Hi.
Today, we're going to begin with some of the basic facts
about growth and development.
The most basic fact of all is that there are rich countries
and there are poor countries,
and the differences between them are extreme.
So, the United States,
it's not the world's richest economy in terms of GDP per capita,
but it's the world's richest large economy.
And we see the GDP per capita in the United States is about
$47,000 per year.
Now, over here, in the poorest ten countries in the world;
the very poorest, Congo and Burundi, competing for the bottom spot.
What we see here is that GDP per capita in these countries,
it's not ten times lower, --
it's not even a hundred times lower, it's a little bit more
than a hundred times lower than in the United States,
about a hundred times lower than in some of the European economies.
So, the differences in GDP per capita are extreme.
Now, these differences in GDP per capita,
as much as possible, we have tried to correct
for differences in prices and so forth, to make these comparable figures.
So, these are what we call PPP adjusted figures,
and for more on that adjustment, which is not always perfect,
but as close as we can get, --
do check out our video on purchasing power parity.
Another thing to notice is that
most of the poorest countries in the world,
not all of them, but most of the poorest countries in the world
are in Africa.
Timor-Leste used to be part of Indonesia
and, of course, there are other poor countries in the world.
But the very poorest countries tend to cluster in Africa.
Now, why is the United States so much richer than these other countries?
Well, the most basic reason is that the United States has grown
consistently for a very long period of time.
So, what this graph shows, is GDP per capita,
real GDP per capita, over the last 210 years,
from 1800 to 2010.
Now, this graph.
We've graphed it in an interesting way.
Notice here, on the vertical axis, we have doublings.
So, this is called a ratio scale.
So, from 1000 to 2000 is a doubling.
>From 2000 to 4000 is a doubling.
>From 4000 to 800 is a doubling, and so forth.
One of the reasons we have done that,
is that it makes it easier to compare growth rates.
What this means is that a straight line on this graph
is a line of constant growth.
In fact, we can do a little bit better than that.
Let's look at a doubling time.
So, GDP per capita in the United States
hit about $2,000 somewhere around 1840-1845.
It doubled to 4000 by 1880.
So that's a difference, a doubling time of 35 years.
Well, we know immediately, from the rule of 70,
that means that real GDP per capita in the United States,
over this time span, was about 2% per year.
Now, if that seems a little bit confusing to you,
you're not sure where I got that number,
do check out our video, The Rule of 70.
What we can also see, is that growth rate in the United States
has been about 2% per year for about 200 years
with some obvious exceptions.
This here is the Great Depression for example.
Really marked even larger than the Great Recession
which we've had more recently, much larger than that.
Okay. What else can we do with this graph?
Well, we can also use this graph to get kind of another intuitive sense
of the differences in wealth or in GDP per capita
between different countries.
Let's take a look at that.
So, now, I've superimposed here the GDP per capita
in some other countries in 2010.
So, what we see down here is Bangladesh, Uganda, Malawi.
And Bangladesh and Uganda are about as rich today
as the United States was in 1800.
Malawi is actually a little bit poorer.
Again, these comparisons are not perfect,
because we're making them over very long time periods.
Nevertheless, this gives us an intuitive sense
of how people in other countries are living.
Here is Nigeria.
About as rich as the typical person in the United States was in 1850.
India, per capita income, about that of the United States in 1870.
China has a GDP per capita --
about the same as in the United States did in 1920.
Peru, a GDP per capita, about the US levels of 1940.
Here's Mexico and Argentina today,
about as rich as the United States was in 1960.
Italy, about where the United States was in 1980.
I remember 1980, it was pretty good. So, life in Italy is not so bad at all.
Here's another picture taken from my textbook with Tyler, Modern Principles, --
illustrating that the differences in wealth between countries
is something of fairly recent origin.
So, if you go back to the time of Christ, year 1,
or you go back to year 1000, or even to year 1500.
There's not very, many differences in GDP per capita
between different regions of the world.
Beginning, however, perhaps with the Industrial Revolution,
and picking up in the 1870s and 1800's,
what we begin to see is divergence.
Divergence big time in the words of a famous paper by Lant Pritchett.
So, you begin to see some countries get on this growth path like the United States,
a little bit less Western Europe,
and they just take off
beyond anything that anyone has ever seen before in the world.
This is where we get the big differences in wealth.
You could also see in this graph that, perhaps, in the last few decades,
that China and some of the other countries in Asia,
particularly India, are maybe beginning to catch up.
So, there's, in principle it seems,
no reason why there ought to be such big differences in wealth.
It's merely that some countries got started on this growth path
before the other countries did,
but, now, these other countries may begin to catch up.
In fact, we can see that in this graph, also taken from the Modern Principles,
that there are growth miracles and growth disasters.
So, let's talk about growth miracles first.
One of the very first was Japan.
So, here's Japan in the time after World War II.
Japan is one of the poorest countries in the world.
Very, very poor country,
not much richer than Nigeria.
But, certainly far less rich than the United States,
a very poor country.
But, in the 1950s-1960s, --
it has a tremendous catch-up period,
until by the 1970s and 1980s.
This is growing as fast as the United States is,
and has caught up a tremendous amount to the United States.
We see the same thing happening in South Korea,
again, after the Korean War.
A terribly poor, impoverished country,
maybe even a little bit poorer than Nigeria.
And, yet, we see the beginning, again, in the 1960s and 1970s
tremendous growth, catching up.
These are what we call growth miracles.
So, this tells us that, --
with the right institutions, with the right factors in place,
a country which is behind the frontier
can catch up much, much more quickly to US levels of growth.
So, it took the United States 200 years to get to where
the US rate of GDP per capita is today.
But, other countries seem to be able to do this,
at least to catch up within 40 years.
The catch-up phase is about a generation.
We also see in this picture that there are growth disasters.
There's nothing automatic about growth.
So, in terms of GDP per capita,
Nigeria has not grown in 50 years.
Some ups and downs, often due to the price of oil,
but basically has not grown at all.
We also see Argentina.
Argentina used to be, in the 19th century,
one of the richest countries in the world, close to that of the United States.
And, yet, it has failed to grow; even in this period, --
it had a declining growth rate.
So that, today, Argentina is poorer than South Korea,
and poorer than Japan,
even though, for much of its history, Argentina was richer.
So, it is possible,
if you don't install the right policies, for a country to fail to grow.
Now, why do we care so much about GDP per capita?
Well, first, by definition, this means more goods, and that tends to be a good thing.
So, more automobiles, bigger and better houses,
more computers, --
more books; more ice cream.
These are all good things, especially the ice cream.
In addition, however,
GDP per capita tends to correlate with a whole variety of desirable attributes.
Things like more leisure, more time to do yoga,
more time to devote to charity and family, and so forth.
It's also more fun to live in a society with greater GDP per capita.
Also, we tend to have more democracy.
There tends to be greater rights for women
in societies with higher GDP per capita.
And life expectancy tends to be a lot higher
in societies with higher GDP per capita.
And that's what I want to look at now, life expectancy.
I'm going to do so, using this video from Gapminder.
By the way, go check out Gapminder, lots of interesting data,
lots of fun videos and things that you can create.
Okay. Let's take a look.
What we see in this video is income per person
on the horizontal axis,
that's our GDP per capita, that's in PPP adjusted terms,
and life expectancy on the vertical axis.
Now, in 1800,
life expectancy everywhere in the world was less than 40 years.
It was 40 years in the world's richest economy,
at the time in the United Kingdom.
Everywhere else, less than that.
This is not because everyone is dying at age 45,
it's primarily because you had lots of people dying at very young ages,
between the ages of 0 and age 5 or so.
Okay.
Let's get this video going and see what happens over time.
By the way, the big red dot, that's China.
The big blue dot, that's India.
These dots are proportional to population.
Let's get the video going.
We can see that, over time,
countries are slowly increasing in GDP per capita.
Notice that the ups and downs,
those are often wars, times of real distress.
So, here, we have things are beginning to improve in the 1870s.
World War I is coming.
Watch out for World War I and influenza.
Big drop there.
Comes right there in the Western economies.
Here comes World War II, we're gonna see a big drop.
Here comes the 1950s in China. Take a look at China!
Great leap forward. That was a great leap downward
in life expectancy because of mass starvation.
Alright. Here, we come to the modern world.
Once again, we see there's a positive relationship
between income per person and life expectancy.
We also see that the very poorest countries in the world
basically have not grown at all,
but their life expectancy is much higher.
So, these very poor countries,
they have managed to get some gains from growth elsewhere in the world,
primarily in things like vaccines and vitamins,
and other factors which increase life expectancy.
So, life expectancy is higher
even though these countries, in fact, are not that much richer.
What else do we see?
Well, we can see that life expectancy increases,
as I mentioned, in GDP per capita,
but also that, within a constant level of GDP per capita,
life expectancy can differ.
So, here's India, here's Vietnam; that's a higher life expectancy.
There's Sudan. A lower life expectancy despite the same GDP per capita.
So, countries can devote more or fewer resources to things
like health care, to things like education,
and to other factors which increase GDP per capita.
Okay.
So, those are some of the very basic factors about economic growth.
And one of the reasons we're interested in economic growth,
is it's positively correlated with life expectancy, with fun,
with leisure, with a whole bunch of good things.
Okay. Thanks.