Download - Determinants of long-term economic growth
Determinants of long-term
economic growth
Determinants of long-term
economic growth
Economic systemsEconomic policiesEconomic institutions
Economic systemsEconomic policiesEconomic institutions
Explaining why Explaining why growth rates differgrowth rates differ
QuestionsQuestions
If the economic systems adopted by two countries are not completely different, is it nonetheless possible to trace the differences in their economic performance to their different economic policies?
Or does technology dictate growth differentials in such cases?
Or perhaps geography?
Or history?
Or all of the above?
If the economic systems adopted by two countries are not completely different, is it nonetheless possible to trace the differences in their economic performance to their different economic policies?
Or does technology dictate growth differentials in such cases?
Or perhaps geography?
Or history?
Or all of the above?
Examination of economic growth in theory and practice
Examination of economic growth in theory and practice
Growth performance of four pairs or clusters of countries since 1970
Low- and middle-income countriesBut most of the points to emerge apply to high-income countries as well
Those economies have developed quite differently over the past 30-40 years despite roughly comparable initial conditions
The four clustersThe four clusters
Thailand and Burma
Botswana, Nigeria, and Ghana
Uruguay, Argentina, and Spain
Madagascar and Mauritius
Thailand and Burma
Botswana, Nigeria, and Ghana
Uruguay, Argentina, and Spain
Madagascar and Mauritius
Burma and Thailand
Burma and Thailand
Burma1962: General Ne Win came to
power‘victorious march towards
socialism’self-reliance
but active client of IMF 1970s: respectable growthrising investment
centrally planned poor qualitystagnant export1980s: something had gone
seriously wrong
Burma1962: General Ne Win came to
power‘victorious march towards
socialism’self-reliance
but active client of IMF 1970s: respectable growthrising investment
centrally planned poor qualitystagnant export1980s: something had gone
seriously wrong
Thailandrising export ratiostrong saving and investment
performancebanking system strongly
influenced by politicians quality of investment
questionablestrong education record1960-1994: GNP per capita
increased by more than 5% per year on average compared with 1% in Burma
Thailandrising export ratiostrong saving and investment
performancebanking system strongly
influenced by politicians quality of investment
questionablestrong education record1960-1994: GNP per capita
increased by more than 5% per year on average compared with 1% in Burma
0
100
200
300
400
500
600
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
Burma
Thailand
Burma and Thailand: GNP per capita, 1960-1994 (constant 1987 US$, 1960=100)
Burma and ThailandBurma and Thailand
Burma spurts of rapid growth depressed investments of low quality plummeting exports deteriorating education evaporation of expertise political control of economic affairs
Burma spurts of rapid growth depressed investments of low quality plummeting exports deteriorating education evaporation of expertise political control of economic affairs
Thailand The stock-market crash in 1997-8 not likely to dim long-run prospects Thailand’s growth prospects continue to look
bright Thailand’s economy seems basically sound
In 1990, Burma’s military junta refused to abide by the general election victory of the opposition, led by Aung San Suu KyiIn 1996, the universities were shut down
Rapid growth over the long haul does not always have to be smooth
Annualaveragegrowth ofGNP percapita1970-1995 (in%)
GNP percapita1995(USD,adjustedforpurchasingpower)
Investmentaspercentageof GNP1995
Exports ofgoods andservices aspercentageof GNP1995
Enrollmentinsecondaryeducationaspercentageof relevantage group1993
Annualaverageinflation1970-1995(in %)
BBuurrmmaa 11..22 …… 1122 22 …… 1133
TThhaaiillaanndd 55..22 77,,554400 4433 4422 3377 66
BBoottsswwaannaa 77..33 55,,558800 2255 4499 5522 1111
NNiiggeerriiaa --00..99 11,,222200 99 2244 2299 1199
GGhhaannaa --11..22 11,,999900 1199 2255 3366 3366
UUrruugguuaayy 00..22 66,,663300 1144 1199 8811 6611
AArrggeennttiinnaa --00..44 88,,331100 1188 99 7722 118800
SSppaaiinn 22..00 1144,,552200 2211 2244 8877 1111
MMaaddaaggaassccaarr --22..44 664400 1111 2233 1144 1166
MMaauurriittiiuuss 33..11 1133,,221100 2255 5588 5599 1100
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Botswana, Nigeria, and Ghana
Botswana, Nigeria, and Ghana
Botswanaworld record in growthGDP per capita has grown by 7.5% per year since 1966dependent on natural resources - diamonds
80% of exports40% of GDP
democraticwell-managed resourcesstrong educationstable economic development11% average inflation rate
Botswanaworld record in growthGDP per capita has grown by 7.5% per year since 1966dependent on natural resources - diamonds
80% of exports40% of GDP
democraticwell-managed resourcesstrong educationstable economic development11% average inflation rate
Nigeriaoil price increase in world markets income per capita rose fourfold poor investment unproductive capital collapse of outputlow investment since 1980soil exports crowded out non-oil exports (90% of total)natural resources: a mixed blessing?
Nigeriaoil price increase in world markets income per capita rose fourfold poor investment unproductive capital collapse of outputlow investment since 1980soil exports crowded out non-oil exports (90% of total)natural resources: a mixed blessing?
Botswana, Nigeria, and Ghana
Botswana, Nigeria, and Ghana
Nigeriaoil
80% of government revenue 20% of GDP
ruled by military on and off19% inflation on average
Nigeriaoil
80% of government revenue 20% of GDP
ruled by military on and off19% inflation on average
Ghanamodel client of IMF and World
Bank since 1980sincreasing foreign tradeincreasing investment1982 - a turning pointexports of goods and services
risingnet foreign direct investment
flowing into Ghana 3.6% of GDP in 1995 compared with 2.4% in Nigeria
36% inflation on average
Ghanamodel client of IMF and World
Bank since 1980sincreasing foreign tradeincreasing investment1982 - a turning pointexports of goods and services
risingnet foreign direct investment
flowing into Ghana 3.6% of GDP in 1995 compared with 2.4% in Nigeria
36% inflation on average
Abundant natural resource wealth can turn out to be, at best, a mixed blessing
0500100015002000250030003500
BotswanaGhanaNigeria
Botswana, Ghana, and Nigeria: GNP per capita, 1970-1995 (current US$, Atlas method)
Uruguay, Argentina, and
Spain
Uruguay, Argentina, and
SpainUruguay
abundant resourcesdedication to social security and
social services South American welfare state
active role of governmentprotectionismdeclining GNP per capitatoday: quite closed economyrampant inflation
Uruguayabundant resourcesdedication to social security and
social services South American welfare state
active role of governmentprotectionismdeclining GNP per capitatoday: quite closed economyrampant inflation
Argentinagradual relative decline
political development lagged behind economic progress
landowners ruled the countryblocking decentralization,
democratization, and diversification away from agriculture
hardening conflict between landowners and
emerging urban classesgradual deterioration of living
standards
Argentinagradual relative decline
political development lagged behind economic progress
landowners ruled the countryblocking decentralization,
democratization, and diversification away from agriculture
hardening conflict between landowners and
emerging urban classesgradual deterioration of living
standardsEconomic growth Economic growth is relativeis relative
Uruguay, Argentina, and
Spain
Uruguay, Argentina, and
Spain Argentina
Perón president in 1946 high inflation rapid escalation of debt
flawed economic policies import substitutionovervaluation of the currency insufficient competition reduced foreign trade and dragged down
living standardscivil disorder, inflation, corruption, and
brain-drain slow and uneven growthstrikingly closed economyhistory of high inflation
ArgentinaPerón president in 1946
high inflation rapid escalation of debt
flawed economic policies import substitutionovervaluation of the currency insufficient competition reduced foreign trade and dragged down
living standardscivil disorder, inflation, corruption, and
brain-drain slow and uneven growthstrikingly closed economyhistory of high inflation
Spainjoined the European Union in
1986opened up its economyexpanded exports
Spainjoined the European Union in
1986opened up its economyexpanded exports
History matters for History matters for economic growth, as economic growth, as does politics ...does politics ...
... and so does ... and so does inflationinflation
Argentina, Uruguay, and Spain: GNP per capita, 1970-1995 (current US$, Atlas method)
02,0004,0006,0008,00010,00012,00014,00016,000
Argentina
Uruguay
Spain
Madagascar and Mauritius
Madagascar and Mauritius
Mauritiusmixed market economysince 1980: income per head
has increased fastdiversified economymore open to foreign trade
and investmentinvests morefarther along on its way from
agriculture to industry, trade, and services
sends more girls go to school
Mauritiusmixed market economysince 1980: income per head
has increased fastdiversified economymore open to foreign trade
and investmentinvests morefarther along on its way from
agriculture to industry, trade, and services
sends more girls go to school
Madagascarcentrally planned economysince 1980: income per head
has fallengrowth differential between the
two countries has been even larger since mid-1980s
more inflationmore dependent on exports of
raw materialsmore indebted abroad
Madagascarcentrally planned economysince 1980: income per head
has fallengrowth differential between the
two countries has been even larger since mid-1980s
more inflationmore dependent on exports of
raw materialsmore indebted abroad
05001000150020002500300035004000
Madagascar
Mauritius
Madagascar and Mauritius: GNP per capita, 1970-1995(current US$, Atlas method)
ConclusionConclusion
Country comparisons are not to be taken literally Intended to highlight some aspects of economic growth
What do the examples have in common? All point to economic factors rather than exogenous technology
economic systeminstitutionsorientation of economic policy
Key distinction: Key distinction: Endogenous growth Endogenous growth vs. exogenous vs. exogenous growthgrowth
This is the fundamental This is the fundamental message of the theory of message of the theory of endogenous growth endogenous growth