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Economic Growth and Development
Chapter 20 Economic Growth and Development
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Chapter Outline Growth in Already Developed Countries
Comparing Developed Countries and Developing Countries Fostering (and Inhibiting) Development
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Growth in Already Developed Countries
Sources of Growth Increases in Aggregate Demand Increases in Aggregate Supply
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Aggregate Demand Variables to Shift Aggregate Demand
Low interest rates Low taxes High government spending Government can not make this occur continuously Eventually, the Classical Range of the Aggregate Supply curve will be reached
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Increasing Aggregate Demand
AD RGDP PI AD’ PI’ RGDP’ PI* RGDP*
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Aggregate Supply Variables that can shift Aggregate Supply
Wage and Input Costs Productivity Technology Wage and Input costs can’t continuously decrease Productivity and Technology can continually increase
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Increases in Aggregate Supply
AD RGDP PI AS’ PI* RGDP* PI’ RGDP’
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Productivity and GDP Growth 1990-2004
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Comparing Developed Countries and Developing Countries
Rich Countries Are getting richer (faster GDP growth) Have more evenly divided incomes (lower GINI coefficients) GDP is produced by services, then industry (agriculture insignificant) Lower Inflation Poor Countries Have lower GDP growth rates Have highly uneven incomes Agriculture is an important part of GDP Have higher levels of inflation
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Fostering (and Inhibiting) Development
Solow growth model predicted convergence of income. Evidence shows this is not occurring. Political and institutional problems inhibiting growth.
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The Challenges Facing Developing Countries
Low Rates of Basic Literacy Lack of Infrastructure Political Instability Corruption Lack of Independent Central Banking Inability to Repatriate Profits A Need to Focus on the Basics
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Success Stories Japan China South Korea Saudi Arabia & Kuwait
Solid financial institutions Education Few Resources China Resources Cheap labor South Korea Liberalized political institutions Saudi Arabia & Kuwait Oil
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What Works Basic Building Blocks
education a low or manageable level of government corruption a level of political and financial stability Creates confidence among foreign investors
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