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Econ 171 Economic Development

Econ 171 Economic Development. Atanu Dey Wed 22 nd June, 2011 2:00 PM – 3:30 PM 3 Le Conte. Developing World Characteristics ( contd ). Underdeveloped markets Lingering colonial impacts Extractive and exploitative policies Not development oriented.

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Econ 171 Economic Development

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  1. Econ 171 Economic Development AtanuDey Wed 22nd June, 2011 2:00 PM – 3:30 PM 3 Le Conte

  2. Developing World Characteristics (contd) • Underdeveloped markets • Lingering colonial impacts • Extractive and exploitative policies • Not development oriented Meeting 3 / N171 / Atanu Dey

  3. Differences between low-income today and in the past • Physical and Human Resource Endowments • Relative Levels of Per Capita Income and GDP • Climatic differences • Population size, distribution and growth • The role of International Migration • 60 million migrated to the Americas between 1850 and 1914 (world population was a fourth of today’s) • Brain drain? • Free trade Meeting 3 / N171 / Atanu Dey

  4. Convergence or Divergence? • Are living standards converging? • Rich country standards were 3 times that of the poor at start of industrial revolution • Today it is 100x  divergence • Can they catch up? • Technology transfer enabled leapfrog • The doubling time has been falling • Britian doubled output in 60 years of the industrial revolution • US took 45 years, South Korea 12, and China 9 Meeting 3 / N171 / Atanu Dey

  5. The Rule of 70 • Per period growth rate of g • Time to double = 70/g • So if annual growth rate is 7% • Then doubling time is 10 years • If annual growth rate is 3.5% • Then doubling time is 20 years Meeting 3 / N171 / Atanu Dey

  6. Do Poor Countries Grow Faster? • Relative Country Convergence • If the growth rate of poor countries is faster, then they will catch up eventually with the rich • China’s per capita income was 3% of US in 1980 • Increased to 14% in 2007 • But globally this is not true – convergence is conditional • Middle income countries are growing faster than low income countries – gap amount LDCs is increasing • Absolute Country Convergence • The gap will continue to grow because of the low base Meeting 3 / N171 / Atanu Dey

  7. Technological Revolution • “A Long Boom?” by J Bradford DeLong (1999) • http://bit.ly/lVUVBc • Revolution in information and communications technologies (ICT) • Current computers have10,000,000x processing power relative to 1975 • Compare with the electric motor • 1869 US 1.2 million hp electric motors • 1939 US 45 million hp electric motors • 45x increase in 70 years – 5% growth per year • Made mass production possible – assembly line Meeting 3 / N171 / Atanu Dey

  8. Computers • 1999 – 200 million – 60 million on the internet • 2011 – about 600 million on the internet • IPv4 can support 4.3 billion addresses • IPv4 address space will run outin 2011 • The measured productivity increase in the US overall is around 1.5% per year • For ICT industries, it is 25% per year Meeting 3 / N171 / Atanu Dey

  9. Is Development Possible? • Depends. It is neither inevitable nor impossible • Depends on the national as well as the international context • Is development a game of chess or is it golf? • Depends on the policies that enable human capital growth – complementarities between it and physical capital • Institutions matter Meeting 3 / N171 / Atanu Dey

  10. Major Constraints • Physical – energy • Social – culture • History – path dependence Meeting 3 / N171 / Atanu Dey

  11. Discussions Meeting 3 / N171 / Atanu Dey

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