CHAPTER 3

History Growth & Contemporary development

(todaro)

The Growth Game Growth rates of national income are

followed closely by policy-makers In order to better understand

contemporary growth prospects, it is useful to examine historical growth patterns

The Economics of Growth: Capital, Labor, and Technology

Capital accumulation Population and labor force growth Technology Growth

Figure 3.1 Effect of Increases in Physical and Human Resources on the Production Possibility Frontier

Figure 3.2 Effect of Growth of Capital Stock and Land on the Production Possibility Frontier

Figure 3.3 Effect of Technological Change in the Agricultural Sector on the Production Possibility Frontier

Figure 3.4 Effect of Technological Change in the Industrial Sector on the Production Possibility Frontier

The Historical Record: Kuznet’s Six Characteristics of Modern Economic Growth

High rates of per capita income and population growth

High rates of total factor productivity increase

high rates of economic structural transformation

High rates of social, political, and ideological transformation

International economic outreach

Limited international spread of economic growth

YearPopulation in millions

GDP per personin year-2000 dollars

1000 AD 265 165

1500 AD 425 175

1800 AD 900 250

1900 AD 1625 850

1950 AD 2515 2030

1975 AD 4080 4640

2000 AD 6120 8175

Measuring the value of output historically is very tricky. There were goods that were very important at some points in time (such as covered wagons) which did not exist in earlier times and which are obsolete today.

Through 1800, average output per worker was less than $1 a day in today's terms. Nearly everyone lived in what we would call a state of poverty. The middle class is a very recent phenomenon.

Most of the growth in the average standard of living has taken place in the past 100 to 150 years.

The Limited Value of the Historical Growth Experience: Differing Initial Conditions

Physical and human resource endowments

Relative levels of per capita income and GNP

Climatic differences

Population size, distribution, and growth

The historical role of international migration

High rates of Social and Ideological transformation

Rationality Economic Planning Socail And Economic Equalization Improved institutions and Attitudes

The Limited Value of the Historical Growth Experience: Differing Initial Conditions

Physical and human resource endowments

Relative levels of per capita income and GNP

Climatic differences Population size,

distribution, and growth

The historical role of international migration

The growth stimulus of international trade

Basic R&D capabilities Stability and flexibility

of political and social institutions

Are living standards converging?

Figure 3.6 Convergence among OECD Countries but Divergence in the World as a Whole

Figure 3.6 Convergence among OECD Countries but Divergence in the World as a Whole cont’d

Concepts for Review Brain drain Capital

accumulation Capital-augmenting

technological progress

Capital-saving technological progress

Capital stock Dualism

Economic growth Economic planning Equalization

(economic and social)

Free trade Human capital Infrastructure

Concepts for Review, cont’d Labor-augmenting

technological progress

Labor-saving technological progress

Modernization ideals

Neutral technological progress

Production possibility curve

Rationality Research and

Development (R&D) Technological

progress Terms of trade Total factor

productivity (TFP)