Professional Documents
Culture Documents
Productivity
Incomes
and Growth
Around the
World
FACT 1:
There are
vast
differences
in living
standards
around the
world.
China
Singapore
Japan
Spain
Israel
India
United States
Canada
Colombia
New Zealand
Philippines
Argentina
Saudi Arabia
Rwanda
Haiti
GDP per
capita,
2012
$8,500
60,500
35,200
31,000
31,400
3,700
49,000
41,100
10,400
28,000
4,100
17,700
24,500
1,400
1,300
Growth
rate, 200610
10.6%
2.9%
0.5%
-0.3%
2.2%
7.1%
0.1%
0.1%
3.1%
0.4%
3.2%
5.9%
0%
4.4%
0.5%
Incomes
and Growth
Around the
World
FACT 1:
There are
vast
differences
in growth
rates.
China
Singapore
Japan
Spain
Israel
India
United States
Canada
Colombia
New Zealand
Philippines
Argentina
Saudi Arabia
Rwanda
Haiti
GDP per
capita,
2012
$8,500
60,500
35,200
31,000
31,400
3,700
49,000
41,100
10,400
28,000
4,100
17,700
24,500
1,400
1,300
Growth
rate, 200610
10.6%
2.9%
0.5%
-0.3%
2.2%
7.1%
0.1%
0.1%
3.1%
0.4%
3.2%
5.9%
0%
4.4%
0.5%
China
RGDP
Today
Rule of 70
A rule
by poorer
but faster-growing countries.
In the late 19
th
world.
Today, income per person is lower in the United Kingdom than in the
United States and Canada (2 former colonies of the United Kingdom).
Productivity
A countrys standard
Sustained economic growth in real GDP per capita occurs only when
the amount of output produced by the average worker increases
steadily.
This ability depends on productivity:
the average quantity of goods & services produced per unit of labor
input.
Y = real GDP = quantity of output produced
L = quantity of labor so we can write productivity as Y/L (output per
worker)
Example: Robinson Crusoe
Because he is stranded alone, he must catch his own fish, grow
his own vegetables, and make his own clothes.
His standard of living depends on his ability to produce goods and
Why Productivity Is So
Important
When
Capital
Human Capital
Natural Resources
Technological Knowledge
Physical Capital
Physical
Human Capital
But countries need not have much N to be rich (e.g., Japan imports
the N it needs).
Ex: Crusoe will have better luck catching fish if there is a plentiful
supply around his island.
Technological Knowledge
Technological
knowledge: societys
understanding of the best ways to produce g&s
Technological progress does not only mean a
faster computer, a higher-definition TV, or a smaller
cell phone.
It means any advance in knowledge that boosts
productivity (allows society to get more output from
its resources).
e.g.,
knowledge refers to
societys understanding of how to produce
g&s.
Human capital results from the effort
people expend to acquire this knowledge.
Both are important for productivity.
= A F(L, K, H, N)
Y = Output
L = quantity of labor
K = quantity of physical capital
H = quantity of human capital
N = quantity of natural resources
A function that shows how inputs are
combined to produce output.
Doubling
If workers already
have a lot of K,
giving them more
increases
productivity
fairly little.
K/L
Capital per worker
Rich countrys
growth
Poor countrys
growth
Poor country
starts here
K/L
Catch-Up Effect
Catch-up
Aggregate Output
Growth
Africas Troubles
Sub-Saharan
A C T I V E L E A R N I N G 1:
Discussion question
Which of the following policies do you think would be most
effective at boosting growth and living standards in a poor
country over the long run? Why?
a. offer tax incentives for investment by local firms
b. by foreign firms
c. give cash payments for good school attendance
d. crack down on govt corruption
e. restrict imports to protect domestic industries
f. allow free trade
32
Since
Reducing
2009
direct investment:
a capital investment (e.g., factory) that is
owned & operated by a foreign entity.
Foreign portfolio investment:
a capital investment financed with foreign money but
operated by domestic residents.
Especially
Education
Government can increase productivity by promoting
educationinvestment in human capital (H).
public schools, subsidized loans for college
Education not only increases the productivity of the
recipient, it may provide a positive externality. An
externality occurs when the actions of one person affect
the well-being of a bystander.
An educated individual may generate ideas that become
useful to others. This is an argument for public education.
Education
Nobel
A C T I V E L E A R N I N G 2:
Productivity
List
45
A C T I V E L E A R N I N G 2:
Answers
Determinants of productivity:
physical capital per worker (K/L)
human capital per worker (H/L)
natural resources per worker (N/L)
technological knowledge (A)
Policies to boost productivity:
Encourage
K /L
Encourage investment from abroad, to
raise K/L
Provide public education, to raise H/L
46
A C T I V E L E A R N I N G 2:
Answers
Determinants of productivity:
physical capital per worker (K/L)
human capital per worker (H/L)
natural resources per worker (N/L)
technological knowledge (A)
Policies to boost productivity:
Patent
Free Trade
Inward-oriented
policies
(e.g., tariffs, limits on investment from
abroad) aim to raise living standards by
avoiding interaction with other countries.
Outward-oriented policies (e.g., the
elimination of restrictions on trade or
foreign investment) promote integration
with the world economy.
Free Trade
Recall:
Trade
Countries
Research
and
Development
Spending to create and implement new technologies.
Technological
patent laws
tax incentives or direct support for
private sector R&D
grants for basic research at universities
Government Spending
Government
Population Growth
may affect living standards in 3 different ways:
1. Stretching natural resources
200 years ago, Malthus argued that pop. growth
would strain societys ability to provide for itself.
Since then, the world population has increased
sixfold. If Malthus was right, living standards
would have fallen. Instead, theyve risen.
Malthus failed to account for technological
progress and productivity growth.
Population Growth
2. Diluting the capital stock
more population = higher L = lower K/L
= lower productivity & living standards.
This applies to H as well as K:
fast pop. growth = more children
= greater strain on educational system.
Countries with fast pop. growth tend to have
lower educational attainment.
Any attempt to alleviate poverty will simply
cause the poor to have more children, returning
them to poverty.
Population Growth
contraception
promote
Population Growth
3. Promoting tech. progress
Productivity Growth
The
Chinas Pollution
CONCLUSION
In