1. An inquiry into the nature & causes of the wealth of nations. Why are some nations rich and others poor? We draw heavily on the work of Professor Robert Gordon, Northwestern University, and Professors Gerald Dwyer, Robert Tamura, and Scott Baier, Federal Reserve Bank of Atlanta and Clemson University. We draw heavily on the work of Professor Robert Gordon, Northwestern University, and Professors Gerald Dwyer, Robert Tamura, and Scott Baier, Federal Reserve Bank of Atlanta and Clemson University.

2. The map we will follow Theories Theories Evidence Evidence Prospects Prospects What you can do What you can do

3. Theories of Economic Development What explains ED? –Labor and capital employed –Climate –Religion –Conquest –Access to markets and ideas –Natural endowment –Investment in human capital –Property rights –N-achievement

4. And PARTICIPATION IN TRADE!... which leads to specialization! But what is economic success?

5. Ultimate Measure of Economic Success Standard of Living = Income per capita Standard of Living = Income per capita –1.3% growth, doubles every 53 years (Philippines) –5.6% growth, doubles every 12 years (Korea) For very long-term growth or comparing rich and poor nations, income per capita and productivity are the same thing For very long-term growth or comparing rich and poor nations, income per capita and productivity are the same thing Not the same thing for short-term or comparisons among rich nations Not the same thing for short-term or comparisons among rich nations

6. Q = f(Capital, Labor)…and unexplained variation Note: UV is Total Factor Productivity. Q = f(Capital, Labor, Education, Experience, Climate, Open) Q = f(C, L, E, Cl, O, Property Rights) Q = f(C, L, E, Cl, O, P R, Demo, Corrupt)

7. And when we don’t work?

8. A Note on the Importance of Labor The critical variable. Necessary but not sufficient. The critical variable. Necessary but not sufficient. What is the number of adults in a society? What is the number of adults in a society? What is the level of education and experience? (Human Capital!) What is the level of education and experience? (Human Capital!) What share of them is available in the labor force? (Participation rate!) Typical level: 58% Male, 43% Female. Turkey: 19% Female. What share of them is available in the labor force? (Participation rate!) Typical level: 58% Male, 43% Female. Turkey: 19% Female. How many hours per year do they work? Europe average is 20% less than U.S. and world. Eastern Europe like the world. How many hours per year do they work? Europe average is 20% less than U.S. and world. Eastern Europe like the world. What is the output per hour? (Productivity!) What is the output per hour? (Productivity!) What are the rules that determine holidays? Vacations? Unemployment compensation? Hours that stores and businesses can be open? What are the rules that determine holidays? Vacations? Unemployment compensation? Hours that stores and businesses can be open?

9. Unemployment Rates, OECD Countries, 2004

10. Percent of Unemployed without Work for One Year or Longer, OECD, 2004

13. Output per Capita and Output per Hour

14. Where is the Difference? Bart Van-Ark, Groningen Economic Development Center 55% retail trade 55% retail trade 24% wholesale trade 24% wholesale trade 20% securities 20% securities Rest of the economy: ZERO Rest of the economy: ZERO U. S. negative in telecom, backwardness of mobile phones U. S. negative in telecom, backwardness of mobile phones

15. Dwyer-Tamura-Baier Their Data 145 countries for varying numbers of years 145 countries for varying numbers of years Before 1900 for 23 countries Before 1900 for 23 countries 98% of the population of the world in 2000 98% of the population of the world in 2000 Includes human capital using Includes human capital using –Schooling –Experience All adjusted to 1985 U.S. purchasing power All adjusted to 1985 U.S. purchasing power Also includes data on property rights, democratic, corruption, geography, climate, access to markets. Also includes data on property rights, democratic, corruption, geography, climate, access to markets.

22. Effect of U.K. Institutions and Geography on the Philippines Philippines has Philippines has –Labor productivity 7 percent of U.S. –Capital productivity 25 percent of U.S. If Philippines had U.K. geography If Philippines had U.K. geography –Labor productivity would be 28 percent –Capital productivity would be 26 percent If Philippines had U.K. institutions If Philippines had U.K. institutions –Labor productivity would be 75 percent –Capital productivity would be 58 percent

23. Prospects

24. Measure of Economic Output: Purchasing Power Parity (2005) NationGDP $ Per Capita Norway, U.S., Ireland ~ $41,000 Iceland, Denmark, Canada ~ $35,000 H.K., Austria, Switzerland ~ $33,000 Japan, Germany, U.K. ~ $31,500 France, Italy, Singapore ~ $29,000 Portugal, Czech Rep. ~ $19,000 Malaysia, Russia ~ $11,000 Bulgaria, Romania, Brazil ~ $ 9,000 Ukraine, China, Algeria ~ $ 7,200 Yemen, Ethiopia, Congo ~ $ 750

25. Growth Competitiveness Index Rankings World Economic Forum 2006 Country Ranking Competition Score Switzerland15.81 Finland, Sweden and Denmark 2, 3 and 4 Singapore55.63 United States65.61 Japan75.60 Germany85.58 U.K.105.54 Estonia255.12 Czech Rep.294.74 Slovak Rep.374.55 India434.44 Poland484.30 China544.24 Angola1252.50

26. Growth Competitiveness Factors 1. Public Institutions: Property Rights, Ethics, Judicial and Government Integrity, Security, Needless Regulation, Government Waste 2. Infrastructure 3. Macroeconomy Inflation, Debt, Savings (see www.weforum.org for details) www.weforum.org

27. Growth Competitiveness Factors 4. Health and Primary Education 5. Higher Education and Training 6. Market Efficiency Distortions (subsidies), Tax, Corruption 7. Technological Readiness 8. Business Sophistication 9. Innovation IP Protection; R&D

28. Corruption Perception Index 2006: Transparency International Nation Ranking Score Finland, Iceland, N.Z. 19.6 Denmark, Singapore49.5 U.K., Luxembourg, Austria118.6 Germany168.0 Japan177.6 Belgium, Chile, U.S.207.3 Italy, Czech, Slovakia464.8 Poland, Jamaica, Turkey613.7 China, Brazil, Mexico, India703.3 Ukraine, Georgia, Mali992.8 Russia, Rwanda, Nepal 1212.5 Iraq, Burma, Haiti 1611.9

29. World Bank Rankings (2006): www.doingbusiness.org Economy Ease of Doing Starting a Dealing with Business Business Licenses Singapore1118 United States3322 Hong Kong5564 Japan11182 Czech Rep.5274110 China93128153 Russia9633163 India13488155

30. World Bank Rankings (2006): www.doingbusiness.org Economy Hiring and Registering Getting Firing Property Credit Firing Property Credit Singapore3127 United States1107 Hong Kong16602 Japan363913 Czech Rep.455821 China7821101 Russia8744159 India11211065

31. World Bank Rankings (2006): www.doingbusiness.org Economy Protecting Paying Trading Across Investors Taxes Borders Investors Taxes Borders Singapore284 United States56211 Hong Kong351 Japan129819 Czech Rep.8311041 China8316838 Russia6098143 India33158139

32. World Bank Rankings (2006): www.doingbusiness.org Economy Enforcing Closing a Ease of Doing Contracts Business Business Contracts Business Business Singapore2321 United States6163 Hong Kong10145 Japan5111 Czech Rep.5711352 China637593 Russia258196 India173133134

33. Best Outsourcing Location A.T. Kearney (Global Management Consulting Co.) 2005 Rankings RankCountryTotal Score 1India6.87 2China6.14 3Malaysia6.07 4Philippines5.87 5Singapore5.73 6Thailand5.72 7-8Czech Republic/Chile5.58 9Canada5.52 10Brazil5.50

34. Most Globalized Countries (2006) A.T. Kearney & Carnegie Endowment for International Peace (2004 data) Country Total Economic Personal Technological Political Rank Integration Contact Connectivity Engage. Rank Integration Contact Connectivity Engage. Singapore 1131229 Switzerland 291723 U.S. 35840141 Ireland 442147 U.K. 12251484 Czech R. 16562235 Germany 1841281611 Hungary 207172720 Poland 3330323125 China 5128555047

35. N-Achievement

37. Questions for Discussion 1. What explains the sharp difference in GDP per capita as between Europe and the United States? 2. Desoto proposes turning squatters in urban slums into property owners. How would you do that? 3. Many countries limit the number of hours a person can work each week. Assess the relative merits of such rules.