World History
Centuries
– without productivity growth
– without economic growth
… without population growth
Economics for Leaders
World Events & Population Growth
Economics for Leaders
≈ 1750
World GDP per capita –
lastGDP
2000per
years
World
capita
6000
6539
Source: http://econ161.berkeley.edu/tceh/2000/world_gdp/estimating_world_gdp.html
Source:
http://econ161.berkeley.edu/tceh/2000world_gdp/estimating_world_gdp.html
1990 dollars
5000
4000
3000
2000
1000
679
98
133
178
138
0
0
200
Economics for Leaders
400
600
800
1000
Year
1200
1400
1600
1800
2000
Real GDP Per Capita
(real = inflation-adjusted to 1990 dollars)
Country
1500
1700
1850
1900
1950
1970
1980
1990
2000
United States
400
527
1,806
4,091
9,561
15,030
18,577
23,201
28,403
Canada
400
430
1,330
2,911
7,291
12,050
16,176
18,872
22,366
France
727
910
1,597
2,876
5,271
11,664
15,106
18,093
21,277
Japan
500
1,921
9,714
13,428
18,789
21,051
United Kingdom
714
1,250
6,939
10,767
12,931
16,430
20,159
Germany
688
910
3,881
10,839
14,114
15,929
18,982
Italy
1,100
1,100
1,350
1,785
3,502
9,719
13,149
16,313
18,786
Mexico
425
568
674
1,366
2,365
4,320
6,320
6,085
7,249
Brazil
400
459
686
678
1,672
3,057
5,198
4,923
5,556
China
600
600
600
545
448
778
1,061
1,871
3,421
India
550
550
533
599
619
868
938
1,309
1,885
Total Africa
414
421
500
601
890
1,355
1,538
1,449
1,474
Relatively
rich
570
679
1,180
2,330
4,492
1,428
2,985
Relatively
poor
http://www.ggdc.net/maddison/
Economics for Leaders
Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“
Real GDP Per Capita
(real = inflation-adjusted to 1990 dollars)
Country
1500
1700
1850
1900
1950
1970
1980
1990
2000
United States
400
527
1,806
4,091
9,561
15,030
18,577
23,201
28,403
Canada
400
430
1,330
2,911
7,291
12,050
16,176
18,872
22,366
France
727
910
1,597
2,876
5,271
11,664
15,106
18,093
21,277
Japan
500
570
679
1,180
1,921
9,714
13,428
Economic
take-off
18,789
21,051
United Kingdom
714
1,250
2,330
4,492
6,939
10,767
12,931
16,430
20,159
Germany
688
910
1,428
2,985
3,881
10,839
14,114
15,929
18,982
Italy
1,100
1,100
1,350
1,785
3,502
9,719
13,149
16,313
18,786
Mexico
425
568
674
1,366
2,365
4,320
6,320
6,085
7,249
Brazil
400
459
686
678
1,672
3,057
5,198
4,923
5,556
China
600
600
600
545
448
778
1,061
1,871
3,421
India
550
550
533
Relative
599
619 stagnation
868
938
1,309
1,885
Total Africa
414
421
500
601
1,449
1,474
890
1,355
1,538
http://www.ggdc.net/maddison/
EconomicsSource:
for Leaders
GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“
Real GDP Per Capita
(real = inflation-adjusted to 1990 dollars)
Country
1500
1700
1850
1900
1950
1970
1980
1990
2000
United States
400
527
1,806
4,091
9,561
15,030
18,577
23,201
28,403
Canada
400
430
1,330
2,911
7,291
12,050
16,176
18,872
22,366
France
727
910
1,597
2,876
5,271
11,664
15,106
18,093
21,277
Japan
500
570
679
1,180
1,921
9,714
13,428
18,789
21,051
United Kingdom
714
1,250
2,330
4,492
6,939
10,767
12,931
16,430
20,159
Germany
688
910
1,428
2,985
3,881
10,839
14,114
15,929
18,982
Italy
1,100
1,100
1,350
1,785
3,502
9,719
13,149
16,313
18,786
Mexico
425
568
674
1,366
2,365
4,320
6,320
6,085
7,249
Brazil
400
459
686
678
1,672
3,057
5,198
4,923
5,556
China
600
600
600
545
448
778
1,061
1,871
3,421
India
550
550
533
599
619
868
938
1,309
1,885
Total Africa
414
421
500
601
890
1,355
1,538
1,449
1,474
Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003
Economics for Leaders
AD.“ http://www.ggdc.net/maddison/
Real GDP Per Capita
(real = inflation-adjusted to 1990 dollars)
Progress
2000
Country
1500
1700
1850
1900
1950
1970
1980
1990
United States
400
527
1,806
4,091
9,561
15,030
18,577
23,201
71
28,403
Canada
400
430
1,330
2,911
7,291
12,050
16,176
18,872
56
22,366
France
727
910
1,597
2,876
5,271
11,664
15,106
18,093
29
21,277
Japan
500
570
679
1,180
1,921
9,714
13,428
18,789
42
21,051
United Kingdom
714
1,250
2,330
4,492
6,939
10,767
12,931
16,430
28
20,159
Germany
688
910
1,428
2,985
3,881
10,839
14,114
15,929
18,982
28
Italy
1,100
1,100
1,350
1,785
3,502
9,719
13,149
16,313
18,786
17
Mexico
425
568
674
1,366
2,365
4,320
6,320
6,085
7,249
17
Brazil
400
459
686
678
1,672
3,057
5,198
4,923
5,556
14
China
600
600
600
545
448
778
1,061
1,871
3,421
6
India
550
550
533
599
619
868
938
1,309
1,885
3
Total Africa
414
421
500
601
890
1,355
1,538
1,449
1,474
4
Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003
AD.“ http://www.ggdc.net/maddison/
Economics for Leaders
The Mystery of Wealth
Ample endowments of:
– Energy
– Timber
– Fertile land
– . . . help raise wealth
BUT, they are …
– only a small part of the answer to the
Wealth of Nations
Economics for Leaders
Why Capitalism Triumphs . . .
. . . in the West and Fails
Everywhere Else.
• Hernando DeSoto
• Peruvian economist
Establish property rights
– Can use ownership as collateral
• Can start businesses &
participate in market economy
• http://www.youtube.com/watc
h?v=JWakV0L8XWI
• http://www.youtube.com/watc
h?v=xODUOlHJfhI
Economics for Leaders
Investment
Secure property rights make investment more
likely.
Property Rights allow people to obtain debt.
– Use of past and future incomes.
– Collateralization is of greatest benefit to the poor.
Economics for Leaders
Investment and Growth
Economics for Leaders
Without Sound Legal Institutions . . .
Property Rights Hardly Exist
Economics for Leaders
World Corruption Index
Economics for Leaders
Do We Have a Summary Statistic
…that
– captures strength of private property rights?
– the degree of open markets?
Economics for Leaders
Economic Freedom of the World
A weighted-index of variables to include:
– Legal protection
• Corruption under control
– Limited government
•
•
•
•
Tax rates reasonable
Tariff rates (taxes on imports) low
Easy to start a new business
Limited government control of prices
Economics for Leaders
Economics for Leaders
Index of Economic Freedom
Heritage Foundation – Wall Street Journal
Economics for Leaders
World Corruption Index
Economics for Leaders
2011 GDP per capita
Economics for Leaders
Capitalism, Growth & Poverty
The extent to which these institutions are present is
a measure of economic freedom or “capitalism”
– So, strong property rights, rule of law, and open
markets makes a nation “capitalist”
Economics for Leaders
Capitalism, Growth & Poverty
Capitalism supports and promotes both
entrepreneurship and innovation
– Which in turn promote economic growth
– The result is higher standards of living
• at all points in the income distribution
Economics for Leaders
Benefits of Economic Growth
Raises standards of living by:
– reducing infant mortality
Economics for Leaders
Income Per Capita & Child Mortality
250/1000
5/1000
Economics for Leaders
Benefits of Economic Growth
Raises standards of living by:
– reducing infant mortality
– increasing life expectancy
Economics for Leaders
Income Per Capita & Life Expectancy
Economics for Leaders
Economics for Leaders
Benefits of Economic Growth
Raises standards of living by:
– reducing infant mortality
– increasing life expectancy
– reducing child labor
Economics for Leaders
Income Per Capita & Child Labor
% 10 – 14
year olds
active in
economy
Economics for Leaders
Benefits of Economic Growth
Raises standards of living by:
– reducing infant mortality
– increasing life expectancy
– reducing child labor
– providing more education
Economics for Leaders
Income Per Capita & Education
Year: 2008
Education
Index*
Per capita
GDP
Country
Education
Index*
Per capita
GDP
Australia
0.99
$35,677
South Africa
0.83
$3,975
Denmark
0.99
$36,604
Indonesia
0.83
$3,975
Finland
0.99
$35,426
Egypt
0.73
$5,416
New Zealand
0.99
$27,027
India
0.64
$2,972
Canada
0.99
$36,444
East Timor
0.55
$801
South Korea
0.99
$27,939
Bangladesh
0.52
$1,334
Ireland
0.99
$44,195
Papua N. G.
0.52
$2,208
France
0.98
$34,045
Mozambique
0.47
$897
Spain
0.97
$31,955
Gambia
0.44
$1,363
U.S.
0.97
$34,142
Ethiopia
0.39
$868
U.K.
0.96
$35,445
Chad
0.29
$1,455
Japan
0.95
$34,099
Niger
0.29
$684
Country
*United Nations Education Index, 2008; World Bank GDP/capita (ppp), 2008.
Economics for Leaders
Is Economic Growth
Good for the Poor?
Economics for Leaders
Who Are the Poor: Extreme Poverty
World Bank’s Dollar-a-Day Line
– Less than $1.25 per day
– Purchasing power parity (ppp)
Economics for Leaders
Extreme/Absolute Poverty
$1.25 per Day
Unthinkable poverty in U.S. terms
– In U.S., 80-90% of poor (below US poverty line)
• Color television, Microwave, Cell phone
• Clean running water
Extreme Poverty
– Near 0% have above amenities
• Spend 73% of budget on food
– over 50% of children malnourished
Economics for Leaders
Extreme Poverty
( < $1.25/day )
1,290,000,000
About 22% of world’s population
Economics for Leaders
World Bank
Economic Terminology
Absolute Poverty
– measured against a designated minimum
threshold of material well-being (a standard)
• current standard = $1.25/day PPP
Relative Poverty
– identified by comparing levels of material wellbeing experienced by different individuals or
groups
Economics for Leaders
Does Economic Growth . . .
. . . improve the lives of the poor
by making the pie bigger?
Bigger “slice”
means higher
standard of
living
Economics for Leaders
Recent History
Since 1750, world has made progress in battle
against absolute poverty
– experiencing a decline in the
• percentage of the population that is poor
Economics for Leaders
% of World Population in
Extreme Poverty
Economics for Leaders
More Recent History
But inroads against absolute poverty have been
– especially noteworthy in last 25 years.
For the first time in human history, the world is
experiencing not only a decline in the:
• percentage of the population that is poor
and in the
• total number of poor
Economics for Leaders
Number of People in
Extreme Poverty
1980
Economics for Leaders
The Good News & The Bad News
# People Living on < $1/day
(millions)
East Asia
& Pacific
SubSaharan
Africa
Economics for Leaders
1987
1990
1998 2000
418
472
267
261
217
227
302
323
Source:
http://www.worldbank.org/poverty/data/trends/income.htm#table1 &
Global Economic Prospects and the Developing Countries, 2005.
http://siteresources.worldbank.org/INTGEP2005/Resources/GEP10705
3_Ch01.pdf
The Good News & the Bad News …
The Good News & Some Encouraging News …
Source: World Bank Poverty and Inequality Database
http://databank.worldbank.org/Data/Views/Reports/TableView.aspx (April 30, 2012)
Economics for Leaders
So . . . Does Economic Growth
. . . improve the lives of the poor
by making the pie bigger?
Bigger “slice”
means higher
standard of
living
Economics for Leaders
Our inference?
When the rich get richer . . . .
The poor get richer too!
Economics for Leaders
Annual Growth and Poverty Reduction
Source: World Bank Poverty and Inequality Database
http://databank.worldbank.org/Data/Views/Reports/TableView.aspx
Economics for Leaders
Average Income Shares of Poor
of Country’s Population
(gross national income per person)
Sources: The World Bank Group. 2012. http://devdata.worldbank.org/data-query/ and CIA World Fact Book 2002.
http://www.umsl.edu/services/govdocs/wofact2002/index.html (Data cited are most recent available as of 2012.)
Economics for Leaders
Economic Freedom and Income
Level of Poorest 10%
Source: EFW 2007, Exhibit 1.10.
Economics for Leaders
Conclusion
What is GDP?
– Total market value of all final goods and services
produced in economy in a year.
What is best measure of nation’s standard of
living?
– GDP per capita
Economics for Leaders
Conclusion
How increase GDP per capita?
– Increase GDP
– Decrease population growth rate
How increase in GDP?
– Greater productivity
Economics for Leaders
Conclusion
How increase productivity?
– Technical knowledge
– Physical capital
– Human capital
How encourage physical & human capital,
entrepreneurship, etc.?
– Economic system & institutions supporting:
• Property rights
• Free and open markets
Economics for Leaders
Conclusion
Do all boats rise with economic growth?
– Yes, all boats rise
– But not likely at equal rates.
Economics for Leaders
Monday Evening Session
Economics for Leaders