Page 517 - The Principle of Economics

CHAPTER 24 PRODUCTION AND GROWTH 531
COUNTRY
Japan
Brazil Mexico Germany Canada China Argentina United States Indonesia India
United Kingdom Pakistan Bangladesh
REAL GDP PER PERSON
PERIOD AT BEGINNING OF PERIODa
1890–1997 $1,196 1900–1997 619 1900–1997 922
REAL GDP PER PERSON
AT END OF PERIODa
$23,400 6,240 8,120 21,300 21,860 3,570 9,950 28,740 3,450 1,950 20,520 1,590 1,050
GROWTH RATE
PER YEAR
2.82% 2.41 2.27 1.99 1.95 1.91 1.76 1.75 1.65 1.34 1.33 1.03 0.78
1870–1997
1870–1997
1900–1997
1900–1997
1870–1997
1900–1997
1900–1997
1870–1997
1900–1997 587 1900–1997 495
1,738 1,890 570 1,824 3,188 708 537 3,826
aReal GDP is measured in 1997 dollars.
SOURCE: Robert J. Barro and Xavier Sala-i-Martin, Economic Growth (New York: McGraw-Hill, 1995), tables 10.2 and 10.3; World Development Report 1998/99, table 1; and author’s calculations.
THE VARIETY OF GROWTH EXPERIENCES
decades. The typical citizen of China in 1997 had about as much real income as the typical American in 1870. The typical person in Pakistan in 1997 had about one- half the real income of a typical American a century ago.
The last column of the table shows each country’s growth rate. The growth rate measures how rapidly real GDP per person grew in the typical year. In the United States, for example, real GDP per person was $3,188 in 1870 and $28,740 in 1997. The growth rate was 1.75 percent per year. This means that if real GDP per person, beginning at $3,188, were to increase by 1.75 percent for each of 127 years, it would end up at $28,740. Of course, real GDP per person did not actually rise exactly 1.75 percent every year: Some years it rose by more and other years by less. The growth rate of 1.75 percent per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
The countries in Table 24-1 are ordered by their growth rate from the most to the least rapid. Japan tops the list, with a growth rate of 2.82 percent per year. A hundred years ago, Japan was not a rich country. Japan’s average income was only somewhat higher than Mexico’s, and it was well behind Argentina’s. To put the issue another way, Japan’s income in 1890 was less than India’s income in 1997. But because of its spectacular growth, Japan is now an economic superpower, with average income only slightly behind that of the United States. At the bottom of the list of countries is Bangladesh, which has experienced growth of only 0.78 percent per year over the past century. As a result, the typical resident of Bangladesh con- tinues to live in abject poverty.
Because of differences in growth rates, the ranking of countries by income changes substantially over time. As we have seen, Japan is a country that has risen
Table 24-1