Long Run Economic Growth Lesson 37 Sections 37, 38

Comparing Economies Across Time And Space (37) Real GDP per Capita Growth Rates Rule of 70 (70 years to double) Sources of Long-Run Growth The Crucial Importance of Productivity Labor Productivity needs to steadily increase for growth Explaining Growth in Productivity Physical Capital – machines that aid productivity Human Capital – education Technology – probably most important driver of growth

Productivity and Growth (38) Accounting For Growth: The Aggregate Production Function Aggregate Production Function How physical capital, education, and technology affect productivity per person Diminishing Returns to Physical Capital As physical capital is added (all other things being equal) the productivity gains shrink Growth Accounting Allows for accounting of the effects of greater physical and human capital on economic growth Total Factor Productivity The output with a given amount of physical and human capital, and labor What About Natural Resources? Countries that have excellent natural resources tend to have higher productivity rates, but resources are finite.

Success, Disappointment, and Failure East Asia’s Miracle Growth rates of 7% and higher for most of the last half of the 1900’s High savings, good education, high investment Convergence Hypothesis Relative backwardness Latin American Disappointment Low savings, low education, high inflation, bank failures Africa’s Troubles War, corruption, AIDS, Ebola, Malaria, Debt