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World History

World History. Centuries without productivity growth without economic growth … without population growth. ≈ 1750. World Events & Population Growth. World GDP per capita – last 2000 years Source: http://econ161.berkeley.edu/tceh/2000world_gdp/estimating_world_gdp.html.

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World History

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  1. World History • Centuries • without productivity growth • without economic growth • … without population growth

  2. ≈ 1750 World Events & Population Growth

  3. World GDP per capita – last 2000 years Source: http://econ161.berkeley.edu/tceh/2000world_gdp/estimating_world_gdp.html

  4. Relatively rich Relatively poor Real GDP Per Capita (real = inflation-adjusted to 1990 dollars) http://www.ggdc.net/maddison/ Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“

  5. Economic take-off Relative stagnation Real GDP Per Capita (real = inflation-adjusted to 1990 dollars) http://www.ggdc.net/maddison/ Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“

  6. Real GDP Per Capita (real = inflation-adjusted to 1990 dollars) Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“ http://www.ggdc.net/maddison/

  7. Real GDP Per Capita (real = inflation-adjusted to 1990 dollars) Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“ http://www.ggdc.net/maddison/

  8. The Mystery of Wealth • Ample endowments of: • Energy • Timber • Fertile land • . . . help raise wealth • BUT, they are … • only a small part of the answer to the Wealth of Nations

  9. Why Capitalism Triumphs . . . • . . . in the West and Fails Everywhere Else. • Hernando DeSoto • Peruvian economist • Establish property rights • Can use ownership as collateral • Can start businesses & participate in market economy • http://www.youtube.com/watch?v=JWakV0L8XWI • http://www.youtube.com/watch?v=xODUOlHJfhI

  10. Investment • Secure property rights make investment more likely. • Property Rights allow people to obtain debt. • Use of past and future incomes. • Collateralization is of greatest benefit to the poor.

  11. Investment and Growth

  12. Without Sound Legal Institutions . . . Property Rights Hardly Exist

  13. World Corruption Index

  14. Do We Have a Summary Statistic • …that • captures strength of private property rights? • the degree of open markets?

  15. Economic Freedom of the World • A weighted-index of variables to include: • Legal protection • Corruption under control • Limited government • Tax rates reasonable • Tariff rates (taxes on imports) low • Easy to start a new business • Limited government control of prices

  16. Index of Economic FreedomHeritage Foundation – Wall Street Journal

  17. World Corruption Index

  18. 2011 GDP per capita

  19. Capitalism, Growth & Poverty • The extent to which these institutions are present is a measure of economic freedom or “capitalism” • So, strong property rights, rule of law, and open markets makes a nation “capitalist”

  20. Capitalism, Growth & Poverty • Capitalism supports and promotes both entrepreneurship and innovation • Which in turn promote economic growth • The result is higher standards of living • at all points in the income distribution

  21. Benefits of Economic Growth Raises standards of living by: • reducing infant mortality

  22. Income Per Capita & Child Mortality 250/1000 5/1000

  23. Benefits of Economic Growth Raises standards of living by: • reducing infant mortality • increasing life expectancy

  24. Income Per Capita & Life Expectancy

  25. Benefits of Economic Growth Raises standards of living by: • reducing infant mortality • increasing life expectancy • reducing child labor

  26. Income Per Capita & Child Labor % 10 – 14 year olds active in economy

  27. Benefits of Economic Growth Raises standards of living by: • reducing infant mortality • increasing life expectancy • reducing child labor • providing more education

  28. Income Per Capita & Education *United Nations Education Index, 2008; World Bank GDP/capita (ppp), 2008.

  29. Is Economic Growth Good for the Poor?

  30. Who Are the Poor: ExtremePoverty • World Bank’s Dollar-a-DayLine • Less than $1.25 per day • Purchasing power parity (ppp)

  31. Extreme/Absolute Poverty$1.25 per Day • Unthinkable poverty in U.S. terms • In U.S., 80-90% of poor (below US poverty line) • Color television, Microwave, Cell phone • Clean running water • Extreme Poverty • Near 0% have above amenities • Spend 73% of budget on food • over 50% of children malnourished

  32. Extreme Poverty ( < $1.25/day ) 1,290,000,000 World Bank About 22% of world’s population

  33. Economic Terminology • Absolute Poverty • measured against a designated minimum threshold of material well-being (a standard) • current standard = $1.25/day PPP • Relative Poverty • identified by comparing levels of material well-being experienced by different individuals or groups

  34. Does Economic Growth . . . . . . improve the lives of the poor by making the pie bigger? Bigger “slice” means higher standard of living

  35. Recent History • Since 1750, world has made progress in battle against absolute poverty • experiencing a decline in the • percentage of the population that is poor

  36. % of World Population in Extreme Poverty

  37. More Recent History • But inroads against absolute poverty have been • especially noteworthy in last 25 years. • For the first time in human history, the world is experiencing not only a decline in the: • percentage of the population that is poor and in the • total number of poor

  38. Number of People in Extreme Poverty 1980

  39. Sub-Saharan Africa 217 227 302 323 The Good News & The Bad News Source: http://www.worldbank.org/poverty/data/trends/income.htm#table1 & Global Economic Prospects and the Developing Countries, 2005. http://siteresources.worldbank.org/INTGEP2005/Resources/GEP107053_Ch01.pdf

  40. The Good News & the Bad News … The Good News & Some Encouraging News … Source: World Bank Poverty and Inequality Databasehttp://databank.worldbank.org/Data/Views/Reports/TableView.aspx (April 30, 2012)

  41. So . . . Does Economic Growth . . . improve the lives of the poor by making the pie bigger? Bigger “slice” means higher standard of living

  42. Our inference? When the rich get richer . . . . The poor get richer too!

  43. Annual Growth and Poverty Reduction Economic Growth offers a way out! Source: World Bank Poverty and Inequality Databasehttp://databank.worldbank.org/Data/Views/Reports/TableView.aspx

  44. Average Income Shares of Poor of Country’s Population (gross national income per person) Sources: The World Bank Group. 2012. http://devdata.worldbank.org/data-query/ and CIA World Fact Book 2002. http://www.umsl.edu/services/govdocs/wofact2002/index.html (Data cited are most recent available as of 2012.)

  45. Economic Freedom and Income Level of Poorest 10% Source: EFW 2007, Exhibit 1.10.

  46. Conclusion • What is GDP? • Total market value of all final goods and services produced in economy in a year. • What is best measure of nation’s standard of living? • GDP per capita

  47. Conclusion • How increase GDP per capita? • Increase GDP • Decrease population growth rate • How increase in GDP? • Greater productivity

  48. Conclusion • How increase productivity? • Technical knowledge • Physical capital • Human capital • How encourage physical & human capital, entrepreneurship, etc.? • Economic system & institutions supporting: • Property rights • Free and open markets

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