Factors of the State Long-Run Economic Growth - Statistics Project Example

Running Header: Growth Economics Your name: Course name: Professors’ name: Date Introduction Economic growth is the backbone for prowess and high standards of living in a country. The long run economic growth of a country defines its gross domestic profit. Various factors are attributed as driving forces for the vigorous economic growth in Australia. The Australian economy is compared to other countries to evaluate the trend in economic growth of countries in the Organisation for Economic Co-operation and Development (OECD). The OECD countries are preferable because they have similar economic structures as Australia and the comparison is based on the common factors that influence each country’s economy. The purpose of the research is to show the growth of Australia economically compared to her counterparts in the same economic spectrum. The variables that influence the long run growth of Australia and the selected countries are evaluated one by one to show their impact on long run growth. Theory/Model The model used to evaluate variables for comparison is the Solow-Swan model that focuses on productivity growth. The model posits that productivity growth influences other vital macroeconomic theories that include labour, physical capital accumulation and possibilities frontier of a county (Barro 1999, p.104). The mathematical presentation of the model takes Y=Production F= coefficient of output A= productivity parameter L= productivity parameter a= 1/3 Y= F (K, L) =-Ak1/3L2/3 The macroeconomic theories are used as focus points for the comparison of Australia’s long run growth to other countries. Empirical Findings Labour Productivity The models and theories of microeconomics are employed to explore the objective of this research and appraise the findings systematically. The GDP in Australia has expanded consistently over the years with minor setbacks that the country managed to overcome. The fourth quarter of 2013 saw the country’s GDP increase by 2.8%. The annual GDP for Australia has been consistent since 1960s maintaining a 3.48% rate from 1960 to 2013 (Trading Economics 2014, p.1). The country’s significant growth dates back to 1964 when Australia registered 9% growth in its second quarter of 1964. The growth held for short period and the country experienced a decline in 1983. The country recorded a -3.4% decline in the second quarter of 1983 (Trading Economics 2014, p.1). The growth and decline is accredited to the microeconomic theories that influence most developed countries including Australia. In comparison to other countries in the OECD with respect to labour productivity, the figures and trend in Australia reflect a worldview. The US shows a similar trend although in a different business cycle in regards to time. The first quarter of 2014 has seen the US expand its GDP by 2.3% showing a consistent trend since the country recovered from the impacts of the great depression. The US reached the highest per capita income in 1950 recording GDP of 13.4% that year. The economy then declined by -0.41% in the second quarter of 2009 (Trading Economics 2014, p.1). The growth in the economy of the US over the years is credited to the vast human capital that the country had after the world wars. In comparison to the Australian economy, both countries have substantial labour productivity that propels the progress of their economies. Comparing Australia’s economy to the European economy, a contrast is seen in the figures recorded on the GDP of both economies. In 1950-1973, the European countries experienced a change in their economic status in terms of adaptation of new technologies from foreign countries (Trading Economics 2014, p.1). The technologies were intensified during the post war era. The change weighed on the labour productivity of Europe and the long run economic growth was slowed. The region experienced shortage in labour leading to low per capita income annually. According to the Australian Bureau of Statistics (ABS), developed countries started to experience a decline in 1970. The EU-15 (European Union countries) experienced a steep downward movement in labour productivity leading to decrease in GDP. The long run economic outlook of the EU-15 declined from an annual rate of 2.7% to 1.5% in 1995-2007. On the other hand, the US enjoyed an economic upgrade from 1.3% to 2.1% between 1973-1995 and 1995-2007 (Trading Economics 2014, p.1). Increase in labour productivity contributed to the sharp growth for the US. During this period, the US had increased its human capital by rebuilding the economy after the world wars and the great depression. The three OECD regions depict different timing of business cycles. The timing verifies the different rates of economic growth in respect to labour productivity. Australia’s economy was boosted by the influx of immigrants from European countries. The workforce was developed in industrial, mining and, agricultural sectors increasing cede in terms of per capita GDP (Simon 1999, p.355). A similar scenario was experienced in the US where immigrants looking for green pastures from Latin America flooded the country and increased the labour productivity leading to increase in economic growth. The EU-15 registered contrary results compared to Australia and the US (Simon 1999, p.355). The labour productivity in the EU-15 declined during the same business timing cycle that other developed countries were progressing. The different productivity experiences show the impact of increase or decrease in per capita income of a given GDP. The productivity of labour is essential for the long run economic growth of an economy (OECD 2004, p.304). The comparison made verifies the Solow-swan model that output depends on the input that is productivity depends on the intensity of labour productivity. The graphical presentation shows the growth difference in the economic long run of the OECD countries and Australia. The Australian economy shows resilience and consistency through the years similar to the USA. The EU-15 contrasts with the two countries from one decade to another (OECD 2004, p.304). The variations and differences are ascribed to the difference in availability of labour. Both Australia and the US experienced an influx of human capital after the world wars and the great depression elevating the GDP of their countries. The EU-15 on the other hand, showed a decrease in human capital because of the different labour patterns across the region. The hostile political, social and religious environment in most European countries promoted the different paradigms of labour. The change is because the European countries resorted to labour market reforms (OECD 2010, p.104). The reforms encouraged interventions to promote employment and encourage participation in all economic sectors increasing their productivity growth. Meanwhile, Australia and the US experience a decline in multifactor productivity, which weighed on their booming economy. The difference in labour productivity is attributed to world wars and recession. During the world wars, most individuals were disoriented and left their home countries to other parts of the world. Australia and the US received a significant number of people. Information and Communication Technology Another theory that is considered under the slow-swan model is technology progress in which case information and communication technology (ICT) is the focal point. During the early 1980s, the use of ICT to improve productivity was embraced by most countries. The OECD countries showed special interest for the ICT innovation in business (OECD 2004, p.304). Most economies were developed and others boosted to great heights via the ICT. Productivity growth measured in GDP on an annual basis was improved by a vast margin through the incorporation of ICT in the economy. The US was the greatest beneficiary of the ICT innovations in the economy (Gill 2012, p.563). Technologically enhanced workforce performed in most labour that was manual. The multifactor of productivity was increased for the US leading to an improvement in its long run economic growth. The financial market, banking and health sectors were the more impacted by ICT in the US. During the same period, the EU-15 experienced moderate improvement in the long run economic growth because of the innovation in ICT. The innovation is ascribed to the vigorous reform in the labour market of the region. Countries such as UK continue to enjoy the advancement of technology in their productivity performance. The multifactor productivity is increased because of the labour productivity enhancement (Gill 2012, p.563). The banking and the industrial sector have been impacted by the ICT innovation in the EU-15. Australia records contrary results with the innovation of ICT. The ICT influence on labour and multifactor productivity is minimal compared to the USA and EU-15. In 1995, the ICT was a chief ingredient in the growth resurgence of the US (Broadberry 2003, p.858). The country focused on the labour generated from the technology and disregarded other capital deepening and labour capital was used prior to the emergence of technology. The GDP of the country was increased by 3.2% by 2002. In Australia, the scenario was different since the country focused on capital deepening and labour productivity to develop its economy (Broadberry 2003, p.858). Despite, the low investment in ICT in Australia, the economy maintained its potency at 2.8%. EU-15 recorded improvement after the reforms in the labour market attributed to the innovation of ICT. The region improved the long run economic growth from 1.8% to 2.74% by 2002 (OECD 2004, p.304). The OECD countries have embraced the incorporation of ICT in economic improvement increasing the application of ICT from 10% in 1985 to 20% in 2002 (Altomonte & Nava 2005, p.355). The ICT capital has reinforced other variables in the economies of the three mentioned regions increasing per capita of GDP in these countries. In the beginning of 2000, Australia embraced ICT capital in its economic ventures to promote the labour productivity in the country. The GDP of the country as at 2006 showed a remarkable improvement and another report in 2013 shows the country’s GDP to have improved by 3.2% (OECD 2010, p.104) Physical Capital deepening Deepening capital is a vital aspect of all economies across the globe. The technique enhances labour productivity boosting the GDP of the country (Mataloni 2014, p.630). Australia’s labour productivity has been generated through capital deepening in the country and the practice dates back to 1945 when immigrants from southern Europe were brought into the country as labour for the growing industrial and agricultural sectors (Broadberry 2003, p.858). During 1945-1950, the Spanish and Scandinavian countries deployed several families to Australia (Broadberry 2003, p.858). The Australian physical capital was increased immensely. The role of capital deepening in the country has increased from an average of 6% to 13% in the contemporary society. Deepening capital increases output for the country’s productivity hence growing the GDP by 1.5% per year (ABS 2005, P.58). The US has also used the technique for decades since the great depression in 1929 to elevate the economy through increased domestic output. In the US, the capital deepening idea has thrust the economy such that the country leads in the economic world. The growth has boosted the intensive use of ICT to enhance the physical capital and maximize results (Bosworth 2003, p.179). Considering the EU-15, the growth rate in terms of the GDP per year for the countries has increased consistently since the reform in labour market in the early 1990s. The EU-15’s economy has risen to standards that are almost competing with Australia in terms of labour productivity (Altomonte & Nava 2005, p.355). The number of hours per worker has been increased in the region generating high cede in the country. The exports from the countries have also increased significantly leading to high revenue that contributes to high GDP per capita income. The growth percentage of EU-15 stands at 2.7 as at 2013 depicting an improvement of its 1.3% GDP in 1987 (Mataloni 2014, p.630). The percentage has doubled showing the vitality of capital deepening in an economy. The US although their capital deepening reduced because of innovations in the ICT sector of the economy, the culture has been rooted in most economic drivers of the country. The annual GDP of the country increases at a 3.2% rate and the results are credited to capital deepening (Mataloni 2014, p.630). After the 1982-1983recession in developed countries, the countries embarked on capital deepening to enhance their productivity and promote local industries. Explanation of Graphs Explanation of Graphs Graph 1-GDP growth rate year USA AUS EU-15 1980 -0.2 3.1 -2.1 1990 1.9 3.6 0.8 2000 4.1 3.7 4.4 2010 2.5 2.1 1.7 (World Bank 2014) Source http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=6 The chart above shows the GDP Growth rate of the 3 sampled countries from the year 1980 to 2010. Graph 2-capital deepening year AUS USA EU-15 1980 - - - 1990 8,502,257 128,050,824 29,296,903 2000 9,624,371 147,134,193 29,529,666 2010 157,453,653 11,715,010 32,020,413 (World Bank 2014) Source http://data.worldbank.org/indicator/SL.TLF.TOTL.IN The chart above shows the value of capital deepening for the 3 sampled countries from the year 1980 to 2010. Graph 3-ICT year USA AUS EU-15 2005 - 16.0 31.3 2006 18.7 17.2 30.8 2007 19.3 18.2 31.1 2008 19.7 18.8 31.8 2009 21.1 17.5 34.2 2010 21.1 17.5 35.5 2011 21.3 17.7 35.8 2012 22.1 18.6 36.3 (World Bank 2014) Source http://data.worldbank.org/indicator/BX.GSR.CCIS.ZS The chart above shows the percentage of service exports for ICT Development rate for the 3 sampled countries from the year 1980 to 2010. Comparing the data collected regarding the long run economic growth of the three OECD countries, Australia’s growth rate is steady. The recent growth rate comparisons between the US and Australia show that the two countries are expanding at an average rate of 3.2% annually (Trading Economics 2014, p.1). Conclusion In conclusion, long run economic growth is a continuous process that country experiences on an annual basis. The growth of an economy such as Australia is attributed to the economic structure of the country. Several theories in macroeconomics are used to evaluate the growth of an economy. The Solow-swan model is the umbrella under which the growth of a country is established via a mathematical determination of productivity. Comparing different economies shows a worldview of the economy allowing economists to predict the trends in economic prowess over a year. The difference is caused by world wars and the recession that affected most developed countries. The OECD countries have similar economic structure but experience different business cycles at different timings. The comparison between the US, Australia and, EU-15 countries shows how the variables and theories of macroeconomics influence long run economic growths in a given country. References Altomonte, C & Nava, M 2005, Economics and policies of an enlarged Europe, Elgar Cheltenham Australian Bureau of Statistics (ABS) 2005 Estimates of productivity in the Australian National Accounts, Australian Bureau of Statistics, Cat no.5206.0, pp.58    Retrieved from Bosworth, B 2003, “The empirics of Growth: and update”, Brookings Papers on Economic Activity vol.2, pp.113-179. Broadberry, S 2003, 'Relative per Capita Income Levels in the United Kingdom and the United States since 1870: Reconciling Time-Series Projections and Direct-Benchmark Estimates', The Journal of Economic History, Vol.63 no.03, pp.852-863. Gill, S 2012 Golden growth: restoring the luster of the European economic model, World Bank, Washington DC. Mataloni, L, S 2014 Gross National Income and Product Accounts Gross Domestic Product: First Quarter 2014, Bureau of Economic Statistics, Vol.202, pp.606-5304 Retrieved from McLean, I 2004, 'Australian Economic Growth in Historical Perspective, Economic Record, vol.80 no.250, pp.330-345. Organisation for Economic Co-Operation and Development, 2004 The economic impact of ICT measurement, evidence and implications Paris, OECD. Organization for Economic Cooperation and Development 2010, OECD Information Technology Outlook 2010, Paris, OECD Simon, J, L 1999, The economic consequences of immigration, Univ. of Michigan Press. Ann, Arbor, Michigan. Trading Economics 2014, US GDP Growth Rate, Trading Economics, pp.1 Retrieved from Trading Economics 2014, Australia’s GDP Growth Rate, Trading Economics, pp.1 Retrieved from World Bank 2014, Global economic indicators, Retrieved from http://data.worldbank.org/indicator Read More