Economics 2D

CHAPTER 3
ECONOMIC GROW TH
 More often than not, people are interested in the growth of
variables rather than in the level of these variables especially
economic growth
Introduction Growth performance of economy is usually measured in
terms of growth in real GDP (not nominal!)
  
An annual growth rate calculated over a period of less than a
year indicates what will happen if that pace were sustained
for a full 12 months.
1. Growth rate between any two successive periods
(expressed as an annual rate):
Calculating
◦ % change between t-1 and t =
where I=real GDP; t-1= (2015 1);t=2015 11) f= frequency of time
annual rates of series (4 for quarterly and 1 for annual data

change
Quarterly data:

Annual data:
  

2. Another way of calculating an annual growth is to

compare the figure for a period (e.g. a quarter / year) with
the figure for the corresponding period in a previous year

Calculating
annual rates of 3. Average annual growth rate in annual data over periods
spanning more than a year
change ◦ (t=final period, t-k=initial period, k=number of years over which
rate is calculated) Unweighted
 % change in real GDP at annual rate

Current period on Current period compared

TABLE 3-1 
Year and GDP at constant
quarter*   2010 prices (Rm) previous period at with same period of previous
annual rate (a) year (b)

Growth in 2013
 
I
II
   714 320
   740 536
−14,7
  15,5
1,8
2,2
South African   III    743 229     1,5 1,8

GDP (2013 to  
 
IV
Total
   765 304
2 963 389
 12,4
   2,2
2,9
2,2

2014) 2014
 
I
II
   727 863
   750 233
−18,2
  12,9
1,9
1,3
  III    754 971    2,6 1,6
  IV    775 509  11,3 1,3
  Total 3 008 576   1,5 1,5
 Nominal aggregate (expressed at current prices) is
inappropriate
Should real GDP, GDP per capita, real GNI, real GNI
Appropriate per capita or another real measure of aggregate
economic activity be used to calculate economic
basis for growth?
calculating Basic choice: real GDP vs real GNI
economic ◦ GDP is a geographic concept – measure total
value of economic activity within geographic
growth boundaries of a country
◦ GNI measures total production / income of
residents of a country on a worldwide basis
 Choice seems simple
Appropriate ◦ If interested in volume of production within
basis for boundaries of country – use real GDP
◦ If interested in economic welfare of residents of
calculating a country – use real GNI
economic ◦ Difference between the two – Net primary
growth income to the rest of the world
Appropriate GNI is the best measure of changes in economic welfare.
basis for
calculating GDP is best indicator of changes in the level of domestic
economic economic activity.

growth
 Annual growth in
Change in terms of
Years
Real GDP (%) Real GNI (%) trade (%)

1973   4,6    9,1   20,0

1974   6,1    7,9   10,6
1975   1,7 −0,6   −5,9
1979   3,8    4,9     5,7
Growth rate 1980   6,6    8,7   11,7
1981   5,4    1,8 −16,1
1982 −0,4 −1,7   −8,7
1983 −1,8 −1,6     2,1
1984   5,1    6,1     4,7
1998   0,5    0,1     0,5
1999   2,4    1,4   −2,6
Appropriate
basis for
calculating
economic Real GDP per capita= Real GDP / population
growth for the
average
member of the
society
 Useful to plot data on a graph
Graphic
representation
of economic
growth Arithmetic scales are used to
illustrate absolute changes,
log scales are used to
illustrate relative changes
01 02 03
Expenditure side – Production side – Regional economic
Contribution of each Contribution of each growth
component of sector or kind of
aggregate spending economic activity to
to economic growth economic growth

Analysing economic growth from the expenditure and

production side
 Annual percentage change

Component/aggregate
2011 2012 2013 2014

Final consumption
expenditure by households   4,9 3,4 2,9   1,4

Expenditure Final consumption

side expenditure by general
government
  1,7 3,4 3,3   1,9

Gross capital formation   9,3 5,2 1,5 −0,6

Gross fixed capital

formation   5,7 3,6 7,6 −0,4

Gross domestic
expenditure
 Annual percentage change
Kind of economic activity
2011 2012 2013 2014

Agriculture, forestry and fishing   1,3   0,6   1,5   5,6

Mining and quarrying −0,7 −2,9   4,0 −1,6

Manufacturing   2,9   1,9   0,7   0,0

Production side Electricity, gas and water   1,4 −0,1 −0,6 −0,9

Construction (contractors)   0,4   2,1   2,7   2,9

Wholesale and retail trade, catering and

  3,8   3,6   1,9   1,3
accommodation

Transport, storage and communication   3,0   2,5   2,0   2,3

Financial intermediation, insurance, real   4,1

estate and business services
 Growth in real GDP (% Level of GDP at current
per annum) prices, 2013

Province % of total
2013 2005–2013 R millions GDP

Western Cape 2,3 3,5    485 545 13,7

Eastern Cape 1,1 2,9    272 714   7,7

Regional Northern Cape 2,1 2,2    71 142   2,0
growth
Free State 1,7 2,5    179 776   5,1

KwaZulu-Natal 2,1 3,5    565 226 16,0

North West 2,5 1,9    239 020   6,8

Gauteng 2,6 3,6 1 194 144 33,8
Mpumalanga 1,7 2,4    269 863   7,6
Limpopo 2,4 2,4    256 896   7,3