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1、CHAPTER 5The Reality of Economic Growth: History and Prospect1Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Questions What is modern economic growth? What was the post-1973 productivity slowdown?What were its causes?Is the productivity slowdown now over? Why are some nations
2、so (relatively) rich and other nations so (relatively) poor?2Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Questions What policies can make economic growth faster? What are the prospects for successful and rapid economic development in tomorrows world?3Copyright 2002 by The M
3、cGraw-Hill Companies, Inc. All rights reserved.Looking Back into Deep Time Up until 1500, there had been almost zero growth of output per worker After 1800, we see large sustained increases in worldwide standards of livingpopulation growth acceleratedoutput per capita grew4Copyright 2002 by The McGr
4、aw-Hill Companies, Inc. All rights reserved.Table 5.1 - Economic Growth through Deep Time5Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 5.1 - World Population Growth since 10006Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Premodern Economic “Gr
5、owth” Thomas R. Malthusfirst academic professor of economicsintroduced the idea that increases in technology inevitably run into natural resource scarcity implies that increases in technology lead to an increase in the size of the population but not to an increase in the standard of living7Copyright
6、 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The End of theMalthusian Age Over time, the rate of technological progress rose by 1500, it was sufficiently high so that natural resource scarcity could not surpass itsustained increases in the population and the productivity of labor fol
7、lowed8Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Demographic Transition As material standards of living rise far above subsistence, countries undergo a demographic transitionbirth rates risedeath rates fallbirth rates fall9Copyright 2002 by The McGraw-Hill Companies, I
8、nc. All rights reserved.Figure 5.2 - Stylized Picture of the Demographic Transition10Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Demographic Transition In the world today, not all countries have gone through their demographic transitionsNigeria, Iraq, Pakistan, and the
9、Congo are projected to have population growth rates greater than 2% per year over the next generation11Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 5.3 - Expected Population Growth Rates, 1997-201512Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved
10、.Figure 5.3 - Expected Population Growth Rates, 1997-201513Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Industrial Revolution The industrial revolution began the era of modern economic growthnew technological leaps revolutionized industries and generated major improvemen
11、ts in living standards Great Britain was the center of the industrial revolutionEnglish became the worlds de facto second language14Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Industrial Revolution The new technologies were not confined to Great Britainspread rapidly to
12、 western Europe and the United Statesspread less rapidly to southern and eastern Europe and Japan15Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 5.4 - Industrialized Areas of the World, 187016Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.America
13、n Long-Run Growth, 1800-1973 Growth in the second half of the nineteenth century was faster than it had been in the first half Growth accelerated further in the early part of the twentieth centurya second wave of industrialization occurred from new inventions and innovations17Copyright 2002 by The M
14、cGraw-Hill Companies, Inc. All rights reserved.American Long-Run Growth, 1800-1973 Growth slowed slightly during the Great Depression and World War II1.4 percent per year from 1929 to 1950 Growth accelerated from 1950 to 197318Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Fig
15、ure 5.5 - U.S. Measured Economic Growth: Real GDP per Worker 1995 Prices,1890-199519Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.American Long-Run Growth, 1800-1973 Many economists believe that official estimates of output per worker overstate inflation and understate real e
16、conomic growth by 1 percent per yearnational income accountants have a hard time valuing the boost to productivity and standards of living generated by new inventions20Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.American Long-Run Growth, 1800-1973 Structural changes also oc
17、curredlarge drop in the proportion of the labor force working as farmers occurrednew methods of travel were developedlarge number of innovative technologies and business practices were adopted21Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.American Long-Run Growth, 1800-1973
18、The U.S. became the worlds leader (in terms of technology) during the twentieth century becausethe U.S. had an exceptional commitment to educationthe U.S. was the largest market in the worldthe U.S. was extraordinarily rich in natural resources22Copyright 2002 by The McGraw-Hill Companies, Inc. All
19、rights reserved.American Economic Growth Since 1973 Between 1973 and 1995 measured output per worker grew at only 0.6 percent per year The other major industrial economies in western Europe, Japan and Canada also experienced a slowdown in productivity23Copyright 2002 by The McGraw-Hill Companies, In
20、c. All rights reserved.Table 5.3 - The Magnitude of the Post-1973 Productivity Slowdown in the G-7 Economies24Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.American Economic Growth Since 1973 Suggested causes of the productivity slowdown includeenvironmental protection measur
21、esincreased problems of economic measurementthe baby boom generationthe tripling of world oil prices in 1973 The actual cause of the productivity slowdown remains a mystery25Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.American Economic Growth Since 1973 Slower economic grow
22、th has made Americans feel much less well off than they had expected that they would befor some workers, the post-1973 productivity slowdown has been accompanied by stagnant or declining real wagesincreased income inequality has also occurred26Copyright 2002 by The McGraw-Hill Companies, Inc. All ri
23、ghts reserved.Figure 5.6 - Measured Real Mean Household Income, by Quintile27Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.American Economic Growth Since 1973 Since 1995, productivity growth in the U.S. has accelerated to a pace of 2.1 percent per year Investment began rising
24、 in 1992business fixed investment grew at almost three times the rate of GDP much of the additional investment has gone to purchase computers and related equipment28Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Modern Economic Growth around the World The industrial core of th
25、e world economy experienced a large increase in its level of material productivity and living standards during the nineteenth and twentieth centuries Elsewhere the growth of productivity levels and living standards was slower The world has become a more and more unequal place29Copyright 2002 by The
26、McGraw-Hill Companies, Inc. All rights reserved.Figure 5.7 - World Distribution of Income Today, Selected Countries30Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 5.7 - World Distribution of Income Today, Selected Countries31Copyright 2002 by The McGraw-Hill Companies,
27、 Inc. All rights reserved.Modern Economic Growth around the World The U.S. has not been the fastest-growing economy in the worlda number of other countries at different levels of industrialization, development, and material productivity a century ago have now convergedtheir current levels of product
28、ivity, economic structures, and standards of living are very close to those of the U.S.32Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 5.8 - Convergence among the G-7 Economies: Output per Capita as a Shareof U.S. Level33Copyright 2002 by The McGraw-Hill Companies, Inc
29、. All rights reserved.Modern Economic Growth around the World The economies that have converged belong to the Organization for Economic Cooperation and Development (OECD)group of countries that gave or received aid under the Marshall Plan to help rebuild or reconstruct after World War II34Copyright
30、2002 by The McGraw-Hill Companies, Inc. All rights reserved.Modern Economic Growth around the World The OECD countries adopted a common set of economic policieslarge private sectors free of government regulation of pricesinvestment with its direction determined by profit-seeking businesseslarge soci
31、al insurance systems to redistribute incomegovernments committed to avoiding mass unemployment35Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Modern Economic Growth around the World The OECD countries ended up with mixed economiesmarkets direct the flow of resourcesgovernment
32、s stabilize the economy, provide social-insurance safety nets, and encourage entrepreneurship and enterprise36Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Modern Economic Growth around the World As the OECD countries became richer, they completed their demographic transition
33、s The policy emphasis on free enterprise boosted investment Steady-state capital-output ratios rose Diffusion of technology from the U.S. occurred37Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Modern Economic Growth around the World Economic growth has not been limited to OE
34、CD countriessince World War II, several countries in east Asia have experienced stronger growth than has ever been seen anywhere in world historythese successful east Asian countries are somewhat similar to the OECD economies in terms of economic policy and structure38Copyright 2002 by The McGraw-Hi
35、ll Companies, Inc. All rights reserved.Modern Economic Growth around the World Many countries have not been so fortunate Countries that have been ruled by communists in the twentieth century have remained poor39Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Figure 5.9 - The Ir
36、on Curtain40Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Table 5.4 - The Iron Curtain: GDP-per-Capita Levels of Matched Pairs of Countries41Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Sources of Divergence The principal cause of the large variation
37、in output per worker between countries today are differences in their steady-state capital-output ratiosdifferences in the share of investment in national productdifference in labor force growth42Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Sources of Divergence A second cau
38、se of the large variation in output per worker between countries today are differences in the level of educationthe efficiency of labor is highly correlated with the level of education educated workers can use modern technologies43Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved
39、.Figure 5.10 - GDP-per-Worker Levels and Average Years of Schooling44Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Sources of Divergence An additional cause of the large variation in output per worker between countries today are differences in access to technologydifficult to
40、 measure45Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Cause and Effect,Effect and Cause High population growth and low output per worker go togetherrapid population growth reduces the steady-state capital-output ratiopoor countries have not undergone their demographic trans
41、ition46Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Cause and Effect,Effect and Cause Other vicious circles can occurpoor countries will have a high relative price of capital implies that poor countries get less investment out of any given effort at savinggood education is h
42、arder to provide in poor countries Setting the demographic transition in motion will offset these problems47Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Hopes for Convergence The context of economic “stagnation” and “failure” are relative termsnet national product in Argenti
43、na is about three times what it was in 1900net national product in Norway is about nine times what it was in 1900 The worlds industrial leaders provide a benchmark of how much better things could have been48Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Hopes for Convergence D
44、ifferences in productivity and living standards between national economies should be eroded over time due toworld trademigrationflows of capitaldeveloping countries entering the demographic transition49Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Policies for Saving, Investm
45、ent, and Education Policies to boost saving includeensuring that savers get a reasonable rate of return on their savingsminimizing restrictions on entrepreneurshipkeeping inflation lowkeeping government deficits to a minimum50Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Poli
46、cies for Saving, Investment, and Education Policies to boost investment for a given level of savings includewelcoming money from foreign investorsallowing businesses to freely earn and spend foreign exchange reducing tariffs and quotas subsidizing investment and expansion by businesses that successf
47、ully compete in world markets51Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Policies for Saving, Investment, and Education Promoting universal access to education can provide two important benefitsa better-educated workforce is likely to be more productiveeducated women will
48、 likely pursue opportunities outside the home the birth rate will likely fall the demographic transition will occur more quickly52Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Policies for Technological Advance Technological progress has two componentsscienceresearch and deve
49、lopment amounts to 3 percent of GDP in the U.S.53Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Policies for Technological Advance Businesses conduct investments in research and development to increase profit Research and development is a public goodother firms can copy itpate
50、nts limit the ability of other firms to do so54Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Policies for Technological Advance Governments seeking to establish patent laws face a dilemmaif the patent laws are strong, much of the modern technology in the economy will be restr