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Global Economic Growth Your Role In This Emerging Phenomenon

Date post: 12-Nov-2014
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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.
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Global Economic Growth Your Role in This Emerging Phenomenon Dean Thomas W. Gilligan
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Page 1: Global Economic Growth   Your Role In This Emerging Phenomenon

Global Economic Growth

Your Role in This Emerging Phenomenon

Dean Thomas W. Gilligan

Page 2: Global Economic Growth   Your Role In This Emerging Phenomenon

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)

Page 3: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 4: Global Economic Growth   Your Role In This Emerging Phenomenon

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?

Page 5: Global Economic Growth   Your Role In This Emerging Phenomenon

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)

Page 6: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 7: Global Economic Growth   Your Role In This Emerging Phenomenon

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%

Page 8: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 9: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 10: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 11: Global Economic Growth   Your Role In This Emerging Phenomenon

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?

Page 12: Global Economic Growth   Your Role In This Emerging Phenomenon

Per Capita GDP and Life Expectancy

Source: Maddison, 2007

Page 13: Global Economic Growth   Your Role In This Emerging Phenomenon

GDP Per Capita and Childhood Health

Page 14: Global Economic Growth   Your Role In This Emerging Phenomenon

GDP Per Capita and Satisfaction

Page 15: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 16: Global Economic Growth   Your Role In This Emerging Phenomenon

Prosperity Varies Across Nations

Page 17: Global Economic Growth   Your Role In This Emerging Phenomenon

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.

Page 18: Global Economic Growth   Your Role In This Emerging Phenomenon

High GDP Per Capita is a Modern Event

Page 19: Global Economic Growth   Your Role In This Emerging Phenomenon

GDP Per Capita Growth Various Greatly

Page 20: Global Economic Growth   Your Role In This Emerging Phenomenon

What Causes GDP Per Capita Growth?

Source: Cowen & Tabarrok

Page 21: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 22: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 23: Global Economic Growth   Your Role In This Emerging Phenomenon

Human Capital and GDP Per Capita

Page 24: Global Economic Growth   Your Role In This Emerging Phenomenon

Physical Capital and GDP Per Capita

Page 25: Global Economic Growth   Your Role In This Emerging Phenomenon

History and GDP Per Capita

Great News! Catch-Up GrowthGermany and Japan after WWIIChina and India today

Page 26: Global Economic Growth   Your Role In This Emerging Phenomenon

GDP Per Capita and Corruption

Great News! It’s Hard, But WeKnow How to Fix Corruption

Page 27: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 28: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 29: Global Economic Growth   Your Role In This Emerging Phenomenon

Income Inequality Across Nations

DevelopedEconomies

Emerging Economies

Source: Central Intelligence Agency, 2006

Page 30: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 31: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 32: Global Economic Growth   Your Role In This Emerging Phenomenon

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

Page 33: Global Economic Growth   Your Role In This Emerging Phenomenon

University Lecture SeriesThe University Lecture Series


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