Why Are Some Nations Wealthy?Globalization and the Wealth Gap.

With your partner, discuss the following.• How can some

nations with few natural resources, such as Japan and Singapore, be relatively wealthy?

• How can other nations, such as Nigeria and Russia, be relatively poor?

The Natural Resource Paradox• Natural resources have contributed to the

economic success of some nations, including the Untied States, South Africa, and the oil-rich nations of the Middle East.

• Other nations such as Japan and Singapore have achieved great economic success with relatively few natural resources.

• But, there are nations with vast stocks of natural resources that remain relatively poor.

• WHY?

Factors Contributing to Long-Term Economic Growth• High investment levels in physical and human capital.• Greater economic freedom• Lower taxes• Fewer government regulations• Effective monetary policy• Protection of property rights

• Strong incentives to save, invest, and increase productivity

• Competitive markets (Capitalism)• Low inflation• Political Stability• Free Trade

High investment levels

• Physical capital – factories and machines

• Human capital – the health, education, and training of workers

• Technological innovations have been the single most important determinant of economic growth, followed closely by investments in physical and human capital.

Greater Economic FreedomCountries with the Highest

Level 2002

1. Hong Kong2. Singapore3. New Zealand4. Estonia, Ireland,

Luxembourg, Netherlands, United States

9. Australia, Chile, UK12. Denmark, Switzerland14. Finland

Countries with the Lowest Level (2002)

144. Yugoslavia145. Burma, Syria147. Zimbabwe148. Belarus, Uzbekistan150. Turkmenistan151. Iran, Laos153. Cuba, Libya155. Iraq, North Korea

Strong Incentives to Save and Invest• Successful economies have institutions that

encourage saving and investment.• Successful investments lead to higher future

levels of production, income, and consumption.

Competitive Markets• Capitalism - an economic and political system in

which a country's trade and industry are controlled by private owners for profit, rather than by the state.

• Based on competition – think of concert tickets.• Competitive markets generate innovation and

lower prices.

Low Inflation• A stable currency maintains the value of financial

assets, which encourages saving and investment.• Unstable currency causes people to not spend

their money, which hurts the overall economy.

Political Stability• A change in government officials won’t cause

major changes in investments and consumption.• Citizens still feel safe, knowing that the

government is there to protect their assets, not take them away.

Free Trade• Trading leads nations to specialize in the

production and export of the goods and services that they can produce at the lowest cost.

• Trading those exports for other products that can be produced at a lower cost in other nations reduces the total cost of production and allows higher levels of consumption world wide.

• Free trade also results in increased competition which keeps prices lower for consumers.

• United States, Germany, United Kingdom, Canada, Japan, France, and Singapore are all heavily involved in international trade.

With your partner… • How important are natural resources to a nation’s

wealth?• What are the major factors that encourage long-

term economic growth?• How does per capita GDP (Gross Domestic

Product) relate to the quality of life? Why is this important?