Module 37 long run economicgrowth


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Module 37 long run economicgrowth

  1. 1. MODULE 37
  2. 2.  The key statistic used to track economic growth is real GDP per capita. Real GDP per capita is real GDP (GDP adjusted for inflation) divided by the population size (to isolate the effect of changes in the population. Growth in real GDP per capita serves as a useful summary measure of a country’s economic progress over time.
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  4. 4.  Some countries have been notably successful in growing over time. For example: China, United States Other countries have had very disappointing growth over time. For example: Argentina, Zimbabwe What explains these differences in growth rates?
  5. 5.  Long-run growth depends almost entirely on one ingredient: rising productivity. Sustained growth in real GDP per capita occurs only when the amount of output produced by the average worker increases steadily. The term labor productivity (or productivity) is used to refer either to output per worker, or to output per hour (as the number of hours worked by an average worker differs across countries)
  6. 6.  Productivity (output per worker) is found by dividing real GDP by the number of people who are working. An economy could, in the short run, put a higher percentage of its population to work in order to experience an increase of growth in output per capita.
  7. 7.  Over the long-run, the rate of employment growth is not very different from the rate of population growth In general, oveall real GDP can grow because of population growth, but any large increase in real GDP per capita must be the result of increase output per worker. That is, it must be due to higher productivity.
  8. 8.  There are three main reasons why an average worker today produces more than a worker produced in the past:1. The modern worker has far more physical capital to work with.2. The modern worker is much better educated and so possesses much more human capital.3. Modern firms have the advantage of an accumulation of technical advancements reflecting a great deal of technological progress.
  9. 9.  Capital refers to manufactured goods used to produce other goods and services. Physical capital make workers more productive.
  10. 10.  It’s not enough for a worker to have good equipment- he needs to know what to do with it. Human capital refers to the improvement in labor created by the education and knowledge embodied in the workforce. Analyses based on growth accounting suggest that education, and its effect on productivity, is even a more important determinant of growth than increases in physical capital.
  11. 11.  Progress in technology is probably the most important driver of productivity growth. Technology is broadly defined as the technical means for the production of goods and services. Workers are able to produce more than workers in the past, even with the same amount of physical and human capita, because technology has advanced over time.
  12. 12.  Historians note that past economic growth has been driven not only by major inventions, like the railroad or the semi-conductor chip, but by thousands of modest innovations, such as the flat-bottomed paper bags or Post-it notes. Experts attribute much of the productivity surge that has taken place to new technology adopted by retail companies like Wal-mart.