WHY ECONOMISTS STUDY
GDP!
GDP AND CORRELATES
SCATTER PLOT OF DEATHRATES and GDP
30
25
DEATH
20
15
10
5
0
0
10000 20000 30000 40000 50000
GDP
USE THE LOG OF GDP
30
25
DEATH
20
15
10
5
0
4
5
6
7
8
LOG(GDP)
9
10
11
DRAW LINE OF BEST FIT
30
25
20
DEATH
DEATHF
15
10
5
0
4
5
6
7
8
LOG(GDP)
9
10
11
UN-LOG TO SEE IT RAW
30
25
20
15
10
5
0
0
10000 20000 30000 40000 50000
WHAT WAS THAT
EQUATION?
• DEATH RATE = 20.7-1.45LOG(GDP)
• ASIDE: MEANS DEATH RATE FALLS
BY 15% FOR EVERY 10% INCREASE
IN GDP
Suppose we look at something
less distressing:
cable subscribers per 1,000 of
the population!
Plotted against GDP
400
300
200
CABLEPER000
CABLEPER00F
100
0
0
10000 20000 30000 40000 50000
GDP
Infant mortality and GDP
200
INFMORT
160
120
80
40
0
0
10000 20000 30000 40000 50000
GDP
Only this time take log of both
sides
6
5
4
LOG(INFMORT)
LOG(INFMORTF)
3
2
1
4
5
6
7
8
LOG(GDP)
9
10
11
The red line tells us that:
• On average a 10% increase in income
means a 5% fall in infant mortality!
Life Expectancy and GDP
90
80
70
60
LIFE
LIFEF
50
40
30
0
10000 20000 30000 40000 50000
GDP
Daily Newspapers/1000
population
800
700
600
500
400
NEWS
NEWSF
300
200
100
0
0
10000 20000 30000 40000 50000
GDP
Telephones per 1,000
800
600
400
TELEPH
TELEPHF
200
0
-200
0
10000 20000 30000 40000 50000
GDP
Motor Vehicles
800
700
600
500
400
MVS
MVSF
300
200
100
0
0
10000 20000 30000 40000 50000
GDP
Women over the age of 65 per
100 Men over the age of 65
350
300
250
200
W65PERM
W65PERMF
150
100
50
0
4
5
6
7
8
LOG(GDP)
9
10
11
Country
Tonga
Russian Federation
Latvia
Estonia
Korea, Dem. Rep.
Ukraine
Belarus
Kazakhstan
Lithuania
Slovenia
Germany
Kyrgyz Republic
Botswana
Croatia
Austria
Georgia
Finland
Cambodia
Korea, Rep.
Azerbaijan
Moldova
Cape Verde
Luxembourg
Poland
Hungary
Turkmenistan
Czech Republic
W65PERM
300
232
224
217
213
212
209
207
193
186
179
178
177
175
173
172
169
169
169
168
167
167
167
166
164
164
162
United States
Vietnam
Japan
Equatorial Guinea
United Kingdom
Mauritania
Chile
Argentina
Macao, China
Malta
Denmark
Paraguay
Spain
Norway
Nigeria
Djibouti
Romania
Central African Republic
Canada
Congo, Dem. Rep.
Sweden
144
144
143
143
142
142
142
142
141
141
141
141
140
138
138
138
137
137
136
136
136
Comoros
Benin
Sri Lanka
Iran, Islamic Rep.
Cote d'Ivoire
Libya
Pakistan
Zambia
Tunisia
Kuwait
Yemen, Rep.
Bahrain
Chad
Bangladesh
Jordan
Vanuatu
Mozambique
Maldives
United Arab Emirates
Qatar
100
99
98
98
96
96
96
95
94
93
90
87
82
79
79
75
75
60
59
40
Does it Matter if We Study GDP or GNP?
• What is the difference?
• GDP speaks to domestic production
• GNP is concerned with income received by
domestic citizens
• The difference GDP-GNP=income paid to
foreigners, or
• GDP-income paid to foreigners=GNP
Why is income paid to foreigners?
• If foreigners invest capital in Canada, they
receive payments for that capital – rental
payments.
• Similarly, Canadians receive income from
their capital located outside the country.
• GNP reflects the flow of that capital.
How substantial are the differences
between GDP and GNP?
Not that much for most countries. For
example:
Country
(GNP-GDP)/GDP
Population
Kiribati
25.9
76,000
Lesotho
21.1
1,898,000
Brunei
15.4
276,000
Eritrea
9.1
3,400,000
Luxembourg
5.0
398,000
Kuwait
3.3
1,461,000
Malta
2.0
364,700
Switzerland
1.9
6,900,000
United Arab Emirates
1.9
2,230,000
Suriname
1.9
405,000
Vanuatu
1.7
160,000
Saudi Arabia
1.4
17,300,000
Lebanon
1.3
3,855,000
Qatar
1.2
580,000
Marshall Islands
1.1
50,000
What characterizes those with the
highest “imbalance”?
• Size
• Special Commodity