1. Macroeconomics SLIDE SET 0SLIDE 1 Macroeconomics LECTURE SLIDES SET 0 Professor Antonio Ciccone

2. Macroeconomics SLIDE SET 0SLIDE 2 Economic Growth: Important Facts (1) Long Run Growth in the World (2) Balanced Growth in the US? (3) Long Run Effect of Growth Differentials (4) World Income Distribution (Stability and Differences Rich/Poor) (5) Heterogeneity of Economic Growth and Changes in the World Income Distribution

3. Macroeconomics SLIDE SET 0SLIDE 3 (1) Economic Growth in the Very Long Run

4. Macroeconomics SLIDE SET 0SLIDE 4 (2) US (Balanced) Growth Since 1890

5. Macroeconomics SLIDE SET 0SLIDE 5 (3) Long Run Effects of Growth Differentials -The real per capita GDP in the United States has been growing at a rate of 1.8% per year since 1870. -This performance has given the US the second highest level of per capita GDP in the world (after Luxembourg, a country with a population of only about 400.000 inhabitants)

6. Macroeconomics SLIDE SET 0SLIDE 6 If, starting in 1870, the US had grown at a rate of 0,8% (similar to the one experienced over the same period in India (0,64) or Pakistan (0,88) ), now the US would have a per capita GDP 72% LOWER than the actual value. To put it another way, if the growth rate had been lower by just 1 percentage point per year, today’s US GDP per capita would have been close to that of Argentina or Romania. On the other hand, if, starting in 1870, the US had grown at a rate of 2,8% (close to the long run growth experienced by Japan(2,95% from 1890 to 1990) and Taiwan(2,75% from 1900 to 1987), now the US would have a per capita GDP 3,8 times higher than the actual value. Long Run Effects of Growth Differentials

7. Macroeconomics SLIDE SET 0SLIDE 7 Argentina Romania Long Run Effects of Growth Differentials

8. Macroeconomics SLIDE SET 0SLIDE 8 Japan GDP per capita in 1990 was about 20 times its level in 1890 US GDP per capita in 2000 was more than 10 times its level in 1870 Long Run Effects of Growth Differentials

9. Macroeconomics SLIDE SET 0SLIDE 9 (4) The World Income Distribution in 1960 and 1990/2000 Indicators of (the stability) of the World Income Distribution On the Differences between Rich and Poor

10. Macroeconomics SLIDE SET 0SLIDE 10 Log GDP/person 1960 Log GDP/person 2000

11. Macroeconomics SLIDE SET 0SLIDE 11 Log GDP/person 1960 Log GDP/person 2000

12. Macroeconomics SLIDE SET 0SLIDE 12 Another Perspective on Nonconvergence/Nondivergence

13. Macroeconomics SLIDE SET 0SLIDE 13 The Difference between Rich (Productive) and Poor (Unproductive) Countries If Tanzania were to grow at the long term US rate of 1,8% per year, it would take 235 years to reach the 2000 US per capita GDP. The range of growth rates from 1960 to 2000 goes from -2% ((Democratic Republic of Congo) to 6.4% (Taiwan). Forty year differences in growth rates of this magnitude have enormous consequences for standards of living.

14. Macroeconomics SLIDE SET 0SLIDE 14 Days the typical US citizen needs to produce the equivalent to other countries GDP per capita

15. Macroeconomics SLIDE SET 0SLIDE 15 (5) Differences in Growth Performance Heterogeneity in economic growth rates Geographic growth patterns

16. Macroeconomics SLIDE SET 0SLIDE 16 Growth rate of per capita GDP 1960-2000

17. Macroeconomics SLIDE SET 0SLIDE 17 As a rough generalization for regional growth experiences: -Sub-Saharan Africa started relatively poor in 1960 and grew at the lowest rate, so it ended by far the poorest area in 2000. -Asia started only slightly above Africa in many cases but grew rapidly and ended up mostly in the middle. -Latin America started in the mid to high range, grew somewhat below average, and therefore ended up mostly in the middle along with Asia. -OECD countries started highest in 1960, grew in a middle range or better, and therefore ended up still the richest.

18. Macroeconomics SLIDE SET 0SLIDE 18