Long-Run Economic Growth

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  • Why long-run economic growth is measured as the increase in real GDP per capita, how real GDP per capita has changed over time, and how it varies across countries

  • Why productivity is the key to long-run economic growth and how productivity is driven by physical capital, human capital, and technological progress

  • The factors that explain why long-run growth rates differ so much among countries

  • How growth has varied among several important regions of the world and why the convergence hypothesis applies to economically advanced countries

  • The question of sustainability and the challenges to growth posed by scarcity of natural resources and environmental degradation

!worldview! TALL TALES

As China illustrates, there is a positive relationship between a country’s rate of long-run economic growth and its average population height.

CHINA IS GROWING—AND SO are the Chinese. According to official statistics, children in China are almost 6 cm taller now than they were 30 years ago. The average Chinese citizen is still a lot shorter than the average Canadian, but at the current rate of growth the difference may be largely gone in a couple of generations.

If that does happen, China will be following in Japan’s footsteps. Older Canadians tend to think of the Japanese as short, but today young Japanese men are more than 12 cm taller on average than they were in 1900, which makes them almost as tall as their Canadian counterparts (and taller, on average, than three of the four authors of this book).

There’s no mystery about why the Japanese grew taller—it’s because they grew richer. In the early twentieth century, Japan was a relatively poor country in which many families couldn’t afford to give their children adequate nutrition. As a result, their children grew up to be short adults. However, since World War II, Japan has become an economic powerhouse in which food is ample and young adults are much taller than before.

The same phenomenon is now happening in China. Although it is still a relatively poor country, China has made great economic strides over the past 30 years. Its recent history is probably the world’s most dramatic example of long-run economic growth—a sustained increase in output per capita. Yet despite its impressive performance, China is currently playing catch-up with economically advanced countries like Canada, the United States, and Japan. It’s still a relatively poor country because these other nations began their own processes of long-run economic growth many decades ago—and in the case of Canada, the United States, and European countries, more than a century ago.

Many economists have argued that long-run economic growth—why it happens and how to achieve it—is the single most important issue in macroeconomics. In this chapter, we present some facts about long-run growth, look at the factors that economists believe determine the pace at which long-run growth takes place, examine how government policies can help or hinder growth, and address questions about the environmental sustainability of long-run growth.