Chapter 8 Economic Growth McGraw-Hill/IrwinCopyright © 2015 by McGraw-Hill Education. All rights reserved.

Economic Growth I. Economic Growth 1. Measured as change in total real GDP, in levels or in percentage. - Example - Thailand: 2014 to ,211 billion baht to 9,471 billion baht, increase of billion. - Or, increased by 2.82%. Source: 2. Measured as change in per-capita real GDP, in levels or in percentage. - Example - Thailand: 2014 to ,016 baht to 139,367 baht, increase of 3,354 baht. - Or, increased by 2.47%. Source:

3. Which measurement is better, or more informative? - Example: - Thailand: 2014 to Population: million to million. Source: Economic Growth

Thailand’s Total Real GDP Trend II. Thailand's Total Real GDP, 1960 to 2015 Source:

Thailand’s Per-Capita Real GDP Trend III. Thailand's Per-capita Real GDP, 1960 to 2015 Source:

Economic Growth IV. Growth Rates Really Matter 1. Small rate differences can lead to big level differences - Rate of growth or % change of X = (X NEW – X OLD ) * 100 (X OLD ) - Example 1 - With 100 baht, each year it grows by 5%, after 25 years, we get *[ (1.05)(1.05) + (1.05)*(1.05)*(1.05) +... (1.05) 25 ] = Example 2 - Now we have 6% instead. After 25 years, we get = The 1% difference gives rise to a difference of after 25 years.

Rule of 70 V. Rule of Mathematicians tell us that if we want to know how many years it takes for a variable, such as real GDP, to double, we can use the formula below: 2. Again, growth rates matter! - Case 1 - Thailand's real GDP grows by 3% a year. - It will take Thailand years to double our current GDP. - Case 2 - Our growth rate is 4% a year. - It will take us 17.5 years to double our current GDP. Approximate number of years required to double real GDP = 70 annual percentage rate of growth

Modern Economic Growth VI. Is it possible for economies to catch up? Source: Per-Capita Real GDP (2010 US$) United States23,31055,837 United Kingdom17,63440,933 Ireland12,05456,054 Japan17,92544,657 Singapore6,50751,855 Hong Kong5,79636,117

Determinants of Growth VII. How can we grow faster and catch up? 1. Supply side (i) Increases in quantity and quality of natural resources (ii) Increases in quality and quantity of human resources (iii) Increases in the supply (or stock) of capital goods (iv) Improvements in technology 2. Demand Side - C+I+G+EX must purchase the economy’s expanding output 3. Efficiency Side - Such as having sound efficient institutions, less red tape, etc.

Labor and Productivity VIII. Work Longer or Work Smarter? 1. Real GDP = hours of work x labor productivity 2. Data - Hours of work Source:

Labor and Productivity 3. Data – Labor productivity Source:

Costs of Economic Growth IX. Is economic growth desirable? 1. Environmental issues - pollution 2. Income inequality and fairness