1. Economics 1490 GROWTH AND CRISIS IN THE WORLD ECONOMY with Professor Dale W. Jorgenson Lecture 26: December 3, 2015 Outlook for World Economic Growth Harvard University Department of Economics -- Fall 2015

2. Lecture 26 : December 3, 2015 Outlook for World Economic Growth Course Outline A. Introduction B. U.S. Financial and Economic Crisis. C. Europe and the U.S.: Convergence and Divergence. D. Asian Economic Miracles. E. Sustainability of Economic Growth. F. Outlook for the World Economy.

3. Outlook for World Economic Growth 26. Potential and Actual Growth. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

4. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

5. THE SOURCES OF ECONOMIC GROWTH Comparisons among Regions and Countries Sources of Growth in Capital Input Information Technology and Non-Information Technology Labor Input and Labor Quality Total Factor Productivity Lecture 26 : December 3, 2015 The Sources of Growth

6. Lecture 26 : December 3, 2015 The Sources of Growth MODEL OF PRODUCTION: Production Possibility Frontier. where: I - Investment C – Consumption K – Capital L – Labor A - Total Factor Productivity (TFP)

7. Sources of World Economic Growth Average annual growth rates, weighted by the income share. Lecture 26 : December 3, 2015 The Sources of Growth

8. Sources of World Economic Growth Annual percentage growth rates Lecture 26 : December 3, 2015 The Sources of Growth

9. Sources of G7 Economic Growth Annual percentage growth rates Lecture 26 : December 3, 2015 The Sources of Growth

10. Sources of Growth for Developing and Transition Economies Annual percentage growth rates Lecture 26 : December 3, 2015 The Sources of Growth

11. Hours Worked from Labor Force Projections; Labor Quality from Projections of Educational Attainment Productivity Growth from Production Possibility Frontier: IT and Non-IT Productivity Growth, Capital Quality, and the Gap between Growth of Output and Capital GDP Growth Is the Sum of Growth in Hours Worked and Productivity Growth Projecting Growth of the U.S. and the World Economy Lecture 26 : December 3, 2015 Outlook for World Economic Growth

12. Lecture 26 : December 3, 2015 Outlook for World Economic Growth Range of World Output Projections

13. SOURCES OF AVERAGE LABOR PRODUCTIVITY GROWTH TOTAL FACTOR PRODUCTIVITY. where: y = Y/H - Output per Hour Worked (ALP). k = K/H - Capital Input per Hour Worked. CAPITAL DEEPENING: growth of capital input per hour worked, weighted by the share of capital. LABOR QUALITY GROWTH: growth of labor input per hour worked, weighted by the share of labor. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

14. Lecture 26 : December 3, 2015 Outlook for World Economic Growth Range of World Output Projections

15. Range of G7 Output Projections Lecture 26 : December 3, 2015 Outlook for World Economic Growth

16. Range of Output Projections for Developing and Transition Economies Lecture 26 : December 3, 2015 Outlook for World Economic Growth

17. OUTLOOK FOR THE WORLD ECONOMY: SUMMARY. Medium-Term Outlook for the World Economy by the IMF. The Transition to Sustainability. Potential Growth of the World Economy. Curb Your Enthusiasm. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

18. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

19. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

20. MEDIUM TERM OUTLOOK FOR THE WORLD ECONOMY According to the IMF the world economy will return to the high levels of growth of 2004-2008. This will close most of the gap between potential and actual growth. Developing Asia, especially China and India, will grow very rapidly, shrinking the gap between levels of GDP for advanced and emerging economies. The U.S. will continue to grow more rapidly than Europe and Japan. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

21. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

22. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

23. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

24. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

25. MEDIUM TERM OUTLOOK FOR THE WORLD ECONOMY According to the IMF the world economy will return to the high levels of growth of 2004-2008. This will close most of the gap between potential and actual growth. Developing Asia, especially China and India, will grow very rapidly, shrinking the gap between levels of GDP for advanced and emerging economies. The U.S. will continue to grow more rapidly than Europe and Japan. Lecture 26 : December 3, 2015 Outlook for World Economic Growth

26. THANKS FOR BEING SUCH A GREAT CLASS!