Types and calculation Jul 29, 2015 Growth rates Types and calculation Jul 29, 2015

Growth rate Growth rate: Change in value of a given variable per unit of time.

Types of Growth Rates Arithmetic/linear /Simple growth rate Compound /semi-log/least-squares Exponential growth rate Geometric growth rate

Simple/Arithmetic growth rate Simple change in variable over a period divided by period This method assumes that the variable increases by a fixed amount of units in each period

Compound/least-squares growth rate Xn= Xo (1 + r)n logarithmic transformation of the compound growth equation Where “n” is time, and Growth rate r = [exp(β) – 1]

Compound/least-squares growth rate It is used when there is a long time series Most widely used It takes into consideration of all values in the period of consideration. But, it does not necessarily match the actual growth rate between any two points in the period.

Exponential growth rate Takes continuous compounding and the variable grows at a constant rate at every infinitesimal of time. Takes into account only the first and last observation of the time series, and not the intermediate values.

Exponential growth rate It will not comparable to the annual growth rate measured by arithmetic or geometric rates Exponential growth is mainly used for indicators related to population/demographic indicators

Geometric growth rate The geometric growth rate represents compound growth over discrete periods. Takes into account only the first and last observation of the time series, and not the intermediate values.

Geometric growth rate It is also referred to as the geometric average method, as it can be expressed as the geometric average of annual growth rates. For 1-period interval geometric and arithmetic growth rates are equal, as the arithmetic and geometric formulae become equal. Geometric growth rate is widely used for indicators on economic phenomena, such as GDP or trade by agencies like WB, FAO, IMF etc

Exercises Extract data from EPWRFITS on any GDP or Industrial production Calculate all the growth rates