Economic Growth Experience - Case Study Example

?Growth rate experience Gross Domestic Product (GDP) is the money value of all goods and services produced in an economy during a given year. NominalGDP is that which has not been adjusted for inflation. It measures the value of output during a given year using the prices prevailing during that year. Overtime the general level of prices rise due to inflation leading to increase in nominal GDP even if the volume of goods and services produced remain unchanged. Real GDP is that which has been adjusted for price changes. It measures the value of output in two or more different years by valuing goods and services adjusted for inflation. Therefore, real GDP is preferable as it gives a more accurate view of the economy. Per capita GDP is the most preferred measure because it shows and compares relative performances of each given country. There are problems that may arise when comparing the growth rate of different countries; this may be due to components that are used in one country in calculating their GDP may be omitted in the other country. In additional to that the economies of the two countries may not be equal or homogeneously comparable. However in any country whereby there is a constant increase in per –capita GDP may signify improvement in welfare and living standards. Other statistics that can be used in analyzing economic growth of a country include income distribution analysis, household consumption and wealth analysis. These statistics are not widely used in all countries compared to GDP, but they work efficiently giving the same results. Year GDP GROWTH Growth rate (%) Mean rate Deviation from mean(?) ?? 1990 544.7 1991 533.8 -10.9 -2 1.78 -3.78 14.2884 1992 531.1 -2.7 -0.5 1.78 -2.28 5.1984 1993 542 10.9 2 1.78 0.22 0.0484 1994 565.4 23.4 4.3 1.78 2.52 6.3504 1995 581.2 15.8 2.7 1.78 0.92 0.8464 1996 593.7 12.5 2.2 1.78 0.42 0.1764 1997 614.4 20.3 3.4 1.78 1.62 2.6244 1998 628.6 14.2 2.3 1.78 0.52 0.2704 1999 635.7 7.1 1.1 1.78 -0.68 0.4624 2000 650.4 14.7 2.3 1.78 0.52 0.2704 ?=17.8 ?=30.536 a) The growth rate is given in column 4 above and the overall growth rate is; {(650.4-544.7) ?544.7} ?100 =19.4% b) The average growth rate shall be; (-2+-0.5+2+4.3+2.7+2.2+3.4+2.3+1.1+2.3)?10 =1.78 c) The standard deviation shall be; v????n; where n is the number of years. Therefore; v30.536/10 = v3.0536 = 1.75 The GDP growth rate has been relatively stable over the years. Q.3 (a) Alpha Beta Gamma Growth Rate 0.05% 2% 6% 2001 $1,000.00 $1,000.00 $1,000.00 2002 $1,005.00 $1,020.00 $1,060.00 2003 $1,010.03 $1,040.40 $1,123.60 2004 $1,015.08 $1,061.21 $1,191.02 2005 $1,020.15 $1,082.43 $1,264.48 2006 $1,025.25 $1,104.08 $1,338.23 2007 $1,030.38 $1,126.16 $1,418.52 2008 $1,035.53 $1,148.69 $1,503.63 2009 $1,040.71 $1,171.65 $1,593.85 2010 $1,045.91 $1,195.08 $1,689.48 2011 $1,051.14 $1,218.98 $1,790.85 2012 $1,056.40 $1,243.36 $1,898.30 2013 $1,061.68 $1,268.23 $2,012.20 2014 $1,067.00 $1,298.60 $2,132.93 2015 $1,072.32 $1,319.47 $2,260.90 2016 $1,077.68 $1,345.86 $2,396.56 2017 $1,083.07 $1,372.77 $2,540.35 2018 $1,088.49 $1,400.24 $2,692.77 2019 $1,093.93 $1,428.24 $2,854.34 2020 $1,099.40 $1,456.81 $3,025.60 2021 $1,104.90 $1,485.94 $3,207.14 2022 $1,110.42 $1,515.66 $3,399.56 2023 $1,115.97 $1,545.97 $3,603.54 2024 $1,121.55 $1,576.89 $3,819.75 2025 $1,127.16 $1,608.43 $4,048.94 2026 $1,132.80 $1,640.59 $4,291.87 2027 $1,138.46 $1,673.41 $4,549.38 2028 $1,144.15 $1,706.87 $4,822.34 2029 $1,149.87 $1,741.01 $5,111.68 2030 $1,155.62 $1,775.84 $5,418.38 2031 $1,161.40 $1,811.35 $5,743.49 With a growth rate of 0.5% the GDP of alpha is expected to rise to $1161, beta $1811, and gamma $5743 by 2031. Q. 3bSmall differences in growth rate could have a big impact on countries’ economy Q.3c.The per capita GDP at a future year, (tn) shall be given by; Vtn = Vt0*(1+CAGR) n 1. Where; CAGR is the compound annual growth rate 2. Vtn is the GDP at time n 3. Vt0 is the initial GDP at the beginning Q.4 a. 1960 2000 Minimum GDP per capita $456.2411 $515.0736 Maximum GDP per capita $12510.06812 $47020.31 From David Weil’s data, countries with low GDP per capita have shown slow growth than those with higher GDP per capita. Q4b.The smallest growth rate per capita GDP was -2.00482 The largest growth rate in per capita GDP was 4.702397 The average per capita GDP growth rate was 1.76625 Q4c.From the data the 10 fastest growing countries are; 1. Barbados 2. Chile 3. Egypt 4. Netherlands 5. Sri-lanka 6. Guinea Bissau 7. Uganda 8. Pakistan 9. Japan 10. Switzerland The 10 slowest growing countries are; 1. Equatorial Guinea 2. Senegal 3. Peru 4. Bangladesh 5. Cote d’ivore 6. Comoros 7. Nigeria 8. Rwanda 9. Burundi 10. Argentina The fast growers have nothing in common whereas 7 out of the 10 slow growers are African countries. Further investigation therefore is important to establish key economic drivers. The slow growth in Africa is due to the social conditions as well as the poverty that is spreading all over the continent. On the same terms, the GDP has also been relatively lesser than the other parts of the world. Hence this can be argued that the underdevelopment is directly proportional to slower rates per capita in GDP. Q4d. Western Europe Africa Asia 1960 2000 1960 2000 1960 2000 Maximum per capita GDP $9882.989 $47020.31 $8363.683 $14891.58 $12510.07 $28538.03 Minimum per capita GDP $3232.942 $17520.53 $572.5359 $515.0736 $1687.901 $1799.901 The GDP per capita in Western Europe grew significantly for both the maximum and minimum for the two years under consideration. The lowest per capita GDP in Africa experienced a negative growth falling from $572.5359 to 515.0736 in 1960 and 2000 respectively. Q4e. From question 2, the highest growth rate was 4.3% while the lowest was -2%. Therefore; If GDP at a future date n is Vtn = Vt0? (1+CAGR) n, For the poorest; GDP (year 2000) = $456.2411? (1+.043)41 = $2563.605 For the richest; GDP (year 2000) = $12510.06812 ? (1+-.02)41= $5464.2275 With a compound annual growth rate of 4%, GDP for the poorest country could have grown six fold to $2563.605 while the richest economy would have shrunk two fold to $5464.2275. The forecast in GDP is an important tool in budgeting and economic planning for countries. Population growth rate is another element that must be taken care of, when the analysis is being developed about the GDP per capita of certain country. Average annual percentage change in a population is the result of the surplus or deficit that occurs due to births over deaths or death over births respectively, as well as the balancing of the migrants entering and leaving from the country. This has the direct effect on the local economy of a country, and in 2008, it affected very badly the United States as there was recorded more than 4% population increase that affected population on an overall scale. The positive rate of US in 2008 was big blow to the government and financial authorities as it is the main factor for the calculation of the burden that is going to be imposed on the people through the altering needs and requirements of the people and their living infrastructure. The countries that have rapid population increases are also considered threat for other countries as that will lead to the immigration chances more and other countries’ governments will have to face the economic burden of extra surplus of people. In 2011, the population growth rate of top 20 countries is given below: Rank # Country Amount 1 Zimbabwe 4.31 % 2 Niger 3.643 % 3 Uganda 3.576 %   4 Turks and Caicos Islands 3.485 %   5 Burundi 3.462 %   6 Gaza Strip 3.422 %   7 UAE 3.282 %   8 Ethiopia 3.194 %   9 Burkina Faso 3.085 %   10 Zambia 3.062 %   11 Madagascar 2.973 %   12 Benin 2.911 %   13 Western Sahara 2.868 %   14 Congo 2.835 %   15 Bahrain 2.814 %   16 Rwanda 2.792 %   17 Malawi 2.763 %   18 Togo 2.762 %   19 Comoros 2.696 %   20 Liberia 2.663 %   The statistics given in the above table suggest that more the population increase, less the increase in per capita GDP. This is another factor of the scarcity of resources a country has, i.e. as the population increase, the less developed countries will have the same resources, however there will be more number of people that can facilitated with those resources, and in that way the countries will face the scarcity in terms of the resources, such as money, that will be distributed among the people in lesser quantity so then everyone will have lesser amount of money than before and hence producing more money from a state bank will cause more inflation rise that might affect the local economy even badly. There are many macro-economic factors that lead to the enhanced economic growth and most countries have experienced those factors quite favorable. However, proper implementation of the same factors will lead to affect the economic growth on bad terms and that will cause the national economies to suffer badly. For an enhanced economic growth experience, social and economic, both the types of factors have to be considered. The annual growth rate of real income is the ultimate factor that needs to be increased if the economists are focusing on increasing the growth rate. The real income is obtained after adjusting economic growth for the inflation. The main drivers of economic growth, as discussed above, are economic as well as social factors. Investment and savings are two economic forces or factors that are assumed to increase the growth of an economy. Technological progress is another measure for the economic growth, and that is considered a long term approach and the economies develop and grow for a longer period of time if they have incorporated technology into their development projects. Most of the mature economies have also used the technology as the greatest weapon for their development, and this is the reason that they are well equipped with the productive capital and have experienced the growth rate of more than 3% annually since the last few decades. USA and UK are the two examples for that scenario. USA has experienced 3% rise in GDP over the past few years on an average. UK has 2.7% increment whereas France has experienced 2% average rise in economic growth over the past years. The rise of economic growth is even higher in the emerging economies such as China and India, which experienced a respective percentage rise of 9.2% and 6.2% respectively. Ireland has also been running fast in this race, with the percentage rise of 7.2% on annual scale. The main force of driving per capita GDP to an increased level is the inflationary stability. The economic decision making is generally benefited from a stable economic environment, which means that the stable inflationary environment is very essential for economic growth. Openness to the trade as well as investment is another measure which is important for economic growth, and this is proved by the statistics and data presented above. The increased international trade is very important for the ‘promotion’ of economic growth. Specialized labor is also important to make sure that the products manufactured are qualitative, which is the first principle to be followed when the countries are pursuing international trade, because they want their best products to go out of their national territory so that the development of the country is appreciated on larger grounds in outside world. Also the productivity gains are only expected as well as measured from the amount of international trade. This is basic principle that many economists have believed and many developed countries have even gone beyond that. Another factor that leads to the economic growth more enhanced is the international competition between different markets. Good governance is another element that the national economies must look for to develop. A well-regulated macroeconomic environment is necessary for looking over and leading the economy where the economists must be looking over each of the economic factors that can lead to increased productivity, as that is the main driver of boosting the GDP per capita. A balanced approach must be adopted by the governors of the economy that will keep check upon the exports as well as imports made by the local economy. Unemployment is another factor that the economy must not leave out. Unemployment is the problem in those economies which faces short term fluctuations over the long term trend. In economies, where the unemployment persists for a longer period of time, all product resources are not used. Therefore the growth rate will be slower compared to the economies that are utilizing all the products manufacturing and all the employment resources are being used. Conclusions and Recommendations: The purpose of the report is to highlight different facts and statistical data to show growth rate experiences of different countries and their economies. The report has first taken a pure microeconomic approach in which necessary data has been provided and their analysis has also been given. The surprising fact that has been deduced from the data analysis is the dire economic situation of Africa where 80% of the countries are economically in worst conditions and among the top 100 economies; there are only 4 African countries. The report has then shifted to macroeconomic factors that lead to the economic growth and there we have discussed different factors that may enhance the economic productivity of a country and may enhance the GDP per capita on annual basis. The main recommendation for the economic governors would be to participate in the international trade as that will enhance their chances of national economic growth. Bibliography: Economic growth - Robert J. Barro, Xavier Sala-i-Martin - Google Books. 2011. Economic growth - Robert J. Barro, Xavier Sala-i-Martin - Google Books. [ONLINE] Available at: http://books.google.com.pk/books?id=jD3ASoSQJ-AC&pg=PA1&dq=growth+rate+experience&hl=en&ei=r_7ATorGI8q8rAeYo8XWAQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCoQ6AEwAA#v=onepage&q=growth%20rate%20experience&f=false. [Accessed 14 November 2011] Fischer, Stanley, 1993. The role of macroeconomic factors in growth. 1st ed. USA: New York Publishers. Past, Gdp, 2010. Gross Domestic Product: Purchasing Power Parity, Gross World Product, List of Countries by Gdp Per Capita, List of Regions. 1st ed. USA: Harper Collins Publishers LLC. Ahmed, Sadiq, 2007. India's long-term growth experience: lessons and prospects. 1st ed. India: Sage Publications India. Liuksila, Claire , 1995. External assistance and policies for growth in Africa . 1st ed. USA: IMF Publication Services. Read More