macro chapter 17 institutions, policies, and cross- country differences in income and growth
TRANSCRIPT
Macro Chapter 17
Institutions, Policies, and Cross-Country Differences in
Income and Growth
2 Learning Goals
1) Explain how economic freedom and growth are related
2) Identify the benefits of economic freedom
How Large Are the Income Differences across Countries?
How Do Growth Rates Vary across Countries?
Why?
2 major reasons:
1) Institutions (see Chapter 16)
2) Economic Freedom
Economic Freedom as a Measure of Sound
Institutions
Institutions, Policies, and Economic Performance
Economic Freedom
Method of organizing economy with the following characteristics:
1) Personal choice
2) Market-based voluntary exchange
3) Competitive entry into markets
4) Private property
Main point: the government’s policies and involvement in the economy are important, but too much government intervention can harm growth
Major Conclusion:
The more free the economy is, the higher the growth rate will be
The 2011 EFW report reveals the US is now in 10th place with a rating of 7.60
“The world’s largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into tenth place. Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components. Over the longer term, the summary chainlinked ratings of Venezuela, Zimbabwe, United States, and Malaysia fell by eight-tenths of a point or more between 1990 and 2009, causing their rankings to slip.”
Economic Freedom and Income
• Income per person in the freest quartile of countries was about eight times the figure for the least free.
Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
$3,802
$14,513
$32,443
2007 GDP Per Capita, PPP(in constant 2005 dollars)
ThirdQuartile
$6,783
Economic Freedom and Growth
• Countries in the most free quartile grew at an annual rate of 2.4% compared to the 0.9% growth for the least-free quartile.
Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
0.9%
2.3%2.4%
Growth of GDP Per Capita 1990-2007(Annual %)
ThirdQuartile
2.1%
Economic Freedom and Life Expectancy
• People in the most economically free countries had almost 20 additional years of life compared to those in the least free economies of the world.
Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
59.4
71.679.1
Years of Life Expectancy(at birth) 2007
ThirdQuartile
66.7
• The infant mortality rate in the least economically free countries was nearly 12 times greater than that of the most free economies.
Economic Freedom and Infant Mortality Rate
Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
62.0
20.9
5.8
Infant Mortality Rate(per 1000 live births) 2007
ThirdQuartile
39.1
• Access to sanitary water increased with economic freedom.
Economic Freedom and Access to Sanitary Water
16.A3 Table in word file
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Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
74.2%
89.5%99.2%
Share of Population with Accessto Improved Water Source, 2006
ThirdQuartile
83.5%
• Studies have shown that the quality of the environment is strongly linked to income.
Economic Freedom and Environmental Quality
16.A3 Table in word file
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Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
64.5
76.5
84.8Environmental Performance Index
(2007/2008)
ThirdQuartile
71.6
• In the nations of the top quartile, the average income of the poorest 10% was more than eight times that of the poorest 10% from countries in the bottom quartile.
Economic Freedom Income of Lowest
10% of Earners
16.A3 Table in word file
Should fit in this space
Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
$896
$3,269
$9,105
Average Income of Poorest 10%, 2007
ThirdQuartile
$1,744
• The incidence of political corruption was lower in the more free economies of the world.
• These numbers are a reflection of the higher quality legal systems of the freer economies.
Economic Freedom and Political Corruption
16.A3 Table in word file
Should fit in this space
Least-FreeQuartile
SecondQuartile
Most-FreeQuartile
2.6
4.3
7.5
Corruption Perceptions Index, 2007
ThirdQuartile
3.2
With few exceptions, when an economy is more free the country will achieve:
A higher growth rate
A more equal distribution of income
Better environmental quality
Better health outcomes
Higher standards of living