Macroeconomics ECON202
Guided notes: Chapter 11 Economic Growth and the Wealth of Nations
Big Questions to study
A. Why does economic growth matter?
• Economic growth affects human welfare in meaningful ays
• Historical data show that sustained economic growth is a relatively modern phenomenon
• Relatively small but consistent growth rates are an effective path out of poverty
B. How do resources and technology contribute to economic growth?
• Natural resources, physical capital, and human capital all contribute to economic growth
• Technological advancement, which leads to the production of more output per unit of input, also
sustains economic growth
C. What institutions foster economic growth?
• Private property rights secure ownership of what an individual produces, creating incentives for
increased output
• Political stability and the rule of law allow people to make production decisions without concern for
corrupt government
• Competitive and open markets allow everyone to benefit from global productivity
1
,• Efficient taxes are high enough to support effective government, but low enough to provide incentives
for productions
• Stable money and prices allow people to make long-term production decisions with minimal risk
D. How are some economists testing new ideas?
• Fieldwork using randomized controlled trials (RCTs) is changing development economics
• An RCT randomly groups people to compare and test policies and incentives
Flow of Chapter 11
1. History of Economic Growth
2. Factors of Economic Growth
- Resources
- Technology
- Institutions
Motivating example:
From the pictures of Earth’s city lights, we can see a huge gap in living standard across countries. The
difference is even more remarkable between North Korea and South Korea.
What are the reasons for such a difference?
A. Why does economic growth matter?
Economic growth is measured by growth in real GDP per capita.
2
,• In 1900 —> life expectancy in the U.S. was 47 years
• About 140 out of every 1,000 children died before their first birthday
• Only about 1/3 of American comes had running water
Some Ugly Facts:
• Economic Growth: is measured as the percentage change in real per capita GDP
• Real per capita GDP measures the average level of income in a nation
• Economic growth alleviates human misery and lengthens lives —> wealthier societies provide
better living standards, which include better nutrition, educational opportunities, health care,
freedom, and even entertainment
• Some of the poorest nations: Bangladesh, Haiti, North Korea, Niger, Liberia, Tanzania, Nepal,
Ethiopia, and Zimbabwe
• Wealthier nations: Australia, Denmark, Israel, Japan, Germany, South Korea and the United States
• In poor countries, 49 out of every 1,000 babies die at birth or in the first year of life
• In rich nations —> the number is about 5 out of every 1,000
• Infants are 10 tees more likely to die in poor nations
• Those that survive one year in poor nations are about 14 times more likely to die before their 5th
birthday
• Life expectancy in poor countries is 63 years, while in wealthier countries it is about 80 years
3
, • Rich nations have about 10 times as many doctors per person (30 physicians per 10,000 people)
• Poor nations have about 3 physicians pet 10,000 people
• Clean water and sanitation are available to a small fraction of people in poor nations —> but generally
available to all in rich nations
• Drinking water in poorer nations often leads to common ailments like tapeworms and diarrhea
that are life threatening in those nations
• 2010 —> the World Health Organization estimated that 3.6 million people die each year
from waterborne diseases
• Educational opportunities are rarer for all people in poor nations —> but women fare worse than men
by far
A1. Learning from the past
For most of the human history, we were all poor.
The average person’s life was one of subsistence of life, hoping for enough food and shelter.
We got wealthier starting from 1700s. The breakthrough happened during industrial revolution.
Industrial revolution: rapid technological progress which grew faster than population.
In US, average income in 1800 (in 2010 dollars) is $2,000.
In Liberia, average income in 2012 (in 2010 dollars) is $1,200.
US 200 ago is wealthier than Liberia today!
4
Guided notes: Chapter 11 Economic Growth and the Wealth of Nations
Big Questions to study
A. Why does economic growth matter?
• Economic growth affects human welfare in meaningful ays
• Historical data show that sustained economic growth is a relatively modern phenomenon
• Relatively small but consistent growth rates are an effective path out of poverty
B. How do resources and technology contribute to economic growth?
• Natural resources, physical capital, and human capital all contribute to economic growth
• Technological advancement, which leads to the production of more output per unit of input, also
sustains economic growth
C. What institutions foster economic growth?
• Private property rights secure ownership of what an individual produces, creating incentives for
increased output
• Political stability and the rule of law allow people to make production decisions without concern for
corrupt government
• Competitive and open markets allow everyone to benefit from global productivity
1
,• Efficient taxes are high enough to support effective government, but low enough to provide incentives
for productions
• Stable money and prices allow people to make long-term production decisions with minimal risk
D. How are some economists testing new ideas?
• Fieldwork using randomized controlled trials (RCTs) is changing development economics
• An RCT randomly groups people to compare and test policies and incentives
Flow of Chapter 11
1. History of Economic Growth
2. Factors of Economic Growth
- Resources
- Technology
- Institutions
Motivating example:
From the pictures of Earth’s city lights, we can see a huge gap in living standard across countries. The
difference is even more remarkable between North Korea and South Korea.
What are the reasons for such a difference?
A. Why does economic growth matter?
Economic growth is measured by growth in real GDP per capita.
2
,• In 1900 —> life expectancy in the U.S. was 47 years
• About 140 out of every 1,000 children died before their first birthday
• Only about 1/3 of American comes had running water
Some Ugly Facts:
• Economic Growth: is measured as the percentage change in real per capita GDP
• Real per capita GDP measures the average level of income in a nation
• Economic growth alleviates human misery and lengthens lives —> wealthier societies provide
better living standards, which include better nutrition, educational opportunities, health care,
freedom, and even entertainment
• Some of the poorest nations: Bangladesh, Haiti, North Korea, Niger, Liberia, Tanzania, Nepal,
Ethiopia, and Zimbabwe
• Wealthier nations: Australia, Denmark, Israel, Japan, Germany, South Korea and the United States
• In poor countries, 49 out of every 1,000 babies die at birth or in the first year of life
• In rich nations —> the number is about 5 out of every 1,000
• Infants are 10 tees more likely to die in poor nations
• Those that survive one year in poor nations are about 14 times more likely to die before their 5th
birthday
• Life expectancy in poor countries is 63 years, while in wealthier countries it is about 80 years
3
, • Rich nations have about 10 times as many doctors per person (30 physicians per 10,000 people)
• Poor nations have about 3 physicians pet 10,000 people
• Clean water and sanitation are available to a small fraction of people in poor nations —> but generally
available to all in rich nations
• Drinking water in poorer nations often leads to common ailments like tapeworms and diarrhea
that are life threatening in those nations
• 2010 —> the World Health Organization estimated that 3.6 million people die each year
from waterborne diseases
• Educational opportunities are rarer for all people in poor nations —> but women fare worse than men
by far
A1. Learning from the past
For most of the human history, we were all poor.
The average person’s life was one of subsistence of life, hoping for enough food and shelter.
We got wealthier starting from 1700s. The breakthrough happened during industrial revolution.
Industrial revolution: rapid technological progress which grew faster than population.
In US, average income in 1800 (in 2010 dollars) is $2,000.
In Liberia, average income in 2012 (in 2010 dollars) is $1,200.
US 200 ago is wealthier than Liberia today!
4
