Economic growth& development

A. Economic growth& development meaning

 economic growth
 = ↑ produced G&S real value
 = ↑ real value potential output / full employment output
 usually associate ↑ ppl living standard
 represent by
 LRAS curve rightward shift
 PPF outward shift

 economic development
 = broad concept include
 economic growth
 developmental dimension
e.g health / education / environment / income distribution
 only achieved when most ppl have higher income lv. & living standard
 national income concentrate on small group rich ppl
 economic growth achieve
 not necessarily economic development

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B. Economic growth& development measurement

1) change in real GDP:

 real GDP measure output qty
 real GDP ↑ → economic growth
 not use nominal GDP change ∵ affect by general P lv.

2) change in per capita real GDP:

 show real output per person
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝐺𝐺𝐺𝐺𝐺𝐺
 = 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠
 per capita real GDP ↑ → G/S produced per person ↑ → economic growth
 better measure economic development than real GDP
∵ show average ppl living standard

3) HDI (= human development index):

 measure economic& social development lv. base on 3 dimension
 long& healthy life (=life expectancy index):
measure by life expectancy at birth
 knowledge (= education index):
measure by mean& expected schooling yr
 decent 體面 living standard (=income index):
measure by GNI (gross national income) per capita in PPP (purchasing
power parity)購買力平價 term

 life expectancy index:

 life expectancy = how long ppl expect to live
 life expectancy at birth
→ show ppl health& health care provision (=supply)
 better health + ↑ lifespans 壽命 → ↑ productivity → ↑ living standard
 social condition affect life expectancy

 education index:
 mean& expect schooling yr → show how ppl well educate
 mean schooling yr
→ measure avg. yr person aged 25/older spent in school
 expect schooling yr
→ measure schooling yr school entrance age child expect to receive
 better educate labor force → ↑ productivity → ↑ living standard

 income index:
 show total production / income / expenditure
 ↑ income → usually ↑ living standard

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C. HDI
 3 index range from 0-1
 𝐻𝐻𝐻𝐻𝐻𝐻 = 3�𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 ∗ 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 ∗ 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖
 HDI ↑ comprehensive ppl well being indicator than real& per capita real GDP
∴ better economic development indicator
 ↑ HDI = better

D. GDP at PPP (purchasing power parity)

 = sum all G&S value + value at P in a selected country (usually US)
貨幣透過匯率在兩地之間兌換後，仍然能夠購買相同的貨品，使購買力不保持變 。例同，$10
在香港可以買到一個巨無霸，$10 兌換成美元後，在美國一樣可以買到一個相同的巨無霸。

 economist prefer when

 investigate per-capita welfare
 compare living condition
 compare resource use

 HDI show economic development lv. ADV:

 take ↑ dimension into account e.g life expectancy
∴ ↑ comprehensive& balance
→ show economic development than real GDP/GNI change
 provide important policy implication to policy maker

 HDI show economic development lv. limitation:

 not cover other ppl well-being dimension
e.g income distribution
 not take dimension quality into account
e.g education quality
 3 indices equal weight
∴ subject to debate relative importance to ppl well-being& economic development

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E. Factor affect economy growth

 input
 economic growth affected by input qty& quality
 economic growth when
 ↑ productive resource qty
 ↑ productive resource quality
e.g productivity

1) physical capital:
 = capital good stock
e.g machinery / equipment
 used in production → ↑ other factor of production productivity
 can ↑ by investment
 no adequate domestic saving → hinder physical capital accumulation
e.g financial capital

2) human capital:
 = knowledge& skill accumulation → ↑ worker productivity
 can acquire by education / training / on the job experience
 brain drain 人才外流 hinder human capital accumulation
e.g human capital flight

3) natural resource:
 provide by nature
 2 types: renewable resource& non renewable resource
 ↑ natural resource → can produce ↑ G&S
 ↓ natural resource → not necessarily slower economic growth

4) tech. change:
 = new product& tech. discovery& application
 tech. advanced → ↑ output produce with same resource amount
 brought by production technique& product innovation
 different from change in human capital

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 policies
1) saving& investment:
 saving
 finance investment
 help capital accumulation
 ↑ capital → ↑ productivity

 govt. encourage saving& investment with tax policy

 ↓ interest tax rate / remove interest tax → encourage household saving
 ↓ profit tax rate →
• ↑ business saving
• ↑ expected return rate from investment

 ability channel saving to investment

→ depend on financial system development

 govt. regulation
 maintain sound financial system
 ensure proper financial institution running
→ ↑ ppl confidence in financial institution& financial system

2) FDI (foreign direct investment)；

 = capital investment own + operate by foreign individual/ firm
 investment fund source other than domestic saving
 ↓ tax rate + tax rebate (=refund) + tax exemption grant to foreign firm
→ attract FDI

3) trade:
 enable ppl enjoy ↑ qty& variety G& S
 specialization + trade → allow obtain capital& consumer good at ↓ cost
 ↓ trade barrier + promote free trade
→ allow enjoy free trade benefit

4) education:
 = human capital investment
 policy ↑ literacy rate& improve schooling quality
→ ↑ human capital
 developing country can provide grant / loan for talented student study oversea
but may arise brain drain problem

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5) population:
 population ↑ →
 ↑ labor force
 ↑ worker available for production
 ↑ G& S amount require satisfy population need
 over population → may hinder economic growth
 population ↑ > GDP ↑
→ population ↑ not necessarily stimulate economic growth

6) property right:
 property right well protected → ↑ invest + ↑ start business incentive
 sound legal system + govt. protect private property right + ensure contract
fulfilment
→ attract ↑ investment + promote economic growth

7) research& development:
 R& D lead to tech& productivity improvement
 policy encourage R&D
 grant for R& D
 implement patent system for inventor& new tech.
 cultivate favorable envt. for innovation

8) economic system:
 market oriented economy ↑ adaptive to world market change than planned
economy
∴ usually ↑ economic growth
 govt. allow planned economy change to ↑ market oriented economy
→ stimulate economic growth

9) political stability:
 politically stable economy can
 attract foreign direct investment
 attract better educated professional stay to work
 tend to have ↑ economic growth

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F. Desirability of economic growth

1) improve living standard + ↓ poverty:

 economic growth →
 ↑ per capita real GDP
 ↓ poverty + ↓ associated social problem e.g poor health
 in general
 ↑ income → allow ppl consume ↑ G&S

2) better social service:

 ↑ GDP → ↑ govt. tax revenue
 ↑ revenue → govt. ↑ spending on education& medical& social service

3) capital accumulation acceleration:

 ↑ GDP + ↑ income →
 encourage ↑ capital investment → ↑ future production
 enhance tech. development + stimulate further capital accumulation

G. Cost of economic growth

1) ↓ current consumption:
 ∵ resource scarcity →
use ↑ resource produce capital good = produce ↓ G&S current consumption
 ↑ we save& invest → ↑ future productivity + ↑ living standard
∴ trade off between current& future consumption
 achieve economic growth → sacrifice current consumption for future consumption

2) uneven income distribution:

 economic growth → ↑ income
 uneven income distribution →
 few ppl enjoy economic growth benefit
 rich enjoy ↑ economic growth benefit
 income gap often widen when economic growth

3) resource exhaustion& pollution:

 economic growth lead to ↑ resource consumption
e.g petroleum
 resource exhaustion arise ∵ non-renewable resource
 economic growth → chemical waste + greenhouse gas emission → pollution
∴ ↓ ppl living standard

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H. Economic growth& sustainable development

 sustainable development:
= development meet present need without compromise (=weaken) future generation ability
to meet their need

 economic growth& environmental preservation balance

→ important to sustainable development

 promote sustainable development have to

 ↓ uneven income distribution + ↓ poverty + ↓ economic growth social problem
by govt. policy + foreign aid& assistance
 ↓ environment damage
by promote environmental conservation + use environmentally friendly production
tech.& equipment
 ↓ energy consumption
by use renewable energy e.g solar energy

I. int’l economic growth comparison

 can use GDP growth rate compare economic growth

 developed country suffer ↓ / -ve GDP growth from 2008 onward 起

∵ 2008 financial crisis

 emerging 新興 country able maintain relative ↑ growth rate

∴ become global economic growth driving force
can attribute 歸因 to catch-up effect in economic growth process

 2011 → emerging country experience moderate economic growth

∵ domestic D slowdown + deteriorating global economy esp. Euro

 slow growth developing country GDP growth rate fluctuating ∵

 poverty
 inadequate education
 corruption
but moderate economic growth in recent yr