Lecture 3 Production and Growth PDF

Production and growth Lecture 3  Objectives to understand the differences in the standard of living to analyze how can rich countries maintain their high standard of living to see what policies should poor countries pursue to promote more rapid...

Production and growth Lecture 3  Objectives to understand the differences in the standard of living to analyze how can rich countries maintain their high standard of living to see what policies should poor countries pursue to promote more rapid growth and join the developed world 18.03.2024 2 Production and growth  Game – Mystery nations Country A Country B Country C Country D Country E Country F Population < 10 < 10 Between 200 and 400 100 - 150 20 - 50 > 600 (million) Surface (sq. km – thousands) 0.7 11.6 9,831.5 1,964.4 435.1 3,287.3 Life expectancy 83.4 (2021) 79.1 (2020) 77.3 (2020) 70.1 (2020) 69.1 (2020) 70.1 (2020) (years) Literacy rate (% of population 99.7% (2020) 98.7% (2014) 99.0% (2020) 93.5% (2017) 96.5% (2022) aged 15 and above) Infant mortality (per 1000 live 0.7 3.3 3.3 8.1 14.1 19.1 births) - 2021 Natural coal, copper, lead, Coal, iron ore, resources molybdenum, phosphates, manganese ore, petroleum, rare earth elements, petroleum, bauxite, natural gas, little to no petroleum, silver, copper, uranium, bauxite, gold, iron, natural gas, diamonds, natural natural gas and gold, lead, mercury, nickel, potash, phosphates, petroleum reserves, resources fish zinc, natural silver, tungsten, zinc, sulfur forests, fish, arable gas, timber petroleum, natural gas, land (56.78% of its timber, arable land total land area); 18.03.2024 3 Production and growth  Game – Mystery nations Singapore Qatar USA Mexico Iraq India Population 5.45 2.68 331.89 126.70 43.53 1407.56 (million) GDP per capita (US dollars PPP) 108,036.11 96,557.81 64,623.13 20,254.78 9,199.02 7,112.04 Surface (sq. km – thousands) 0.7 11.6 9,831.5 1,964.4 435.1 3,287.3 Life expectancy 83.4 (2021) 79.1 (2020) 77.3 (2020) 70.1 (2020) 69.1 (2020) 70.1 (2020) (years) Literacy rate (% of population 99.7% (2020) 98.7% (2014) 99.0% (2020) 93.5% (2017) 96.5% (2022) aged 15 and above) Infant mortality (per 1000 live 0.7 3.3 3.3 8.1 14.1 19.1 births) - 2021 Natural Coal, iron ore, coal, copper, lead, resources manganese ore, molybdenum, phosphates, petroleum, bauxite, natural gas, rare earth elements, petroleum, little to no petroleum, silver, copper, diamonds, uranium, bauxite, gold, iron, natural gas, natural natural gas and gold, lead, petroleum reserves, mercury, nickel, potash, phosphates, resources fish zinc, natural forests, fish, arable silver, tungsten, zinc, sulfur gas, timber land (56.78% of its 18.03.2024 petroleum, natural gas, 4 total land area); timber, arable land Production and growth  Introduction there are big differences in the countries’ standard of living growth rates vary substantially from country to country 1 – 2% in the developed economies average income doubles every 35 years 10 - 12% in China average income doubles every 7 years 18.03.2024 5 Production and growth  Introduction Teamwork Video: Colander, chapter 6 - The Bright Side What is productivity? What is the relationship between productivity and standard of living? How can we increase the level of productivity? (Time: 10 minutes) 18.03.2024 6 Production and growth  Economic growth around the world Mankiw N.G. – Principles of Economics (2012: 533) 18.03.2024 7 Production and growth  Productivity the quantity of goods and services produced from each unit of labor input What influence has Robinson’s productivity on its standard of living? Principle 8: A country’s standard of living depends on its ability to produce goods and services. 18.03.2024 8 Production and growth  Determinants of productivity What factors determine Robinson’s productivity? Physical capital per worker Human capital per worker the knowledge and skills that workers acquire through education, training and experience Natural resources per worker Japan? Technological Knowledge 18.03.2024 9 Production and growth  Economic growth and public policy What can government policy do to raise productivity and living standards? Promote saving and investment trade-off between consumption and saving the law of diminishing returns in the long run, the higher saving rate leads to a higher level of productivity and income but not to higher growth in these variables “catch-up effects” – it is easier for a poor country to grow faster (China) 18.03.2024 10 Production and growth  Economic growth and public policy What can government policy do to raise productivity and living standards? encourage foreign investments foreign direct investment foreign portfolio investments benefits – costs? foster education brain drain 18.03.2024 11 Production and growth  Economic growth and public policy What can government policy do to raise productivity and living standards? promoting good health and nutrition healthier workers are more productive R. Fogel: improved nutrition generates an increase in productivity The causal link between health and wealth runs in both directions guarantee of property rights and political stability 18.03.2024 12 Production and growth  Economic growth and public policy What can government policy do to raise productivity and living standards? free trade inward-oriented policies (tariffs, import quotas) outward-oriented policies promoting R&D activities 18.03.2024 13 Production and growth  Economic growth and public policy What can government policy do to raise productivity and living standards? management of population growth more workers to produce goods and services diluting the capital stock differences in population growth how to ameliorate the increase of population promoting technological progress 18.03.2024 14 Production and growth  Conclusions The standard of living in an economy depends on the economy’s ability to produce goods and services. Productivity depends on the physical capital, human capital, natural resources, and technological knowledge available to workers. Government policies can try to influence the economy’s growth rate in many ways: by encouraging saving and investment, encouraging investment from abroad, fostering education, promoting good health, maintaining property rights and political stability, allowing free trade, and promoting the research and development of new technologies. 18.03.2024 15 Production and growth  References N.G. Mankiw, Principles of Economics, Seventh edition, 2015, p. 235-258 (available at FoBL - Faculty of Business Library and CUL - Central University Library) 18.03.2024 16 Production and growth  at the end… 18.03.2024 17 Production and growth Valentin TOADER Faculty of Business Email: [email protected] Address: Horea Street No. 7, 400174 Cluj-Napoca, ROMANIA Phone: +4 0264 599170 Fax: +4 0264 590 110 www.facebook.com/Facultatea.de.Business www.linkedin.com/company/facultatea-de-business www.twitter.com/Business_UBB www.tbs.ubbcluj.ro