Theory of economic growth Macroeconomic Theory of economic growth 2019-02-17 Arkadiusz Sieroń

Agenda What is economic growth? The importance of economic growth. Drivers of economic growth. 2019-02-17 Arkadiusz Sieroń

Some Questions Why some countries are wealthier than other? Why some countries are developing faster than other? What were the causes of Industrial Revolution? Is there a catching up? http://www.gapminder.org/ 2019-02-17 Arkadiusz Sieroń

The biggest economies in the world Rank Country GDP (millions of Int$) 1  China 19,524,348 —  European Union 19,137,699 2  United States 17,946,996 3  India 7,982,528 4  Japan 4,738,294 5  Germany 3,799,826 6  Russia 3,579,826 7  Brazil 3,198,898 8  Indonesia 2,842,241 9  United Kingdom 2,691,809 10  France 2,650,823 2019-02-17 Arkadiusz Sieroń

The wealthiest people live in: Rank Country Int$ Year 1  Qatar 141,543 2015 —  Macau 111,497 2  Luxembourg 101,926 3  Singapore 85,382 4  Brunei 78,369 5  Kuwait 74,646 6  United Arab Emirates 69,971 7  Ireland 65,144 8  Norway 61,197 9   Switzerland 61,086  Hong Kong 56,924 10  United States 56,116 2019-02-17 Arkadiusz Sieroń

The fastest developing countries Rank Country Real GDP growth rate in percent (2015) 1 Ethiopia 10.20 2 Turks and Caicos Islands 9.40 3 Monaco 9.30 4 Cote d'Ivoire 8.50 Uzbekistan Nauru 7 Republic of Ireland 7.80 8 Laos 7.60 India 7.30 9 Bangladesh 7.05 10 Dominican Republic 7.00 2019-02-17 Arkadiusz Sieroń

The Malthusian Trap and Industrial Revolution 2019-02-17 Arkadiusz Sieroń

The Malthusian Trap and Industrial Revolution 2019-02-17 Arkadiusz Sieroń

The Malthusian Trap and Industrial Revolution 2019-02-17 Arkadiusz Sieroń

Catching up 2019-02-17 Arkadiusz Sieroń

Catching up 2019-02-17 Arkadiusz Sieroń

What is economic growth? It is an increase in the output that an economy produces over a period of time. Usually, it is measured by the increase in real GDP or real GDP per capita. While growth will rise and fall with cycles, there is a long-term trend line for growth. It is an increase in the capacity of an economy to produce goods and services. 2019-02-17 Arkadiusz Sieroń

What is economic growth? 2019-02-17 Arkadiusz Sieroń

What is economic growth? 2019-02-17 Arkadiusz Sieroń

What is economic growth? 2019-02-17 Arkadiusz Sieroń

What is economic growth? 2019-02-17 Arkadiusz Sieroń

Economic Growth vs. Development Economic growth is not the same as economic development! Economic growth means an increase in real GDP. Economic development means an improvement in quality of life and living standards. Economic growth usually leads to economic development. 2019-02-17 Arkadiusz Sieroń

Why does economic development matter? „Economic growth is necessary to keep the promise (...) that each generation will have the opportunity to become more prosperous than the preceding one.” Michael Mandelbaum Growth lessens the burden of scarcity. Growth makes economy a positive-sum game. 2019-02-17 Arkadiusz Sieroń

Why does economic development matter? A small change in the growth rate can significantly affect a long-term standard of living. Rule of 70 states that the approximate number of years required to double real GDP = 70 / annual percentage growth rate. By improving growth from 3% to 4% we shave almost 6 years off of the time it takes for the economy to double in size! 2019-02-17 Arkadiusz Sieroń

Why does economic development matter? 2019-02-17 Arkadiusz Sieroń

Why does economic development matter? 2019-02-17 Arkadiusz Sieroń

Why does economic development matter? 2019-02-17 Arkadiusz Sieroń

Why does economic development matter? 2019-02-17 Arkadiusz Sieroń

Why are some countries rich and some countries poor? 2019-02-17 Arkadiusz Sieroń

Smith’s answer „Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.” 2019-02-17 Arkadiusz Sieroń

Wealth of Nations Smith’s answer Number of workers Productivity Division of labor Capital accumulation Number of workers 2019-02-17 Arkadiusz Sieroń

Possible answers Natural resources and climate. Cultural factors. Institutions. Innovations. Capital accumulation. Division of labor. 2019-02-17 Arkadiusz Sieroń

Institutions Matter 2019-02-17 Arkadiusz Sieroń

Institutions Matter 2019-02-17 Arkadiusz Sieroń

Institutions Matter Institutions – rules of the game that structure economic incentives. Rule of law (property rights, government integrity, judicial effectiveness). Government size (government spending, tax burden, fiscal health). Regulatory efficiency (business freedom, labor freedom, monetary freedom). Open markets (trade freedom, investment freedom, financial freedom). 2019-02-17 Arkadiusz Sieroń

Institutions Matter 2019-02-17 Arkadiusz Sieroń

Institutions Matter 2019-02-17 Arkadiusz Sieroń

Causes of Economic Growth 2019-02-17 Arkadiusz Sieroń

Causes of Economic Growth 2019-02-17 Arkadiusz Sieroń

Diminishing Marginal Returns to Capital 2019-02-17 Arkadiusz Sieroń

The Role of Productivity 2019-02-17 Arkadiusz Sieroń

The Role of Technology 2019-02-17 Arkadiusz Sieroń

The Role of Technology 2019-02-17 Arkadiusz Sieroń

The Role of Technology 2019-02-17 Arkadiusz Sieroń

The Role of Technology In 1950, one farmer in the U.S. fed 15 other people. By 1995, that number had increased to 128 and continues to rise.  As technology advances and farmers use more and more capital, not as many people are required to be in agriculture and are able to go produce cars, TVs, and other goods and services that we enjoy. 2019-02-17 Arkadiusz Sieroń

How to Raise Productivity? Education & Training (growth in the quality of labor, or human capital) Improvements in Efficiency (increased division of labor and specialization) Technology Capital Accumulation (a rise in capital per employee) 2019-02-17 Arkadiusz Sieroń

The Role of Capital Deepening 2019-02-17 Arkadiusz Sieroń

The Role of Savings and Investments 2019-02-17 Arkadiusz Sieroń

Summary 2019-02-17 Arkadiusz Sieroń

Questions Explain what is the economic growth. What is the difference between economic growth and economic development? How the economic growth is measured? What drives the long-run economic growth? What are the policies that could speed economic growth? 2019-02-17 Arkadiusz Sieroń

Questions What is the relationship between institutions and long run economic development? What is the optimal growth rate? Based on the course material, argue for the following three possibilities: Inequality may lead to lower growth Inequality may be beneficial for growth Inequality may be beneficial for growth in early stages of development, but may be harmful for growth at later stages of development 2019-02-17 Arkadiusz Sieroń

Questions Is it possible for an economy to continue growing forever solely by accumulating more capital?  How does an increase in the saving rate affect economic growth?    How does an increase in the population growth rate affect economic growth?  Why do countries like the United States, Germany, and Japan all seem to be converging to the same level of per capita GDP?  Why don’t all countries converge to the same level of per capita GDP as the United States, Germany, and Japan?  How does an increase in the tax rate on income from capital affect economic growth? http://marshallinside.usc.edu/joines/549/exercises/questions_ economic_growth.htm 2019-02-17 Arkadiusz Sieroń

Thanks for your attention! 2019-02-17 Arkadiusz Sieroń