CH7 econ productivity

• In rich countries like Canada, the United States, and Germany, the average person has an income more than ten times as high as in a poor country.
• In Canada over the past century, the average income measured by real GDP per person has grown around 2% per year.
• This growth rate means that average income doubles every 35 years.
• Present average income is about eight times a century ago.
• Growth rates vary substantially from country to country.
• From 2000 to 2014, GDP per person in China grew 11% per year.
• This accumulated to a 357% increase in average income.
• During the same period, income per person in Zimbabwe fell 13%.
• Study of economic growth explores diversity in living standards and growth rates around the world, how rich countries maintain living, and how poor countries to promote growth.

Economic Growth Around The World

• Data on real GDP per person shows that living standards vary widely.
• Income per person in Canada is about 3.5 times higher than China, and 11 times higher than India, and many other substantial figures.
• Real GDP per person in Brazil between 1900-2014 grew 2.61% per year. In 1900 it started at $1,075 and by 2014 had reached $20,245
• Real GDP per person in Japan, 1890-2014 grew 2.59% per year, starting at $2,078 ending at $49,243
• China's per person Real GDP from 1900-2014 rate was 2.53%, moving from $990 to $17,103
• Mexico grew at 2.31% rate from 1900-2014, and grew from $1,601 to $21,609
• Germany grew at 2.11% rate. And the period covered was 1870-2014. Growing from $3,018 to $60,839
• Indonesia saw per person real GDP grow at an averaged 2.10% rate, and grew from $1,231 to $13,233 during the period of 1900 - 2014
• Canada's real GDP per person grew 1.99% per year, from $3,282 to $56,307 from 1870-2014
• Between 1900 and 2014, India's Real GDP averaged a 1.82% growth rate. Moving from $932 to $7,311
• US growth rate between 1870 and 2014 was 1.8% growing from $5,537 to $72,540
• Pakistan saw a growth rate of 1.65% between 1900 and 2014. Growing from $1,019 to $6,610
• Argentina saw a growth rate of 1.44% between 1900-2014 , growing from $3,169 to $16,245
• Bangladesh averaged a 1.43% increase between 1900 and 2014, moving from $861 to $4,324
• United Kingdom rate sat at 1.42% growth between the period 1870 - 2014, with figures moving from $6,645 to $50,697

Productivity: Its Role and Determinants

• Productivity is how much in goods and services is produced in an hour of a worker's time.
• Productivity is the key determinant of living standards
• Growth in productivity is the key determinant of growth in living standards
• For a country to enjoy a high standard of living, it must produce a large quantity of goods and services
• Determinants of productivity include
• Physical capital per worker
• Human capital per worker
• Natural resources per worker
• Technological knowledge
• Physical capital is the stock of equipment and structures used to produce goods and services
• Human capital is the knowledge and skills workers need for education, training, and experience
• Natural resources are inputs for the production of goods and services, examples are land, rivers, and mineral deposits
• Technological knowledge is society's understanding of the best ways to produce goods and services

Economic Growth and Public Policy

• Saving and investment are important factors for economic growth.
• Diminishing returns and the catch-up effect
• Investment from abroad
• Education
• Health and nutrition
• Property rights and political stability
• Free trade
• Research and development
• Population growth
• Devoting more resources to producing capital requires devoting fewer resources to producing goods and services for current consumption because resources are scarce.
• Accumulating capital involves a tradeoff.
• Encouraging saving and investment by governments also encourages overall growth and in the long run this raises the standard of living.
• Well-functioning and regulated financial market is a critical piece needed for economic growth.
• Policies raising the saving rate mean less resources toward consumption and more resources toward capital goods.
• Increasing the capital stock raises productivity which thus leads to a higher rate of growth of GDP.
• Extra capital benefits are smaller over time, so eventually growth slows down.
• Diminishing returns describes the higher saving rate leads to higher level of productivity and income in the long run, but not to higher growth.
• Diminishing returns means the benefit from an extra unit of an input declines as the quantity of the input increases.
• Catch-up effect is when countries that start off poor tend to grow more rapidly than countries that start off rich.
• Foreign direct investment is a capital investment owned and operated by a foreign entity
• Foreign portfolio investment is an investment financed with foreign money operated by domestic residents.
• Investing in human capital, through education, is just as important as investment in physical capital for long-run economic success.
• Education leads to higher wages and salaries.
• Government policy can improve standard of living by providing good schools.
• Human capital is also important for economic growth because it conveys positive externalities.
• Externalities are defined as the effect of one person's actions on the well-being of a bystander.
• Brain drain is when poor countries see large immigrations of the most highly education which raises standards of living in richer countries. Its is an issue to be addressed.
• If all things are equal, healthier workers are more productive.
• The causal links between health and wealth run both ways.
• Poor countries are poor partly because the populations are not healthy, but their populations are not healthy partly because they are poor - a vicious cycle.
• This opens the possibility of a virtuous cycle where the improved health and policies leading to rapid growth increases health outcomes that will further promote growth.
• Because the invisible hand brings supply and demand into balance in free-markets, it is important that the price systems, authority over resources and property rights are respected
• Political instability poses a threat to property rights.
• Countries with an efficient court system, honest government officials, and a stable constitution will typically enjoy a higher standard of living.
• Most economists today agree that poor countries do well to pursue outward-oriented policies that integrate these countries into the overall world market.
• Countries eliminating trade restrictions often experience the same kind of economic growth that would come after major tech advances
• Trdae volume is determined not only by government policy but also by geography.
• High living standards can be credited to new technological advances that have progressed so fast.
• A public interest can be served even if most R&D conducted from private sector
• Knowledge is a public good.
• Governments have a vested interest to promote R&D
• Canadian government has funded research in CANDU reactors , created research grants, offered tax breaks for firms who participate in R&D and have aided the patent system.
• A large population means a larger total output of goods and services, but it need not mean a higher standard of living for a typical citizen.
• Beyond effects of population size, the population interacts with the others factors of production.
• Thomas Robert Malthus (1766-1834) argued that an ever-increasing population would continually strain society's ability to provide, and would be doomed to live in poverty.
• High population limits GDP per worker because growth forces capital to be spread thinly and leads to lower productivity and GDP per worker.
• Some believe that controlling the number of children will limit population growth which can help countries.
• It is also suggested that equal treatment of women will also help population growth.
• Some economists believe that population growth has been an engine of technological progress and economic prosperity
• More scientists, inventors, and engineers come about due to better economic prosperity

Conclusion: The Importance of Long-Run Growth

• A country's standard of living depends on its ability to produce goods and services.
• Policymakers who want to encourage growth in standards of living must aim to increase their nations' productive ability.
• Economists differ in their views of the role of government in promoting economic growth.
• Government can maintain government's standard by maintaining property rights and political stability
• It is debated to whether government should target and subsidize specific industries that might be especially important for technological progress.