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World Report. Rich and Poor?. Introduction. Why are some countries rich while other countries are poor? What affects their current economies?
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Introduction Why are some countries rich while other countries are poor? What affects their current economies? An understanding of the answers to these questions helps you understand your life: Why are some people rich and others poor? Is there anything we can do?
General Project Objectives develop the six Core skills, develop the three Honors Program Core tenets (critical thinking, research and writing), integrate the knowledge and skills from various disciplines (e.g., communication, geography, history, political science and mathematics), understand the relevance of other disciplines (e.g., geographical, historical and social factors) to the contemporary economies around the world develop a global perspective in understanding economic, geopolitical and social issues
Components & Criteria PowerPoint File (50 points) Preparation; data; organization Oral Presentation (50 points) Preparation; contents & accuracy; oral skill Written Report (100 points) Writing skill & documentation
List of Countries (12) Australia Colombia Egypt Germany Greece India Japan Kenya Mexico New Zealand Switzerland Thailand
Background Brief history (factors that may affect the economy) Colony (British, French or Spanish)? Population/demography (natives vs. migrants) Government setup and institutional factors
Measure of the Economy Across countries: Current (nominal) GDP per capita (in USD) More approximately, use Purchasing Power Parity (PPP) to allow for different costs of living Why shouldn’t you use total GDP? (read Ch.8)
GDP per capita, USD, 2009 3 (rank) Switzerland $63,536 8 United States $45,934 11 Australia $45,285 16 Germany $40,832 17 Japan $39,740 24 Greece $29,635 27 New Zealand $27,259 61 Mexico $8,134 79 Colombia $5,167 96 Thailand $3,941 116 Egypt $2,456 142 India $1,032 148 Kenya $840 World $8,587 IMF, 2009 estimate
Other Economic “Indicators” Inflation (ch. 7) Inflation is tied to monetary policy (ch. 16) During a recession (2007-09), inflation reduced Unemployment (ch. 7) Cyclical (short term) vs. natural (long term) Why is the unemployment rate persistently low in some countries (e.g., Japan) and high in other countries (e.g., Germany)? During a recession (2007-09), unemployment (cyclical) rose
How Do We Define Economic Growth? (book) Economic Growth Increase in per capita real GDP measured by its rate of change per year NOT just the past business cycle (<10 years) Use the rule of 70, or calculate the average growth over a long period of time
U.S. Economic GrowthWhat does this tell you? It doubled in 30 years (1970-40): 3.5%? Source: U.S. Department of Commerce.
Why Economic Growth? (book) Economic growth = Rate of growth of capital + Rate of growth of labor + Rate of growth in the productivity of capital and of labor
Figure 9-4 Relationship Between Rate of Saving and Per Capita Real GDP Source: World Bank.
Economic Development (cont'd) The relationship between population growth and economic development Growth leads to smaller families, lower birth rates. The more economic development occurs, the slower the population growth rate. Birth rates decline with modernization. Reduced infant mortality People do not rely on children to take care of them in old age Why a conflict between work and having babies?
Economic Development (cont'd) Keys to economic development Establishing a system of property rights Developing an educated population (not high population growth) Letting “creative destruction” (free market) run its course Limiting protectionism (opposite of free trade)
Figure 9-6 The Relationship Between Economic Growth and Tariff Barriers to International Trade Source: World Bank.
What really determines growth around the world? Millions of Explanation … • Solow growth effects • Initial GDP (initial condition) • Population growth • Real investment as a ratio of GDP • Education attainment • Life expectancy at birth • Mortality rate • Macroeconomic stability • Inflation • Government balance as a share of GDP • Trade policy • Trade openness, as the sum of exports and imports in GDP • Index of tariff restrictions • Political/institutional factors • Civil right index • Black market rate to official exchange rate ratio (corruption) • Civil war incidences • Political instability
Investment as GDP shareMore capital investment, more output …
Civil Right Index (violations)We do better if we have more civil right (less corruption) …
Political Instability IndexCivil war and political instability hurt the economy …
What really determines growth around the world? Millions of Explanation • What else? Millions more … • “Resource curse” (colonization) • New growth theory (technology) See book • Chopsticks?
What really determines growth around the world? Millions of Explanation • Lee (2011) • Export the Right Stuff (hi tech products) GDP growth Index of hi-tech export
Recent Conditions • Short term/business cycles (e.g., 2000-) • Affected by monetary policy • Central bank • Missions/objectives (mostly the same as the Fed) • “Talk the talk, walk the walk”—many countries in practice inflated their currencies at times • Inflation targeting (stated objective to be met, or be fired): e.g., New Zealand (1989), Australia (1993), Switzerland (2000) • Observe: other countries followed the US
Written Report • See the Guidelines • Due 12/7 (Tue) Midnight • Team: Evaluation of partners (100% combined)
