# Basic Facts of Growth and Development

## Basic Facts of Growth and Development

Instructor: Alex Tabarrok, George Mason University

Some basic data on development, both across countries today and through time. We make use in this video of the excellent tool Gapminder made famous by Hans Rosling

Some basic data on development, both across countries today and through time. We make use in this video of the excellent tool Gapminder made famous by Hans Rosling.

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## Contributed Content (2) and Suggested Materials (4)

Angus Madison, link below, has the West ahead of the next highest country, China by 1500. We shouldn't take these dates too seriously, however, as they are only very imperfect estimates. By the industrial revolution it looks to me that there are clear signs of divergence but some scholars of China would place the date even a little bit later. Note that 1500 is not actually mentioned as a divergence point in the video although the graph may suggest that but again don't take the graphs too seriously except for the big picture.

Whether we attribute the divergence from people of all countries eking it out "nasty,brutish, and short" style to the astounding quality of life where things such as MRU exist to a material cause (The Industrial Revolution) or a set of ideas (The Enlightenment) seems like no minor point to me.

Fair enough answer. However, upon further review….

Consider your following statement : “We shouldn't take these dates too seriously, however, as they are only very imperfect estimates“. Nay, nay. The graph tells a serious story. How so?

The line prior to 1500 is non-divergent [everyone is approximately the same]. The resulting graph, depicting year one to year fifteen hundred , everyone was basically the same i.e. trapped in the abysmal world of Zero. The world of Zero lasting from year one to year fifteen hundred may well be a graphic depiction of the result of collectivism as the predominant economic organization of the same time period . That each person born would end their lives in basically the exact same economic condition as their parents and this occurred generation after generation after generation. Hence the abysmal world of Zero.

That the year fifteen hundred, even if an imperfect estimate, the divergence occurring at or about the year fifteen hundred, people in general are quick to point out the Industrial Revolution as the divergence point. That may well be incorrect. Why?

Harold Demsetz in his book From Economic Man to Economic System points out that the advent or private property rights and the consequential advent of the rule of law regarding those rights within the Agricultural Revolution is the turning point of leaving the consequences of collectivism i.e. each person born would end their lives in basically the exact same economic condition as their parents and this occurred generation after generation after generation. That the Agriculture Revolution is when western civilization left the dismal world of Zero. Note that the graph shows western civilization leaving the land of zero first and the agricultural Revolution and the emergence of private property rights and rule of law thereof occurred first in western civilization.

Further, Demsetz points out that the Agricultural Revolution, the emergent private property rights in particular, set in motion the now “private property” owners to experiment/innovate and consequently demand new ways/items needed to farm which in turn spawned people to build the new items and hence the advent of the Industrial Revolution.

Hence we have a chicken and egg situation. People are quick to point to the chicken [Industrial Revolution] when in fact the egg did indeed come first [Agricultural Revolution] and the divergence is the escape from collectivism via private property and consequential private property rights.

Private property rights certainly did impact post Agricultural Revolution growth. Indeed, without the foundations of both the growing population sustained by improved agriculture and the gradual change in property rights, it is possible to argue that the Industrial Revolution could not have taken place. What confuses me is the use of collectivism as the term for whatever existed prior to private property and rule of law. Now, I haven't read Demsetz but would you mind clarifying? I'm not sure how feudalism (even with it's many varying forms) would count as a collectivist economic arrangement. It seems to me that it benefited primarily the feudal lords and land owners.

thanks for answer this question...i looking in the internet but nothing...
http://resepsambal.weebly.com/
http://resephebat.soup.io/

Excelent information, in México we haven´t that books.

Excelent information, in México we haven´t that books.

Excelent information, in México we haven´t that books.

Excelent information, in México we haven´t that books.

James:

Good question.

Harold Demsetz’s book From Economic Man to Economic System (a must read) is grand, in that, he explains why collectivism was the basis for those varied economic systems of which you mention one. Without spoiling your read of the book: it started long ago, its with us today.

This is not itself an answer to your question, but the section on India will consider what was the standard of living difference between England and Mughal India in the 17th century, the best estimate seems to be that India had a living standard at about 70% of that of England at that time.

If I recall correctly, Gregory Clark's "A Farewell To Alms" discusses pre-Industrial development in more detail. It is a good companion to "Guns, Germs, and Steel."

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Thanks. I also see that Alex has an answer to a very similar (and more interesting) question above: http://mruniversity.com/basic-facts-growth-and-development#anchor-568

Thanks for the information, i am from peru, in peru the pbi is similar als 1950.

Thanks for the information, i am from peru, in peru the pbi is similar als 1950.

I would add that the connection between gdp and happiness looks much better than it used to, thanks to very recent research by Daniel Kahneman and also Justin Wolfers, Angus Deaton too.

Tyler, could you point us in the direction of this research? Is it publicly available? I'd also be interested in reading some of the actual work that makes Ben's point. It's not an area I've studied deeply, but my instinct is that if you ask people to, say, rate their happiness on a defined scale, it would probably look logarithmic when plotted against some more difficult to attain but more accurate measurement. My reasoning is that people would likely assign the highest rating to the greatest plausible scenario rather than the greatest imaginable scenario and so would run out of room to express how much happier they are at the upper end of the scale.

For instance, if you ask someone with a new Hyundai how happy they are with their car (on a scale of 1 to 10), they might compare it to the clunker they just traded in and the Mercedes they'd like to have and rate the Hyundai a 6. If you give them a Mercedes they might rate that a 9, but then if you were to offer them a Porsche, the best they could give it would be a 10, indicating that the difference between the Hyundai and the Mercedes is 3 times greater than the difference between the Mercedes and the Porsche, but this would not necessarily be an accurate reflection of the true levels of happiness derived from the various cars.

I'd like to see how the work that Ben cites deals with this problem if someone could point me in the right direction.

@Albert, for starts see Justin Wolfers Freakonomics post here:

@Albert, also see this well-being literature review by the New Economics Foundation for a quick summary of research:
http://www.neweconomics.org/publications/well-being-evidence-for-policy-...

"Wouldn't it be more accurate, albeit more difficult..." There, Mr Newell, is the rub.

Models in social science must to walk a fine line: simple enough that we can manipulate them in meaningful ways, but broad enough to speak to the actual conditions that we're supposed to be studying. Too complicate them and we're left with a mess of formulae that no one can make sense of. Too simple and you're just playing numbers games. Using a metric like GDP is a kind of compromise, and while we're flattening out a lot of data we're doing so in order to be able to make (hopefully useful) insights about the things we're comparing.

Ben Newell, comparing different living standards across time is an age-old problem. In some ways, the modern Italian resident could said to be infinitely wealthier than a 1980's American because they can get Wikipedia, Xbox 360s and cheap long international telephone calls. These comparisons will have to be approximations, but they will by their nature be incomplete and rough.

Brad DeLong wrote a legendary paper on it in 2000 titled "Cornucopia: The Pace of Economic Growth in the Twentieth Century." Unlike the 1980's American millionaire, you can find a copy for free without leaving your home.

If we believe that prices convey the value of things to us, then it is somewhat irrelevant whether the basket of goods has 1980's products or 2010's products. The exercise demonstrates the amount of value an economy generates per individual.

I agree with Ben that it's problematic to compare countries in that way (as one country being equivalent to the US at a certain point in history). I understand the discussion above about GDP v measures of happiness, but aside from the measure itself I think we need to be cautious about comparing countries along a timeline like that. It seems to reinforce the paradigm of modernization and consumerism being the saviour and the solution - and that all countries are on the same linear 'development' trajectory.

We are working on having a "Daily Digest" email sent to you if you have joined a discussion, consisting of the follow-ups of others.  We don't have it ready just yet but we had a planning meeting on it today.  You would turn this on or off when you register initially.

This is live now! Click the "Follow this question" link below any question to get updates on activity.

Sounds interesting, thanks!

The Deaton work in particular shows that the happiness-wealth connection is more linear than researchers had thought say ten or fifteen years ago...

Quite right. It is in the growth section coming in a few weeks.

A rather simplified answer is that in investing you can determine the rate of earnings on an investment, by taking the years required for the investment to double in value and applying this basic (and simplified) equation: I=70/Pd where I is the implied interest rate, 70 is a constant, and Pd is the number of years (periods) it takes the investment to double. In the illustrated example, I=70/35 years. Therefore the implied interest rate is 2% based on a linear growth curve. I hope that is helpful and does not murk of the waters. It is a very valuable tool to rapidly analyze rates of returns on investments.

We are working on making downloading possible. For speeding up videos see my note in Latest Updates explaining how to do this by switching to Yahoo's html5 video player.

yes, or you can try the internet download manager. I always use that.

GDP is based on the market value of final goods and services. If illegal immigrants produce goods and services that are sold in markets then their production is counted, e.g. if a restaurant produces a meal cooked by an illegal immigrant that is counted in GDP. What is more difficult to count are black market goods and services. To the extent that there is a larger black market in less developed countries there typically will be a relative undercount of GDP in those countries.

Again evident in Greece....if we could measure the black economy it might be as much as a third higher

The practice questions are just for practice, they do not count towards any sort of certificate. We will have a final exam shortly to receive a certificate for the course. You can take it anytime you like. There is no time limit on the course.

Disculpe, preguntale a alguien por ayuda...Tyler

Tenemos subtitules en espanol. Mira aqui - http://mruniversity.com/mruniversity-faq#faq7.5

PPP video coming. The problems you raise are real - they are some possible corrections a clever one is to use pictures of a country at night (like the North-South Korea picture) and estimate GDP using electricity consumption! David Weil has a paper on this. http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.194

The Development Economics course is now available as an audio podcast through iTunes. Just audio for now, but video is coming.

https://itunes.apple.com/us/podcast/mruniversity-development-economics/i...

I raised the issue of the Happiness Index nor because I did not understand the difference between correlation and causality but because the first lesson in this course failed to define ‘better life’ and simple took as given that as GNP grows, life gets better. The Happiness Index is a serious attempt by many to re-examine the former assumption. Bhutan has already adopted it as an alternative to GNP and Great Britain has looked at the possibility of doing so (New Scientist Issue 2813 and 2731). In addition, the magnitude of the difference in rankings suggests that we need to examine more closely the assumption that GNP and a ‘better life’ are positive correlates.

Lung cancer is clearly defined - a 'better life' has not been.

If smoking cigarrettes is correlated with lung cancer, why is my 80-year-old two-packs-a-day uncle still alive and well?

To be positively correlated does not mean that it explains it all. Maybe Tango plays a role in Happiness (and in health). :-)

I think the one thing your missing in this analysis is the new found social status that seems to be more important to Gen-Y or Millennial. Not to mention the crushing loans from the post-secondary education.

Pomeranz's argument about the importance of coal is pretty good, but I'm not really convinced by his argument on the role that the empires played in industrialization. The big thing that helped the British more than any food supplies from the colonies was bringing back potential staples from the Americas, particularly the potato (which helped fuel a population explosion in 18th century Britain).

If it's anything like the "Rule of Seventy" above, that video will probably show up later.