global economic growth your role in this emerging phenomenon
DESCRIPTION
Speaking to a crowd of more than 1,000 students and other members of the University of Texas at Austin community, Dean Tom Gilligan used colorful charts and detailed graphs to explore trends in prosperity and poverty around the world. He explained how gross domestic product (GDP) is used as a measurement tool, how “real GDP” and “GDP per capita” are calculated, and how these figures are used to compare economies across regions, across populations and across the world.TRANSCRIPT
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Global Economic Growth
Your Role in This Emerging Phenomenon
Dean Thomas W. Gilligan
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State of Global Poverty World Bank Analysis on Poverty
http://devdata.worldbank.org/atlas-mdg/
Significant fraction of humans live in extreme poverty This poverty has dire consequences
Rate at which this poverty is falling varies widely across regions Some areas are improving swiftly (e.g., China) Some areas are “hard cases” (e.g., Africa)
Surprisingly, its mostly very good news 80/20 versus 20/80 (The Bottom Billion, P. Collier)
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Purpose of Tonight’s Lecture Trends in Global Economic Prosperity
Measuring Economic Prosperity Economic Prosperity and Human Well-Being Some Facts about Economic Prosperity in the
Developed and Emerging World
Key Determinants of Economic Growth
Challenges to Economic Growth Economic Growth and Income Inequality Economic Growth and the Environment
Your Part in Emerging Global Prosperity Great chance to make a BIG difference
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Measurement of Economic Prosperity Gross Domestic Product (GDP)
Value of all goods and services produced and sold through market exchange? At a particular point in time?
Admits dynamic comparisons Growth rate computations
Within a particular location or industry? Admits geographic and sectoral comparisons
Relative market performance
Fairly controversial (conceptually) What does it mean? Are people better off with
more active markets? (more later) What does it not measure?
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Gross Domestic Product (GDP)
Types of Expenditure Billions of Dollars % of GDP
Personal Consumption C 10,057.9 70.51
Gross Private Investment I 1,993.5 13.98
Government Spending G 2,882.4 20.20
Exports EX 1,859.4 13.04
Imports IM 2,528.6 17.73
Gross Domestic Product GDP 14,264.6 100.00
Expenditure Approach to GDP Accounting:United States, 2008
Source: U.S. Bureau of Economic Analysis
National Spending Identity: GDP = C + I + G + (EX – IM)
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Historical Trends in U.S. GDP How has the U.S. economy grown and
its components changed over time? The answer requires some caveats:
Must adjust for changes in inflation Let’s use prices in some base year to compute
“real GDP” across many different years Accounts for GDP changes due to price differences
Must adjust for changes in population Let’s divide GDP by population to compute a “GDP
per capita” Accounts for GDP changes due to entirely to population
growth
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U.S. Economy Over Time
21,51326,008
32,21438,293
45,800
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
1967 1977 1987 1997 2007
U.S. Real GDP Per Capita: Constant 2007 DollarsConsumption Investment Government Net Exports
Source: Economic Report of the President
The CAGR of Real GDP Per Capita over the 1967-2007 period was 2%
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Geographic Trends in GDP How different are economies over the
globe? The answer requires a currency standard
or conversion to compare GDPs One could use existing exchange rates (ERs)
Biased by relative prices of int’l traded stuff One could use exchange rates that represent
relatively equal purchasing power across nations Purchasing Power Parity (PPP): Currency ratio (i.e.,
exchange rate) that implies rough equality of buying power across two countries.
PPPs are typically close but not identical to ERs
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GDP Per Capita in Developed World
55.245.8 42.7 38.6 38.2 37.8 36.5 36.3 36.1 35.2 34.8 33.7 33.5 32.7 30.3 29.8 24.8
$0$10$20$30$40$50$60
Converted to 2007 U.S. dollars (PPP)U.S. Dollars in thousands
Source: U.S. Department of Labor, Bureau of Labor Statistics
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GDP Per Capita in BRIC Countries
45.8
9.5714.743
2.7535.345
$0$5
$10$15$20$25$30$35$40$45$50
United States Brazil Russia India China
Converted to Thousands of 2007 U.S. dollars (PPP)
Source: Organization for Economic Cooperation and Development
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Money and Human Well-Being Does Money Guarantee Happiness?
We know miserable people of substantial means
Does Money Preclude Happiness? If you believe this I volunteer to help
Might Money Contribute to Well-Being? How can it? Where should we look?
Health outcomes Longevity – Does wealth contribute to length of life? Child Welfare – Does wealth reduce infant mortality?
Self-Assessed Satisfaction Are people with more income happier?
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Per Capita GDP and Life Expectancy
Source: Maddison, 2007
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GDP Per Capita and Childhood Health
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GDP Per Capita and Satisfaction
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Facts About Economic Prosperity GDP Per Capita Varies Enormously
Among Nations GDP Per Capita Varies Enormously
within Most Nations Current high levels of GDP Per Capita
are a relatively recent phenomenon GDP Per Capita Growth Varies Widely
in the Recent Capitalist Epoch There have been growth successes There have been growth failures
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Prosperity Varies Across Nations
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Prosperity Varies Within Nations - USA
1. The 90th percentile in household income is over 11 times that of the 10 th percentile. The 10th percentile household income is $12,162 in 2007 dollars.
2. Net household income adjusts gross income for taxes, capital gains and losses, non-cash governmental transfers, the EITC, employee health benefits and differences in the size of persons per quintile.
Sources: U.S. Census Bureau forGross Income and the HeritageFoundation for Net Income.
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High GDP Per Capita is a Modern Event
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GDP Per Capita Growth Various Greatly
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What Causes GDP Per Capita Growth?
Source: Cowen & Tabarrok
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Innovation and GDP Growth Technical Knowledge Matters
Innovations raise labor and capital productivity Great inventions over time
wheel, writing, padded horse collar, mechanical clock, movable type, steam engine, textile manufacturing, network electricity, mass production, transistor, ARPANET, polymerase chain reaction
Scientific Revolution, 1550-1750 Major implications for navigation, understanding of
the earth’s environment (e.g., weather, geology, etc.), medicine, and other important disciplines
Industrial Revolution (textiles, energy, metallurgy) Equip per head grew by multiple of 250, 1820-2000
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Organization and GDP Growth Composition Matters
Organization affects labor and capital productivity Important Organizational Innovations
Accounting (for information and control) IT today serves much the same role
Banking, Capital Markets and Insurance To help finance and under-write large-scale enterprises
(e.g., shipping and trading companies, railroad lines, mass manufacturing, etc.)
Nation State Reduced fragmentation of political power which
facilitated trade and enforce property rights encouraged innovation and protect patents
Mercantilist commercial policies were restrictive, though
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Human Capital and GDP Per Capita
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Physical Capital and GDP Per Capita
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History and GDP Per Capita
Great News! Catch-Up GrowthGermany and Japan after WWIIChina and India today
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GDP Per Capita and Corruption
Great News! It’s Hard, But WeKnow How to Fix Corruption
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Equality and GDP Per Capita Growth Does Growth Promote Income Equality
Why might it not? Relative returns to skilled and unskilled labor Technological substitution of unskilled labor
Why might it? Spread of education reduces wage differences Wealth begets charity and progressive taxation
Yes, with a couple exceptions Oil-producing countries of the Middle East And, in recent years, the United States
Up until the last quarter century, income inequality in the U.S. had been falling with its peer countries
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A Measure of Income Inequality
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 0.2 0.4 0.6 0.8 1
Porti
on o
f Nati
onal
Inco
me
Portion of Population
Gini Index = (A*100)/(A+B)Gini Index = 0 is total equality
Gini Index = 100 is total inequality
LorenzCurve
B
Equal Income
Distribution A
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Income Inequality Across Nations
DevelopedEconomies
Emerging Economies
Source: Central Intelligence Agency, 2006
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Environment and GDP Per Capita Does Growth Harm the Environment?
Why might it? Developed economies are energy intensive; more
pollution and greenhouse gas emissions Developed economies use modern technology,
including chemical intensive farming Why might it not?
Beyond some level, developed economies use resources more efficiently and demand cleaner air and water for better health outcomes
Emerging economies find the opportunity costs of pollution mitigation too “expensive;” these economies are focused on basic human needs
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Environment and GDP Per Capital Evidence is preliminary and inconclusive Cross-Country Comparisons
Atmospheric concentrations of sulfur dioxide, nitrous oxide, carbon monoxide, smoke and lead from gasoline rise through income levels of around $8,000 and decrease thereafter. The same is true for fecal and heavy metals (e.g., lead, arsenic, cadmium, mercury, and nickel) contamination of rivers. Oxygen in rivers declines with early development but than increases.
B.M. Friedman, Moral Consequences of Economic Growth
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Your Role in This Drama You’re among the less than 2% of the
world’s population with a college degree Education and Capital contribute to growth
You understand science and technology Innovation and creativity contribute to growth
You’re organizationally sophisticated New methods (e.g., microfinance) contribute to
growth
You’re intolerant of corruption Transparency and accountability
You’re informed, aware and committed
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University Lecture SeriesThe University Lecture Series