How Economies Grow and Develop Chapter Seventeen: How Economies Grow and Develop

Development and Economic Growth

Figure 17.1: Economic Growth in the AS/AD Model Inflation rate (π) Output (Y ) AS0 AS1 Expanded maximum capacity AD0 AD1 Economic growth increases the maximum capacity of the economy. It involves both supply-side and demand-side expansions, and does not necessarily involve a change in the rate of inflation. 3

Table 17.1: Per Capita Annual Real GDP Growth in Select Latin American Countries, 1980-2010 (%) Bolivia 0.5% Brazil 1.0% Chile 3.2% Colombia 1.6% Ecuador 0.8% Mexico 0.7% Peru 1.1% Venezuela -0.2% Middle Income 3.5% Source: World Bank, World Development Indicators Database, 2013

Country Growth Experiences

Figure 17.2: World Economic Growth, 1971-2011 All series are shown using an index of 1 for 1971 levels. During the period 1971–2011, population nearly doubled, energy use more than doubled, food production increased 160 percent, and gross world product increased by 240 percent. Source: World Bank, World Development Indicators Database 2013

Table 17.2: Income, Growth, and Population Comparisons, Selected Countries and Country Groups Country or Category GDP per Capita, 2011 (PPP, 2005, US $s) Percent Growth in GDP per Capita (PPP, Annual Average, 1990-2011) Percent of World Population (2011) High Income 33,566 1.5% 16.3% Hong Kong 44,640 3.0% 0.1% United States 42,486 1.4% 4.5% Japan 30,660 0.7% 1.8% France 29,819 1.0% 0.9% South Korea 27,541 4.3% Middle Income 6,245 3.5% 72.0% Russia 14,821 0.8% 2.0% Turkey 13,468 2.5% Brazil 10,279 1.7% 2.8% China 7,418 9.5% 19.3% India 3,203 4.7% 17.8% Low Income 1,182 1.9% 11.7% Bangladesh 1,569 3.6% 2.2% Nepal 1,106 2.1% 0.3% Haiti 1,034 -1.4% Ethiopia 979 1.2% Congo, DR 329 -3.0% Source: World Bank, World Development Indicators Database, 2013. * Data for Haiti growth rate is for 1991–2011.

Figure 17.3: GDP per Capita in 2011 (in constant 2005 PPP $ per person) Income per person is highest in the industrialized countries of North America and Europe, along with Japan, Australia, and New Zealand. Income per person is lowest in many African and Asian countries. Source: World Bank, World Development Indicators Database, 2012

Percent of High-Income GDP Figure 17.4a: Per Capita GDP Expressed as a Percentage of per-Capita GDP in High-Income Countries South Korea Percent of High-Income GDP GDP per capita, PPP Botswana Figure 17.4a Per Capita GDP Expressed as a Percentage of per-capita GDP in High-Income Countries If poor countries are “converging” or “catching up” to rich countries, their incomes should be rising when expressed as a percentage of rich country incomes. This has happened for South Korea, China, and Botswana, and also for India, but much more slowly. Brazil, Bolivia, Nigeria, and the Democratic Republic of the Congo, in contrast, are all falling farther behind. (Source: World Bank, World Development Indicators Database, 2013.) China India Source: World Bank, World Development Indicators Database, 2013

Percent of High-Income GDP Figure 17.4b Percent of High-Income GDP GDP per capita, PPP Figure 17.4b Source: World Bank, World Development Indicators Database, 2013

Figure 17.5: Growth and Income Relationship with Area Proportional to Population Each circle represents a country. The size of the circle corresponds to the size of the country’s population. The location of the circle shows GDP and GDP growth rate. Source: World Bank, World Development Indicators Database, 2013 11

Table 17.3: Growth Rates and Changes in Poverty Rates, Select Countries Period Annual Growth Rate in per Capita GDP, % Poverty Rate at Beginning of Period, % Poverty Rate at End of Period, % Bangladesh 1984-2010 2.9 60.6 43.3 Brazil 1981-2009 1.1 13.6 6.1 China 9.1 84.0 11.8 Egypt 1991-2008 4.5 1.7 Ethiopia 1982-2011 1.8 66.2 30.7 India 1978-2010 3.9 65.9 32.7 Indonesia 3.6 62.8 18.1 Mexico 0.8 12.8 0.7 Nigeria 1986-2010 2.3 53.9 68.0 Philippines 1985-2009 1.6 34.9 18.4 South Africa 1993-2009 1.5 24.3 13.8 Thailand 1981-2010 4.2 22.0 0.4 Source: World Bank, World Development Indicators Database, 2013. Note: The poverty rate is based on a poverty line of $1.25 per day.

Inequality

Figure 17.6: The Unequal Distribution of the World’s Income, 2007 Top 20%: 82.8% of world income Next 20%: 9.9% Third 20%: 4.2% Fourth 20%: 2.1% Poorest 20%: 1.0% The “champagne glass” shape of the world’s income distribution is based on over 80 percent of the world’ income going to the top 20 percent of the world’s population, while the poorest 20 percent get only 1percent of total income. Source: I. Ortiz and M. Cummings, “Global Inequality: Beyond the Bottom Billion,” UNICEF Social and Economic Policy Working Paper, April 2011.

Figure 17.7: Shares of U.S. Income Going to Top 10 Percent and Top 1 percent, 1920-2012 The share of U.S. income going to the top 10 percent of families exceeded 50 percent on 2012, for the first time in the nation’s history. The top 1 percent increased their share to nearly 20 percent. Similar levels of concentration were seen in the 1920s, but for many decades in between, the United States was characterized by less inequality, with lower shares for the top income earners. Source: Thomas Pickett and Emmanuel Saez U.S. incomes series, http://elsa.berkeley.edu/~saez/TabFig2012prel.xls

Figure 17.8: The Relation Between Life Expectancy and Income, with Area Proportional to Population At very low levels of income per head, increases in per capita income are associated with steep increases in life expectancy. After a middle income level of per capita GDP is reached, however, increases in income are associated with much more modest increases in life expectancy, and at highincomes the relationship flattens out. Source: World Bank, World Development Indicators Database, 2013