Why Do Economies Grow?
Lesson 3
Colonial Economy Mystery
North America offered no
known gold or silver for the
taking. There were no spices
to trade. Eventually, however,
the colonies were able to
prosper. Why?
Are increases in the quality and
quantity of the four key
resources needed for
economic growth and
prosperity?
Mystery Nations
Who is Wealthy?
 Some nations of the world have become wealthy, while others
have not.
 Why is this so?
 Do the quality and quantity of natural resources play a role?
 Labor?
 Capital?
 Entrepreneurial talent?
 Do economic systems and institutions matter?
 What role does a stable and well-enforced set of private property rights
play?
 What about the freedom to trade goods, services and resources?
Visual 3.2. Who Has the Highest Income?
 Country A Wealth Score =
 Country B Wealth Score =
___ Give wealthiest 4, next wealthiest 3 next wealthiest
___ Give wealthiest 4, next wealthiest 3 next wealthiest
2 and poorest 1
2 and poorest 1
 Under European colonial rule from
early 1500s until 1816
 Benefits from rich natural resources
including fertile plains, lead, zinc,
iron ore, petroleum and uranium
 Population of nearly 40 million
people in 2004 (small for a nation of
this size)
 Land size about three-tenths the size
of the United States
 Under European colonial rule from
early 1500s until 1822
 Benefits from rich natural resources
including bauxite, gold, iron ore,
nickel, phosphates, tin, uranium,
petroleum, hydropower and timber
 Population of over 184 million
 Land area slightly smaller than the
United States
Visual 3.2. Who Has the Highest Income?
 Country C Wealth Score =
___ Give wealthiest 4, next wealthiest 3 next wealthiest 2
and poorest 1
 Under European rule from the
nineteenth century until 1947
 Benefits from rich natural resources
including large coal reserves, iron
ore, manganese, mica, titanium ore,
chromite, natural gas, petroleum,
limestone and agricultural land
 Population of more than 1 billion
 Land area slightly more than onethird of the United States
 Country D Wealth Score =
___ Give wealthiest 4, next wealthiest 3 next wealthiest 2
and poorest 1
 Under European rule from 1841 to
1997
 Good harbor but no natural resources
 Population of nearly 7 million
 Land area six times larger than
Washington D.C.
Mystery Nations Revealed
Country A
Argentina
 Population
 40.482 million (July 2008 est.)
 GDP per capita
 $14,500 (2008 est.)
 Life Expectancy
 76.36 years
 Literacy Rate
 97.2%
 Infant Mortality
 11.78 deaths/1,000 live births
Country B
Brazil
 Population
 196,342,592
 GDP per capita
 $10,300 (2008 est.)
 Life expectancy
 71.71 years
 Literacy rate
 88.6%
 Infant mortality
 23.33 deaths/1,000 live births
Country C
India
 Population
 1,147,995,904 (July 2008 est.)
 GDP per capita
 $2,900 (2008 est.)
 Life Expectancy
 69.25 years
 Literacy Rate
 61%
 Infant Mortality
 32.31 deaths/1,000 live births
Region D
Hong Kong
 Population
 7,018,636 (July 2008 est.)
 GDP per capita
 $45,300 (2008 est.)
 Life Expectancy
 81.77 years
 Literacy Rate
 93.5%
 Infant Mortality
 2.93 deaths/1,000 live births
Two Additional Cases
United States
United States
 Population (07/08 est)
 303,824,640
 GDP per capita (2008 est.)
 $48,000
 Life Expectancy
 78.14 years
 Literacy Rate
 99%
 Infant Mortality
 6.3 deaths/1,000 live births
Saudi Arabia
Saudi Arabia
 Population
 28,146,656
note: includes 5,576,076 nonnationals (July 2008 est.)
 GDP per capita
 $21,300 (2008 est.)
 Life Expectancy
 76.09 years
 Literacy Rate
 78.8%
 Infant Mortality
 11.94 deaths/1,000 live births
Natural Resources Paradox
 Natural resources have
contributed to the economic
success of some nations.
 Yet, many nations with vast
stocks of natural resources
are poor.
Factors Associated with Economic
Growth
Lesson 3 Activity 3.1
Activity 3.1
Factors Associated with Economic Growth
 Private Property Rights
Question A: Would you keep
a savings account or want to
own a farm in a nation that
expropriated savings and
farmland every few years?
 Physical Capital Question
B: What incentives might
encourage the development
of physical capital?
 Human Capital
 Question C: What incentives
could a nation provide to
encourage the development
of human capital?
Activity 3.1
Factors Associated with Economic Growth
 Investment
Question D: What
incentives might encourage
people to save and invest?
 Infrastructure
Question E: How is
infrastructure similar to
investment?
Be a Planet Planner
Lesson 3 Activity 3.2
Activity 3.2
Be A Planet Planner
 The Spanish and the English
had much in common. Both
were powerful European
colonial powers. But the
results of colonial
development led to different
outcomes in North and South
America. Why?
Be A Planet Planner
 You have just been appointed by Dr. Julie Verne to the United Nations
Intergalactic Development Administration (UNIDA) Task Force for Planet
Z93.
 Your job is to advise Dr. Verne on Z93 development plans by applying two
rules:
1. People respond to incentives in predictable ways. Rewarding people for
their work, for example, encourages them to be productive.
2. People create economic systems that influence individual choices and
incentives. In order for an economy to grow, its rules must include a
system of incentives that encourages people to produce.
English Development
 England by the 17th century had
transferred some power from the
king to the parliament. Individual
property rights were better defined
and enforced.
• The Pilgrims experimented
with common land ownership
but nearly starved.
• In 1623, they replaced group
land ownership with individual
ownership.
 “This had very good success for it made all
hands very industrious, so as much more
corn was planted than otherwise would
have been by any means the Governor or
any other could use.”
 William Bradford
 Of Plymouth Plantation, 1620-1647
Spanish Development
 Spain in the 16th century was an absolute monarchy.
Individual property rights were not well defined and
enforced.
 The plan for development was to seek gold and riches - - a
transfer of wealth, not expansion.
Questions for Discussion
Questions for Discussion

How did the political institutions differ between Spain and
England?

Describe ways in which Spain influenced the economic
development of South and Central America?

Describe ways in which the English developed the eastern
coast of North America?
Policy Recommendations

Who should be allowed to own property in Z93?
Individuals? Government? Why?