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

2. Development and Economic Growth

3. 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

4. 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

5. Country Growth Experiences

6. 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

7. 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, )
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, * Data for Haiti growth rate is for 1991–2011.

8. 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

9. 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

10. 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

11. 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

12. 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
2.9
60.6
43.3
Brazil
1.1
13.6
6.1
China
9.1
84.0
11.8
Egypt
4.5
1.7
Ethiopia
1.8
66.2
30.7
India
3.9
65.9
32.7
Indonesia
3.6
62.8
18.1
Mexico
0.8
12.8
0.7
Nigeria
2.3
53.9
68.0
Philippines
1.6
34.9
18.4
South Africa
1.5
24.3
13.8
Thailand
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.

13. Inequality

14. 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.

15. 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,

16. 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