, there are common fundamental factors the underlie all sustained economic expansion
Aggregate production/ GDP (Q) is produced using the following technological relationship: Q=AF(K,L,R)
where A: level of technology in the economy K is productive services of capital
L is labour units R is raw material inputs
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Human Resources and Economic growth
Human resources refer to the quantity and quality of labour inputs
The quantity of human resources refer to the labour supply The quality of the labour resources depend on education, skills, discipline motivation etc
Many economists believe that the quality of labour inputs is the single most important element of economic growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Human Resources and Economic growth
Human resources refer to the quantity and quality of labour inputs
The quantity of human resources refer to the labour supply
The quality of the labour resources depend on education, skills, discipline motivation etc
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Human Resources and Economic growth
Human resources refer to the quantity and quality of labour inputs
The quantity of human resources refer to the labour supply The quality of the labour resources depend on education, skills, discipline motivation etc
Many economists believe that the quality of labour inputs is the single most important element of economic growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Human Resources and Economic growth
Human resources refer to the quantity and quality of labour inputs
The quantity of human resources refer to the labour supply The quality of the labour resources depend on education, skills, discipline motivation etc
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Capital and Economic growth
Capital includes
tangible capital goods like roads, power plants equipment and machines like trucks and computers intangible goods like computer software
One of the important stories of economic growth in the recent times is rapid accumulation of capital
Accumulation of this capital requires sacrices of current consumption over many years
this means higher savings that used to nance investment that builds up this capital
Therefore, the savings rate is a key determinant of economic growth in many models of economic growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Capital and Economic growth
Capital includes
tangible capital goods like roads, power plants equipment and machines like trucks and computers intangible goods like computer software
One of the important stories of economic growth in the recent times is rapid accumulation of capital
Accumulation of this capital requires sacrices of current consumption over many years
this means higher savings that used to nance investment that builds up this capital
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Capital and Economic growth
Capital includes
tangible capital goods like roads, power plants equipment and machines like trucks and computers intangible goods like computer software
One of the important stories of economic growth in the recent times is rapid accumulation of capital
Accumulation of this capital requires sacrices of current consumption over many years
this means higher savings that used to nance investment that builds up this capital
Therefore, the savings rate is a key determinant of economic growth in many models of economic growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Capital and Economic growth
Capital includes
tangible capital goods like roads, power plants equipment and machines like trucks and computers intangible goods like computer software
One of the important stories of economic growth in the recent times is rapid accumulation of capital
Accumulation of this capital requires sacrices of current consumption over many years
this means higher savings that used to nance investment that builds up this capital
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Natural Resources and Economic growth
Important natural includes arable land, oil, gas, forests, water and mineral deposits
Some currently developed countries have grown primarily on the basis of their ample resource base
prime examples are Canada and Norway
However, as the example of many African countries show, possession of abundant resources is neither necessary nor sucient for economic success
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Natural Resources and Economic growth
Important natural includes arable land, oil, gas, forests, water and mineral deposits
Some currently developed countries have grown primarily on the basis of their ample resource base
prime examples are Canada and Norway
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Natural Resources and Economic growth
Important natural includes arable land, oil, gas, forests, water and mineral deposits
Some currently developed countries have grown primarily on the basis of their ample resource base
prime examples are Canada and Norway
However, as the example of many African countries show, possession of abundant resources is neither necessary nor sucient for economic success
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Technology, innovation and Economic growth
Technological change denotes changes int he processes of production or introduction of new products and services
Technological change promotes growth by enhancing productivity
process inventions such as steam engine, internal combustion engine, microprocessor greatly increased productivity
According neoclassical growth models, technological progress is the main source of sustained long-term growth in living standards
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Technology, innovation and Economic growth
Technological change denotes changes int he processes of production or introduction of new products and services Technological change promotes growth by enhancing productivity
process inventions such as steam engine, internal combustion engine, microprocessor greatly increased productivity
According neoclassical growth models, technological progress is the main source of sustained long-term growth in living standards
Technological progress is however a complex and multifaceted process and there is not clear formula for acheiving success
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Technology, innovation and Economic growth
Technological change denotes changes int he processes of production or introduction of new products and services Technological change promotes growth by enhancing productivity
process inventions such as steam engine, internal combustion engine, microprocessor greatly increased productivity
According neoclassical growth models, technological progress is the main source of sustained long-term growth in living standards
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Technology, innovation and Economic growth
Technological change denotes changes int he processes of production or introduction of new products and services Technological change promotes growth by enhancing productivity
process inventions such as steam engine, internal combustion engine, microprocessor greatly increased productivity
According neoclassical growth models, technological progress is the main source of sustained long-term growth in living standards
Technological progress is however a complex and multifaceted process and there is not clear formula for acheiving success
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Outline
1 Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
When we use per capita income as the yardstick we ignore the eect of growth on income distribution
Not everyone benets from growth equally because growth is normally distributed through increased wages and higher prots;
The poorest who are unemployed therefore do not share in the growth
When growth is driven mainly by technological change it leads to loss of jobs, and thus not everyone shares in the growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
When we use per capita income as the yardstick we ignore the eect of growth on income distribution
Not everyone benets from growth equally because growth is normally distributed through increased wages and higher prots;
The poorest who are unemployed therefore do not share in the growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
When we use per capita income as the yardstick we ignore the eect of growth on income distribution
Not everyone benets from growth equally because growth is normally distributed through increased wages and higher prots;
The poorest who are unemployed therefore do not share in the growth
When growth is driven mainly by technological change it leads to loss of jobs, and thus not everyone shares in the growth
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
Thus we should note that in even in periods of high growth, the distribution may be unequal
Some will face extreme poverty and hardships and so there will be need for redistribution policies to avert the hardships
Empirically the relationship between economic growth and income distribution is not clear
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
Thus we should note that in even in periods of high growth, the distribution may be unequal
Some will face extreme poverty and hardships and so there will be need for redistribution policies to avert the hardships
Empirically the relationship between economic growth and income distribution is not clear
Redistribution policies are pro-poor policies to make growth share growth. Here the increment in real GDP is redistributed through gov't. intervention
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
Thus we should note that in even in periods of high growth, the distribution may be unequal
Some will face extreme poverty and hardships and so there will be need for redistribution policies to avert the hardships
Empirically the relationship between economic growth and income distribution is not clear
Economic Growth
Meaning of Economic Growth Importance of long-term Growth Sources of Economic Growth
Economic growth and income distribution
Growth and income distribution
Thus we should note that in even in periods of high growth, the distribution may be unequal
Some will face extreme poverty and hardships and so there will be need for redistribution policies to avert the hardships
Empirically the relationship between economic growth and income distribution is not clear
Redistribution policies are pro-poor policies to make growth share growth. Here the increment in real GDP is redistributed through gov't. intervention
