Economic Growth v. Development
Development is defined by a broad collection of
indicators
– Output per person, education, health, freedom,
fertility, quality of life, institutions, etc.
 Growth is narrowly defined as the percent change in
per capita output (measured by per capita GDP or
GNP)
 Economic development (and to lesser extent,
growth) affect and are affected by population
growth.
 PRODUCTION makes wealth possible

GDP/GNP
Year
Price of
Hot dogs
Quantity of
Hot dogs
Price of
Hamburgers
Quantity of
Hamburgers
2001
$1
100
$2
50
2002
$2
150
$3
100
2003
$3
200
$4
150
Calculating Nominal GDP:
2001
($1 per hot dog x 100 hot dogs) + ($2 per hamburger x 50 hamburgers) = $200
2002
($2 per hot dog x 150 hot dogs) + ($3 per hamburger x 100 hamburgers) = $600
2003
($3 per hot dog x 200 hot dogs) + ($4 per hamburger x 150 hamburgers) = $1200
Growth and GNP or GDP
 (a)
GNP v. (b) GDP
– Value of final goods and services produced in a
year
 (a)
by citizens of a given country
 (b) within the political boundaries of a given country
 Per
capita GNP = GNP/Population
 Per capita GDP = GDP/Population
– Growth Rate Approximation

% change GNP - % change population
Real v. Nominal GDP/GNP
 Because
both prices and output change over
time, we apply a correction to the GDP that
essentially holds prices constant. This is
called REAL GDP (or GNP).
 Real GDP (or GNP) must be used to
compare production levels over time.
GNP/GDP Problems
 Omits
non-traded goods
– household production
– illegal production and other “informal” market
production
 Goes
up when bad things happen
– war
– oil spills
– sickness
 Fails
to reflect resource non-renewable
resource consumption
GNP/GDP Problems, Continued
 Currency
conversion problems
 Real v. Nominal
– Choice of base year emphasizes certain
products and de-emphasizes others.
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
The Variety of Growth Experiences
Country
Period
Real GDP per
Real GDP per
Person at
Person at End
Beginning of Period of Period
Growth Rate
(per year)
Japan
1890-1997
$1,196
$23,400
2.82%
Brazil
1900-1990
619
6,240
2.41
Mexico
1900-1997
922
8,120
2.27
Germany
1870-1997
1,738
21,300
1.99
Canada
1870-1997
1,890
21,860
1,95
China
1900-1997
570
3,570
1.91
Argentina
1900-1997
1,824
9,950
1.76
United States
1870-1997
3,188
28,740
1.75
Indonesia
1900-1997
708
3,450
1.65
United Kingdom
1870-1997
3,826
20,520
1.33
India
1900-1997
537
1,950
1.34
Pakistan
1900-1997
587
1,590
1.03
Bangladesh
1900-1997
495
1,050
0.78
Country.shp
-99 - 1310
1310 - 3540
3540 - 7540
7540 - 14520
14520 - 26980
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
N
W
E
S
Percent of Age Group Enrolled in
Tertiary Education
T ert iary E n ro llm en t
50
45
40
35
30
25
20
15
10
5
0
Low
In co m e
L o wer
M iddle
In co m e
U p p er
M iddle
In co m e
U p p er
In co m e
Population Growth Rates
Population Growth Rates
3.00
2.50
2.00
² Low-income economies
1.50
² Middle-income economies
²High-income economies
1.00
0.50
Ye ar
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0.00
Population Composition
World Population Distribution
6,000,000,000
5,000,000,000
²High-income
economies
4,000,000,000
²High-income economies
² Middle-income
economies
3,000,000,000
² Middle-income economies
² Low-income economies
2,000,000,000
² Low-income
economies
1,000,000,000
Ye ar
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0
Percent Under Age 14
Age Structure: % Under Age 14
60
50
40
30
20
10
0
0
5,000
10,000
15,000
20,000
PC GNP
25,000
30,000
35,000
Total Fertility Rate
Total Fertility Rate
9
8
7
6
5
4
3
2
1
0
0
5,000
10,000
15,000
PC GNP
20,000
25,000
30,000
Labor Market Structure

Formal Sector
– most desired place to work
– higher wages
– unemployment exists

Informal Urban Sector
– lower paid
– absorbs new migrants

Rural Market
– still the major employer in many countries
Labor Force Growth Rates
Labor Force Growth Rate
2.5
2
1.5
1
0.5
0
Low
Income
Lower
Middle
Income
Upper
Middle
Income
Upper
Income
Population of Working Age and
Labor Force Size
2,000,000,000
1,800,000,000
1,600,000,000
1,400,000,000
1,200,000,000
1,000,000,000
800,000,000
Population 15-64
Labor Force
600,000,000
Upper
Income
Upper
Middle
Income
Low
Income
0
Lower
Middle
Income
400,000,000
200,000,000
Structural Patterns in
Employment

As agriculture
declines in the
course of
development,
labor migrates
to the cities and
enters the
formal or
informal labor
market.
Urban Population as % of Total
80
70
60
50
40
30
20
10
0
Low
Income
Lower
Middle
Income
Upper
Middle
Income
Upper
Income
Can Industry Absorb a Rapidly Growing
Labor Force?
 Suppose
20% in Urban Sector and 80% in
Rural Sector (Initially)
 Suppose 3% labor force growth rate
 Question: What percent growth in urban
jobs are necessary for complete absorption?
 See Excel Worksheet Example