Convergence and growth rates
bm2...@eve.albany.edu
Earlier, when grousing about how difficult achieving first world living
standards appears to be, I noted that South Korean gnp/cap growth rates
had dropped (although they're still higher than western European), and
Doug Muir pointed out that this is not so surprising, given South Korea
becoming a more developed country.
OTOH, according to my 2002 NY Times world almanac, S. Korea had in 1999
a GNP/cap of $8,490, which although well above latin american standards
(Mexico $4,440), is still well below western European standards (UK
$23,590).
So when do grow rates slow down? And is the point when a country's grow
slows to "developed nation" growth rates a fixed number, or relative to
the GNP/Cap of more developed countries?
I mean, say we're in the late twent-first century. The US has a GNP per
cap of $100,000, $120,000, who knows? Now we have India with a Gnp/cap
of $20,000. Does India have a "developed" nation GNP/cap growth rate,
or a second-third world rate of growth? It's as rich as a western
European state by _todays_ standards, but relative to late-21st US, it
looks Latin American.
Do growth rates plateau? Is there a difference in the growth rates one
would expect from a $80,000/cap economy and those from a $30,000/cap?
(assuming comparable demographics).
(Of course, present expectations of what sort of growth rates to expect
from "developed" economy might be waay off, given Unexpected
Technological Developments.)
best,
Bruce
Noel
bm2...@eve.albany.edu wrote:
> Greetings and salutations.
>
> Earlier, when grousing about how difficult achieving first world living
> standards appears to be, I noted that South Korean gnp/cap growth rates
> had dropped (although they're still higher than western European), and
> Doug Muir pointed out that this is not so surprising, given South Korea
> becoming a more developed country.
>
> OTOH, according to my 2002 NY Times world almanac, S. Korea had in 1999
> a GNP/cap of $8,490, which although well above latin american standards
> (Mexico $4,440), is still well below western European standards (UK
> $23,590).
---I strongly suggest that you look up the figures for
"purchasing power parity" and then repost this.
If you don't believe that it matters, then start asking
Americans about the Great Depression of 2003 and
watch for the blank looks. Or, flipping it on its head,
start congratulating Germans on their amazing
economic boom.
All the best,
Noel
sigi...@yahoo.com
bm2...@eve.albany.edu wrote:
> OTOH, according to my 2002 NY Times world almanac, S. Korea had in 1999
> a GNP/cap of $8,490, which although well above latin american standards
> (Mexico $4,440), is still well below western European standards (UK
> $23,590).
This is why we adjust for PPP. That has its own problems, but it's
much better than raw GDP.
PPP-adjusted, South Korea had a pcGDP of $21,400. That's right between
Israel and Greece, and not that far behind the UK's PPP-adjusted
$28,900.
> So when do grow rates slow down? And is the point when a country's grow
> slows to "developed nation" growth rates a fixed number, or relative to
> the GNP/Cap of more developed countries?
It's not a fixed number. If you look at the top 20 or so countries by
income, there's been a fair amount of churn. Throwing out oil states
and small (<0.5 million population) countries, we find that Norway and
Ireland are currently #1 and #3. Ireland, in particular, has zoomed up
from around #25 just 20 years ago. Meanwhile Japan, which was #2 as
recently as the early '90s, has fallen to #8.
If you look at the list of countries --
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
-- you'll notice a thick clump of countries between Japan ($29,900) and
France ($27,700). There are 10 biggish countries in that narrow band
of $2,200. The band of equivalent width below France has only two
countries in it. Then the next $2,200 band below that, still has only
two countries.; and so, in turn, does the next $2,200 band below
/that/. (Throwing out oil countries and teensy ones.)
So, you have a long, sparsely populated gap followed by a sudden thick
clump. Doesn't prove anything, but it does look sort of suggestive...
like an income level around $28,000 pc is sort of the grease trap of
First World development.
> I mean, say we're in the late twent-first century. The US has a GNP per
> cap of $100,000, $120,000, who knows? Now we have India with a Gnp/cap
> of $20,000. Does India have a "developed" nation GNP/cap growth rate,
> or a second-third world rate of growth? It's as rich as a western
> European state by _todays_ standards, but relative to late-21st US, it
> looks Latin American.
We're really getting into definitional issues. My personal take on it
is that First World is a moving target. Mexico today is as rich as the
US in 1948, and China today is richer than the US in 1933.
> Do growth rates plateau?
Usually, yes. A First World country with sustained growth rates over
4% or so is really very rare. Ireland and Norway are about the only
recent examples that come to mind. (And Norway managed it through that
rarest of flukes: an oil boom that was managed prudently and well.)
Japan managed it for about 15 years, but stopped dead in 1990.
Doug M.
bm2...@eve.albany.edu
sigi...@yahoo.com wrote:
> This is why we adjust for PPP. That has its own problems, but it's
> much better than raw GDP.
>
> PPP-adjusted, South Korea had a pcGDP of $21,400. That's right between
> Israel and Greece, and not that far behind the UK's PPP-adjusted
> $28,900.
Ok, consider that part of my post scratched. When calculating how long
it will take for country X to catch up with country Y in terms of
income/capita, do we use PPP/cap or GDP/cap?
(Yes, my ignorance re economics is showing. So enlighten me.)
>
> So, you have a long, sparsely populated gap followed by a sudden thick
> clump. Doesn't prove anything, but it does look sort of suggestive...
> like an income level around $28,000 pc is sort of the grease trap of
> First World development.
>
>
> > I mean, say we're in the late twent-first century. The US has a GNP per
> > cap of $100,000, $120,000, who knows? Now we have India with a Gnp/cap
> > of $20,000. Does India have a "developed" nation GNP/cap growth rate,
> > or a second-third world rate of growth? It's as rich as a western
> > European state by _todays_ standards, but relative to late-21st US, it
> > looks Latin American.
>
> We're really getting into definitional issues. My personal take on it
> is that First World is a moving target. Mexico today is as rich as the
> US in 1948, and China today is richer than the US in 1933.
>
>
> > Do growth rates plateau?
>
> Usually, yes. A First World country with sustained growth rates over
> 4% or so is really very rare. Ireland and Norway are about the only
> recent examples that come to mind. (And Norway managed it through that
> rarest of flukes: an oil boom that was managed prudently and well.)
> Japan managed it for about 15 years, but stopped dead in 1990.
>
Ok, but is that plateau a moving target? Is late-21st century
$20,000/cap India stuck with under 4% growth rates and a long slog yet
before it catches up with the $100,000+ per cap US, or does it hit that
"grease trap" at a higher per capita income than any country today?
Bruce
bm2...@eve.albany.edu
Noel wrote:
> > OTOH, according to my 2002 NY Times world almanac, S. Korea had in 1999
> > a GNP/cap of $8,490, which although well above latin american standards
> > (Mexico $4,440), is still well below western European standards (UK
> > $23,590).
>
> ---I strongly suggest that you look up the figures for
> "purchasing power parity" and then repost this.
>
> If you don't believe that it matters, then start asking
> Americans about the Great Depression of 2003 and
> watch for the blank looks. Or, flipping it on its head,
> start congratulating Germans on their amazing
> economic boom.
>
Right-o. As I said to Doug, consider that part of my post scratched.
OTOH, if we go by PPP, isn't China's economy something like 1/2 the
size of the US?
best,
Bruce
Noel
In theory, poor countries grow faster than rich ones because,
"catching up is easier than forging ahead." You can copy
existing technologies, imitate other countries institutions,
etcetera. You can also catch up by quite literally throwing
money at the problem --- accumulate capital. That is,
replace dirt roads with freeways and move peasants into
shiny new factories. Easy gains, fast growth. Once your
country becomes as rich as the rich ones, these hundred
dollar bills are no longer lying around to be picked up,
and productivity growth rates slow to the same level
found in the richest countries.
A caveat to the above is that most countries actually
find even "catching up" to be quite difficult, which is why
the great convergence that most economists expected
just hasn't happened.
What determines the growth rates of the richest coun-
tries? Damned if I know. There are a lot of people doing
interesting work trying to find out, but a lot of it is highly
atheoretical (the stuff Carlos cites is a good example),
or hard to empirically test.
Lastly, for clarity, I suggest you focus on productivity
growth (even if only in its grossest measure of output
per worker), rather than per capita income growth.
Demographics can produce all sorts of variation
in that measure; frex: Puerto Rico is no where
near as poor as it looks --- you go there, and you
realize you're in the First World, defining First
World as "someplace where store clerks can
buy automobiles," despite very low per capita
income figures. (The LFPR is falling as retirees
flock back to the island.) A reverse example
would be Spain: much of the recent growth
is driven simply by a rise in labor force parti-
cipation, rather than producitivity.
Best,
Noel
Mark Edelstein
>
> Lastly, for clarity, I suggest you focus on productivity
> growth (even if only in its grossest measure of output
> per worker), rather than per capita income growth.
> Demographics can produce all sorts of variation
> in that measure; frex: Puerto Rico is no where
> near as poor as it looks --- you go there, and you
> realize you're in the First World, defining First
> World as "someplace where store clerks can
> buy automobiles," despite very low per capita
> income figures. (The LFPR is falling as retirees
> flock back to the island.) A reverse example
> would be Spain: much of the recent growth
> is driven simply by a rise in labor force parti-
> cipation, rather than producitivity.
>
> Best,
>
> Noel
What are the limits to that? It would seem lots of developed countries
could solve some problems by pursuing Swedish style maximum Labor force
participation policies.
Edward
Not being an economist, I think your definitions of "solve" and
"problems" are very important here.
Ed
Edward
bm2...@eve.albany.edu wrote:
<snip>
>
> I mean, say we're in the late twent-first century. The US has a GNP per
> cap of $100,000, $120,000, who knows? Now we have India with a Gnp/cap
> of $20,000. Does India have a "developed" nation GNP/cap growth rate,
> or a second-third world rate of growth? It's as rich as a western
> European state by _todays_ standards, but relative to late-21st US, it
> looks Latin American.
>
US GDP per capita is only going to triple in a hundred years? I hope
you aren't planning on any Social Security checks.
Ed
sigi...@yahoo.com
Noel wrote:
> Lastly, for clarity, I suggest you focus on productivity
> growth (even if only in its grossest measure of output
> per worker), rather than per capita income growth.
Or you could look at human development statistics. Life expectancy,
infant mortality, literacy, things like that.
These bring in their own set of problems, but they do provide an
interesting perspective. Frex, Japan still rules the list on life
expectancy -- longest lived large-country population, at 81.15. Sweden
and Australia both between 80 and 81. The US barely makes the top 30,
with a somewhat depressing 77.71 -- behind Jordan, Malta and Guam.
http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy
The life expectancy list correlates tolerably well with income, but
there are some interesting blips. The US, most obviously. (This
probably has a lot to do with high inequality in the US. Life
expectancy seems to correlate quite well with the Gini coefficient.
Inversely, of course. And the US is the most unequal large rich
country.) China, Albania and Cuba are all higher than you'd expect --
over 77 in all cases.
Lowest First World countries? Ireland and Portugal, #s 32 and 33 on
the list, both with around 77.5
Hm. Eyeballing the list, an idea occurs. Life expectancy has to do
with care and choices over a whole lifetime. The 75 year olds dropping
dead today? Collectively, they're a snapshot of 75 years of nutrition,
lifestyle choices, and health care or the lack thereof.
So -- we'd expect to find a significant lag time between pcGDP (or
productivity) and life expectancy. A country that gets rich fast will
see life expectancy rise, but it will take a while to converge on the
new income level, because there will be a lot of middle-aged and old
people who spent most of their lives poor, and so grew up with bad
health care, bad food, etc. etc.
Looking at the list... yeah, that works. It seems to map the pcGDP
list of ~20-30 years ago better than the one today. Japan on top.
Come-lately countries like Ireland, Portugal and Finland further down.
The FW cutoff seems to be around 77 years or a hair above, FWIW.
Nobody with a life expectancy below 77 is plausibly First World.
(Unless you buy Argentina, at 75.91. Which I don't. But that's a
story for another thread.)
Doug M.