Chapter 7: Economic Growth and Development

1. Chapter 7: Economic Growth and Development

2. 7.1 Defining Economic Growth • A country’s standard of living depends on its ability to produce goods and services. • In Canada, over the past century, average income as measured by real GDP per person has grown by about 2 percent per year. • Economic growth: increases in per-capita real GDP. This is measured by the rate of change in per-capita real GDP per year.

3. Problems with defining Economic Growth • In Canada, over the past century, average income per capita has grown by about 2 percent per year – relatively high standard of living • BUT, who enjoys this wealth? Must pin-point. Eg. Alberta vs. Newfoundland • UN Human Development Index takes into account: education & life expectancy measures HOW the income is spent.

4. 7.2 Modeling Economic Growth • Productivity refers to the amount of goods and services (GDP) produced for each hour of a worker’s time. Being productive means producing the same output with fewer labour hours eg. 2 hours per typed essay, total of 10 • Productivity = GDP / # workers or labour hours • Relationship between economic growth and increases in productivity

5. Modeling Economic Growth • Productivity = GDP / # workers or labour hours • Relationship between economic growth and increases in productivity

6. Productivity: it’s role and determinants • Productivity plays a key role in determining living standards for all nations in the world.

7. Productivity: it’s role and determinants Is Determined • The inputs used to produce goods and services are called the factors of production. • The factors of production can increase the productivity of labour.

8. How ProductivThe Factors of Productioned • Labour • Technological knowledge • Physical capital

9. How ProducThe Factors of Productioned ivity Is Determined G^& • Labour • the economist’s term for the workers used for production of G&S • Like physical capital, increases in labour raises a nation’s ability to produce goods and services

10. How ProducThe Factors of Productioned ivity Is Determined G^& • Labour • a) increases in labour supply leads to real wage fall. • b) more workers means more can be produced • c) greater output is possible c) Real GDP b) a) Labour Market PF1 S1 S2 LRAS0 LRAS1 Price Level Real Wage D1 Real GDP/ Year Number Employed

11. ProducThe Factors of Productioned How Productivity Is Determined • Technological Knowledge • society’s understanding of the best ways to produce goods and services. • a) improvement in technology increases productivity and shifts curve up • b) increase in productivity means increase in demand for labour at higher wages rates • c) real GDP increases c) Real GDP a) Labour Market b) PF2 S1 LRAS0 LRAS1 PF1 Price Level Real Wage D2 D1 Real GDP/ Year Number Employed

12. HThe Factors of Productione • Physical Capital • is the stock of equipment and structures that are used to produce goods and services. • Tools used to build or repair automobiles. • Tools used to build furniture. • Office buildings, schools, etc.

13. 7.3 Fundamental Determinants of Economic Growth • How much you save! • if you want more tomorrow you have to have less today. • Eg in desert with one bottle of water… • What is saved today will be invested in physical and human capital used for growth • Higher saving means higher GDP and higher standard of living

14. Other Determinants of Economic Growth • Property Rights and Entrepreneurship • Can’t be scared of the government • The more your property rights are protected more saving, investment, business • What is saved today will be invested in physical and human capital used for growth • Higher saving means higher GDP and higher standard of living

15. Other Determinants of Economic Growth • Market driven economies • Political stability • Population growth • Increase in labour supply • and immigration • Higher employment rates

16. 7.4 New Growth Theory and What Determines Growth • Technology is an important factor of economic growth • NGT suggests that new technology can be encouraged by incentives • The greater the rewards (incentives), the greater the improvements to technology

17. New Growth Theory and What Determines Growth Technological Aspects: • R&D • Development of specific new products, machines, materials that are protected by patents • Patents protect new techniques, ideas from being copied • Right to make, use, make, sell an invention for a period • R&D from one country benefits those in less developed countries eg. robots developed in America go to Mexico to build cars

18. New Growth Theory and What Determines Growth • The Role of Government in encouraging growth • Help through policies • Support free markets ie. Make easier to buy and sell • Protect property rights • Maintain political stability • Controlling immigration • Subsidize eg education • Invest in roads eg. use to get to work to produce things • Encourage savings through RRSP, science tax breaks • Transfers to start-up companies

19. 7.5 The Costs and Benefits of Economic Growth • Costs – a growing economy means increased consumption • Environmental Disasters • More consumption of earths natural resources • More pollution • Uneven Consumption • Western Countries demand for beef leads to rainforest destruction

20. The Costs and Benefits of Economic Growth • Costs – a growing economy means increased consumption • Poverty Leads to Environmental Pressure • Need to consume to grow and lift their people out of poverty • Have largest populations • Brundtland Commission • “Sustainable Development” • Meet present and future needs

21. The Costs and Benefits of Economic Growth • Benefits – a growing economy means increased consumption • Higher Standard of Living • Greater economic growth means more spending on education and healthcare, other social programmes • Less Population Growth • More educated women, more working, less time for babies • New Technology Solves Problems • Depleting oil reserves led to new extraction methodes

22. 7.6 International Economic Development • Qst. How did Canada go from being poor to rich? • Ansr. Development Economics: why some countries grow • World Poverty • Half to two-thirds of world population live at subsistence levels

23. International Economic Development • Qst. How did Canada go from being poor to rich? • Ansr. Development Economics: why some countries grow • World Poverty • Half to two-thirds of world population live at subsistence levels • What is poor in Canada is rich in other countries

24. International Economic Development • Development Economics: how & why some countries grow • Population growth and economic development • Poor countries’ population growing faster than rich

25. International Economic Development • High population growth threatens economic development and quality of life • Malthus prediction: population will outstrip food supplies • Wrong. As population grows, so does food supply • Price of food also dropping • Growth leads to smaller families • Lower child mortality, less kids • Move out of farming to cities, need less kids • Make more money to support higher standard of living • Send kids to $$$chool

26. International Economic Development • The Stages of Economic Development: Agricultural to Industry • Agricultural (Congo) > Manufacturing (China) > Services (Canada)

27. International Economic Development • Four Factors in Economic Development • An Educated Population • Idea generation, produce efficiently and more • Property Rights • Leads to more investment and entrepreneurship • Creative Destruction: new businesses create new jobs, & industries while destroying old ones eg. Ford cars replaced horse and carriage makers • Limit Protectionism • Open economies grow faster • eg. China used to only produce for it’s own people and not trade ie. Protected from outside prodcuts