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

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

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

4. 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

5. 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]

6. 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.

7. 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.

8. 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

9. 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.

10. 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

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