4 Economic growth is a matter of life and death to the 1 Economic growth is a matter of life and death to the 1.8 million children who die of diarrhea each year globally.
5 Key Facts about the Wealth of Nations and Economic Growth Fact One: GDP per Capita Today Varies Enormously among Nations
6 Hans Rosling debunks myths about the so-called "developing world” with humor, data and visual flair. (19:53 minutes) or shorter talk here (4:48 minutes)About the video- From TED: Why you should listen to him:Even the most worldly and well-traveled among us will have their perspectives shifted by Hans Rosling. A professor of global health at Sweden's Karolinska Institute, his current work focuses on dispelling common myths about the so-called developing world, which (he points out) is no longer worlds away from the west. In fact, most of the third world is on the same trajectory toward health and prosperity, and many countries are moving twice as fast as the west did. What sets Rosling apart isn't just his apt observations of broad social and economic trends, but the stunning way he presents them. Guaranteed: You've never seen data presented like this. By any logic, a presentation that tracks global health and poverty trends should be, in a word: boring. But in Rosling's hands, data sings. Trends come to life. And the big picture — usually hazy at best — snaps into sharp focus. Rosling's presentations are grounded in solid statistics (often drawn from United Nations data), illustrated by the visualization software he developed. The animations transform development statistics into moving bubbles and flowing curves that make global trends clear, intuitive and even playful. During his legendary presentations, Rosling takes this one step farther, narrating the animations with a sportscaster's flair. Rosling developed the breakthrough software behind his visualizations through his nonprofit Gapminder, founded with his son and daughter-in-law. The free software — which can be loaded with any data — was purchased by Google in March (Rosling met the Google founders at TED.) Rosling began his wide-ranging career as a physician, spending many years in rural Africa tracking a rare paralytic disease (which he named konzo) and discovering its cause: hunger and badly processed cassava. He co-founded Médecins sans Frontièrs (Doctors without Borders) Sweden, wrote a textbook on global health, and as a professor at the Karolinska Institut in Stockholm initiated key international research collaborations. He's also personally argued with many heads of state, including Fidel Castro. As if all this weren't enough, the irrepressible Rosling is also an accomplished sword-swallower — a skill he demonstrated at TED2007.Back to
7 Key Facts about the Wealth of Nations and Economic Growth Wealth and Health go Together.Source: Penn World Tables and World Bank Group, World Development Indicators, 2005
8 Key Facts about the Wealth of Nations and Economic Growth Fact Two: Everyone Used to be Poor
9 Key Facts about the Wealth of Nations and Economic Growth A Primer on Growth RatesHow is economic growth measured?Where yt is per capita real GDP in year tExample: Year real GDP per capita2008 $15,000$15,500
10 The Rule of 70 (The Magic of Compounding) Example: If real GDP per capita is growing at an annual growth rate of 3.5%, it will double in:The moral? Small improvements in growth add up fast (the power of compounding).
11 Let's figure out how long it will take for the average Indian to be as wealthy as the average Western European is today. Note that all numbers are adjusting for inflation. India's GDP per capita is $3,000, and let's say that real output per person there grows at 5 percent per year. Using the rule of 70, how many years will it take for India to reach Italy's current level of GDP per capita, about $24,000 per year?42 years14 years28 years.12 yearsTo nextTry it!
13 Key Facts about the Wealth of Nations and Economic Growth Fact Three: There are Growth Miracles and Growth DisastersSee for a wealth of interactive (and animated) cross-country data.
14 High tax, generous social safety Low tax, low level of social safety Would you rather live in a country that has high taxes and a generous social safety net or a country with low taxes and little social safety?High tax, generous social safetyLow tax, low level of social safetyTo nextTry it!
15 Understanding the Wealth of Nations The Factors of Production are importantPhysical capital: the stock of tools including machines, structures, and equipment.Human capital: is the productive knowledge and skills that workers acquire through education, training and experience.Technological knowledge: knowledge about how the world works that is used to produce goods and services.
17 Understanding the Wealth of Nations Why do some nations have faster growth than others?Besides factors of production, incentives and institutions matter.Institutions = “rules of the game” that structure economic incentives.Institutions of Economic GrowthProperty rightsHonest governmentPolitical stabilityA dependable legal systemCompetitive and open markets
18 Before division after WWII: similar Korea’s ExperimentBefore division after WWII: similarCulture, physical capital, technology.North Korea became a communist state with a centrally planned economy.South Korea adopted the capitalist free market model.
20 Without property rights: InstitutionsProperty rights:Provide incentives to work hard.Encourage investment and innovation.Without property rights:Effort is divorced from payment, reducing incentives.Free riders become a problem.
21 InstitutionsFree Rider = someone who consumes a resources without working or contributing to the resource’s upkeep.China’s “Great Leap Forward”- which introduced farming collectives- reduced incentives million starved.1978, farmers in Xiaogang met in secret to devise a plan to keep some of their produce. (background photo)Productivity improved so quickly the government allowed the experiment to proceed.Food production increased 50% in 5 years
22 Institutions No one must “own” you for economic freedom to exist. Ownership is right to shape, use, and dispose.You wouldn’t think you really owned it if the governmentThe government would be the de facto owner.Ownership is control, without it you don’t “own” it.Mongolian Yaks – were owned by the government for decades (the People’s Yaks)Total Yak population did not change from 1920s to 1990s
23 Institutions – Property Rights After the collapse of central planning, property rights were assigned.The Yak population soared from 25 to 32 million in a few short yearsWhen it’s your yak, not “everybody’s” yak, you take care of the yak and make more yaksYou “share” your Yaks with other people with mutually beneficial trades involving yak products. “Sharing” when done at gun point (i.e. government confiscation of property) is not the proper term to use.
24 Institutions Honest Government Property rights are meaningless unless government guarantees property rights.Corruption bleeds resources away from productive entrepreneurs.Corruption takes resources away from more productive government activity.Stalin, not exactly the picture of honest government.
25 Corruption and Growth Don’t go Together Source: Penn World Tables and World Bank Group, World Development Indicators, 2005
27 Institutions Political Stability Changing governments without the rule of law creates uncertainty which leads to less investment in physical and human capital.In many nations civil war, military dictatorship, and anarchy have destroyed the institutions necessary for economic growth.Bullet casings from Liberia’s Civil War: Bad soil for anything to grow.
28 Dependable Legal System InstitutionsDependable Legal SystemA good legal system facilitates contracts and protects property from others (including government).Poorly protected property rights can result from too much government or too little government.In India, residents who purchase land have to do so more than once because of lack of proper record keeping.
29 Dependable Legal System “Rule of Law” – crucial to economic growth InstitutionsDependable Legal System“Rule of Law” – crucial to economic growthThe rule of law is the general concept that government as well as the governed are subject to the law and that all are to be equally protected by the law.Otherwise…..worst kinds of corruptionPower does not equal wisdom or good judgment
30 Dependable Legal System InstitutionsDependable Legal SystemMost of human history the rules by which life was governed were usually determined by force and fraudHe who had the power made the rules. Absolute monarch or tyrannical despots“Divine right of Kings” subjects accepted their rule without question
31 Competitive and Open Markets InstitutionsCompetitive and Open MarketsEncourage the efficient organization of resources.One study found: if India used its physical and human capital as efficiently as the U.S., India would be 4x richer than it is today.About the talk, from TED: The "dismal science" truly shines in this optimistic talk, as economist Alex Tabarrok argues free trade and globalization are shaping our once-divided world into a community of idea-sharing more healthy, happy, and prosperous than anyone's predictions.
32 India and China come up a lot in this chapter India and China come up a lot in this chapter. What fraction of humans live in India and China together?Roughly 1/2 of all humans.Roughly 1/4 of all humans.Roughly 1/3 of all humans.Roughly 1/5 of all humans.To nextTry it!
33 Why do poor countries use their capital inefficiently? InstitutionsWhy do poor countries use their capital inefficiently?Whether inadvertently or not, inefficient and unnecessary regulations:Create monopolies and impede marketsExample: until recently in India, it was illegal to produce shirts using large-scale productionEconomies of scale = the advantages of large-scale production that reduce average cost as quantity increases
34 Think-pair-share: Why do you think expensive red tape is hard to get rid of in many poor countries? To nextTry it!
35 Institutions and Growth Miracles Revisited Why did England’s Industrial Revolution bring us:large scale factoriesmass productionthe steam enginethe railroadthe beginnings of a consumer societythe first sustained rise in human living standards above subsistence?
36 Institutions and Growth Miracles Revisited Property rights? England’s geography and Navy helped protect property rights Honest government Growth of Parliament (and religious changes) reduced royal tyranny Political stability Middle class developed from growth A dependable legal system Less corruption as royal and Catholic power is reduced Competitive and open markets England opened itself more to trade
37 The GDP per person in both countries is roughly the same. What is the difference in GDP per person between Nigeria and Argentina?The GDP per person in both countries is roughly the same.Argentina's GDP per person is about $9,000 > Nigeria'sNigeria's GDP per person is about $9,000 > Argentina'sNone of the aboveBack to