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The lessons of growth theory

The lessons of growth theory. …can make a positive difference in the lives of hundreds of millions of people. These lessons help us understand why poor countries are poor design policies that can help them grow learn how our own growth rate is affected by shocks and our government’s policies.

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The lessons of growth theory

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  1. The lessons of growth theory …can make a positive difference in the lives of hundreds of millions of people. These lessons help us • understand why poor countries are poor • design policies that can help them grow • learn how our own growth rate is affected by shocks and our government’s policies

  2. Huge effects from tiny differences In rich countries like the U.S., if government policies or “shocks” have even a small impact on the long-run growth rate, they will have a huge impact on our standard of living in the long run…

  3. annual growth rate of income per capita percentage increase in standard of living after… Huge effects from tiny differences …25 years …50 years …100 years 2.0% 64.0% 169.2% 624.5% 2.5% 85.4% 243.7% 1,081.4%

  4. Huge effects from tiny differences If the annual growth rate of U.S. real GDP per capita had been just one-tenth of one percenthigher during the 1990s, the U.S. would have generated an additional $449 billion of income during that decade

  5. International Evidence on Investment Rates and Income per Person

  6. International Evidence on Population Growth and Income per Person

  7. Examples of technological progress • 1970: 50,000 computers in the world2000: 51% of U.S. households have 1 or more computers • The real price of computer power has fallen an average of 30% per year over the past three decades. • The average car built in 1996 contained more computer processing power than the first lunar landing craft in 1969. • Modems are 22 times faster today than two decades ago. • Since 1980, semiconductor usage per unit of GDP has increased by a factor of 3500. • 1981: 213 computers connected to the Internet2000: 60 million computers connected to the Internet

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