Basic Facts of Growth and Development
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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At the 5:34 point in the video/lecture the year 1500 is mentioned as a divergence point for GDP per capita. It’s further mentioned that the divergence point of GDP per capita is associated with the industrial revolution.
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Is the divergence point more associated with the advent of private property rights in western culture in association with the Agricultural Revolution?
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.
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.
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.
At 5:03, the video switches to show a graph about world GDP since 0 CE. However, this graph is on a linear scale instead of the log scale (as in the graph of the US from 1800-2010 that immediately precedes it). Is it fair to say that "the differences in wealth is something of fairly recent origin" as Alex narrates? Presumably an order of magnitude factor between countries would be vast even in 500 CE, but you cannot see that on the graph, and Alex's statement seems to imply that possibility although I don't see the evidence on the graph. (Alex suggests a lack of divergence pre-industrial revolution, albeit prefaced with a "perhaps").
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.
Is it really fair to compare present-day Italy to the US in 1980? After all, the present-day average Italian has access to many technologies and luxuries that the average American did not have in 1980 (e.g. iphones, ebooks, and internet). This difference in materiality seems to intersect the premise of the course - that we should study developmental economics because countries with higher GDP per capita are better places to live.
While making comparisons of happiness vs. GDP per capita amongst different places at different points in time seems impossibly difficult, even present-day comparisons of this nature seem difficult given revelations in behavioral economics that more purchasing power doesn't always mean greater happiness.
Also, how does this data square with differences in income disparity? GDP per capita is a metric that looks at the average person in a country. But is this really relevant in all or even many examples your presentation uses? Wouldn't it be more accurate, albeit more difficult, to analyze the happiness (or life-expectancy) of much smaller groups within a country using information about their particular incomes?
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:
http://www.freakonomics.com/2010/12/13/debunking-the-easterlin-paradox-a...
@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.
Hello,
I just have a quick question about the logistics of using this site.
Is there a way to subscribe to discussions?
For example, I just watched this video and found the discussion that followed it interesting.
Is there a way for me to follow further posts without having to go back and check if there have been any new replies since I last checked?
Obviously that's easy enough to do now when I've only watched one video but as the site grows it would be a major hassle to keep track of everything.
Anyway, best of look with the site, its an interesting idea and I'm looking forward to getting involved.
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.
Sounds interesting, thanks!
This is live now! Click the "Follow this question" link below any question to get updates on activity.
"Basic Growth and Development" video referes to MRU's "Rule of 70" video, but I do not see it in the Related Materials section of the lesson or anywere else on this site. This is not a big deal as it is easy to google the rule, but it would be nice to include the link to the announced video or to explain that it will become available later.
Quite right. It is in the growth section coming in a few weeks.
Thanks. I had the same question. I understand this course isn't fully implemented yet, but if you could come back and add those links for future users, it would be helpful.
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.
What is the impact of the work of illegal immigrants on the country's GDP? I understand that GDP is based on data of population actually recorded in a census and, if I am correct and the status of illegal immigrant in the economy is not accounted for, there would be a distortion in the calculation of GDP.
In Greece at least illegal migration increased sharply labour productivity. So GDP rose more quickly than it otherwise would have as production was higher due to higher productivity.
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
Do Wolfers and coauthors (or other researchers in the field) also investigate whether the GDP per capita-satisfaction relationship is nonlinear? Any good reference on that? Thanks in advance.
The Deaton work in particular shows that the happiness-wealth connection is more linear than researchers had thought say ten or fifteen years ago...
Is there any way to download these videos so we can play them at 1.5x or 2x speed as necessary?
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.
There are numerous Google Chrome and Firefox applications that allow to download the video when you open it in YouTube.
yes, or you can try the internet download manager. I always use that.
I can't get the answer to "where is the PPP" video to show. So I'll ask this question that video might answer -> what about the parts of any economy that don't show in exchange, and therefore don't show in GDP at all? For example, in the US, lots of effort goes into various household activities (say I mow my own lawn) which adds to wealth (I have a nice lawn, my neigbhors are happy with me) but doesn't much show in GDP because I didn't hire anybody and used an ancient push mower. Likewise, in *parts* of the world it seems that the PPP income isn't enough to buy food at all, but the starvation rate isn't 100%. So "objectively available wealth" and "GDP per capita" are only vaguely related. [Or is there some clever correction for this???]
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
No se puede ver el vídeo con subtitules en español? Es muy triste :(
If rising GDP is positively correlated with a 'better life' why is Argentina ranked 17th on the Happiness Index (2012) and the USA 105th?
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). :-)
URGENT
HI, I registered this course one month ago. But unfortunately couldn't attend the lectures per week. I started attempting quiz two moths ago. Yet i didn't solved the midterm exam. While i solved my quiz at the spot it is been evaluated but this evaluation is not saved in the record. What should I do? Can I continue this course or not? Is there was any duration/limit to solve the quizzes?
Criticism - Practice Question #3 had a possible answer saying neither A nor B; however, the possible answers were not labelled A, B, C.
Question - Assuming MRU continues as opposed to stalls like many an awesome internet 'good idea', how do I go about purchasing decent MRU Swag (e.g. GMU ballcap with MRU logo)? Please none of that Cafe Press crap.
Although the "Basic Facts of Growth and Development" video did a decent job of introducing some "basic facts"; I was anticipating some strong hinting or broad brush mention of additional "basic facts" that I see might be covered later: rule of law role in growth miracles vs growth disasters, social mobility obstacles role in growth miracles vs growth disasters, corruption role in growth miracles vs growth disasters, etc
Why do we always tell people that due to the higher GDP we have more leisure time? (And having taught Macro and Micro, this always comes up). Is it purely a comparison? If so, to what? I think in the 60's there were way fewer man hours expanded per worker then there are now with greater return on input of man hours. Growing up under USSR, there were way more leisure hours as well (As defined by having more time to enjoy the money you make and also enjoy intangibles).
I mean, many people that I know what are my generation and my parents work way more then the 40 hours. I worked about 80-100 hours when I was in the business world. Making less money now (more per hour if I divided on actual hours worked, but less annually), I have the freedom that was lacking and I see many of the friends lacking still. Sure I can't drop 2 grand a week and have brunch every weekend with a bar tab but it's far more rewarding (think: self actualization) then "normal" people work.
Quality of life does not seem to correlate with GDP. GNH is less scientific but is more accurate measure of standard of living, no?
Does it stand to reason that purely conventional inputs and outputs do not produce better quality of life? That is if we define quality of life as getting the intangible things like joy and pleasure to expansion of moneys earned. As well as having the time to spend that money on things that are not purely functional or survivalist.
Sorry for asking this again: I really need to be able to download all audio on my ipod to be able to listen to while on the move. Could you not simply make the audio (and video) available as a podcast so we can automate the downloads? Thank you very much.
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...
Not really a question, but a suggestion. Kenneth Pomeranz' "The Great Divergence" is a worthwhile, if dense, read on what caused the divergence between the West and the rest of the World after 1500 (in your graph) or after 1750 (as he argues).
Agreed. For a different take see "The Long Road to the Industrial Revolution." In contrast to The Great Divergence, which argues that readily accesible coal and colonial outposts in the United States uniquely positioned Britain for a mechanized revolution, The Long Road argues a very slow process of historical and cultural accretion lasting 800 years set Europe apart from the most likely other industrial incipient: early modern China. That was a run-on sentence. Here is a link:
http://books.google.com/books/about/The_Long_Road_to_the_Industrial_Revo...
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).
In the graph at roughly 5:45, does the former USSR include the Middle East? It was the biggest trade route nexus before the development of European naval tech, I was wondering if the data (if there is any available) shows just how big.
Early in the video, you mention there is a video on PPP adjusted figures to check out? Where might I find this video?
I totally buy this type of analysis, particularly for comparisons made today - the bottom 10 and top 10 countries have such vastly different qualities of life, as you emphasise at the start of this video. Why this is so, and how it might change, are just as you say, the big questions of economics. But, and here's the question, some of the historical comparisons don't ring so true. The Argentina v South Korea example is very powerful. But to talk about Japan as one of the poorest countries in the world in 1945, as if it was a question of development, seems a bit unconvincing. Japan had just finished an unsuccessful war of aggression throughout the Pacific, and to conduct that war for as long and with as much success as they did, surely is evidence of significant development in Japanese institutions, technology, culture, in the period prior to the 1930s. No doubt the country was on its last legs, and this is reflected in the PPP calculations, by 1945, but do you really believe it was at the bottom of the development table, a "very very poor country, not much richer than Nigeria"?
That's precisely the point. From a strict economic data perspective, namely capital stock, Japan was about at Nigerian levels. It WAS unbelievably poor as measured by levels of wealth. Growth theory attempts to explain how it far surpassed Nigeria when at one point they had the same economic fundamentals (in a static sense).
It can be quite possible for a country to have certain highly advanced economic and political institutions even if the bulk of the country is quite poor. The Soviet Union had a lot of high technology and military capabilities even when the actual GDP per capita was likely rather low, and Pakistan has some advanced military technology despite a much poorer economic base (including nuclear weapons capability).
In Japan's case, it helped that almost everyone else was certainly much poorer.
Why does the rate of growth in the 1950's take off so dramatically in the US and Europe? What happened?
An A-ha! moment - has anybody tried to measure relative wealth by asking "how hard is it to obtain Z" where is Z is {food, decent housing, a smartphone, a sound bicycle, a happy dog....} and is "how hard" is measured in {hours of effort, use of political capital, ...} In an economy like the US, of course, prices and income levels directly answer most of this. But how does it translate to Africa or South Asia?
Volume seems inconsistent with http://mruniversity.com/how-to-use - those videos are much louder (or alternately, this one is too quiet).
The first MRUniversity video lecture on "Basic Growth and Development" was very interesting and clearly stated. Particularly illuminating was the interactive movement graph of life expectancy as related to GDP output. It is interesting how compelling the straightforward data facts become as the changes through time are pictured. A good interactive map that shows the recession through mapped unemployment rates was compiled effectively by a Communications graduate student, LaToya Egwuekwe, in 2009. The graphic is available in updated to April 8, 2011 form at the following website: http://www.latoyaegwuekwe.com/geographyofarecession.html As a resident of California, I also find the interactive map revealing the very troubled employment condition of the heart of our state telling: http://www.mercedsunstar.com/2009/03/20/748355/interactive-map-unemploym... It makes it easy to see that a Californian can have a completely different view of the economy depending on which part of the state he lives in if the viewpoint is based on personal experience. The whole can be quite different than the parts.
With regards to the 5.03 linear scale graph on 'Economic Growth in Major World Regions', the GDP growth seems 'exponential'. Is not the majority of time covered, the main 'currency' in use would have been gold, and not the USD (which for the majority of its time has had various pegs vs gold). Therefore would not a graph measured in the value of gold be of more interest in comparing GDP across such vast lengths of time? Especially since alot of the value of the USD has been inflated over the last 100 years? How would such a graph look like and what would your thoughts be on it with respect to GDP's of various world economies?
I question the statement that rising GDP makes life 'better'. Humans tend to measure their contentment not by what they have but by what others have. Thus if all children were dying at an early age it is more acceptable than if only your children are dying. In USA in 2007 infant mortality for whites was 5.6/1000 but 12.9 for blacks. Such discrepancies are a major source of unrest. Could we see a graph of how wealth is distributed within countries as GDP rises?
Just one complaint on use of 'distributed wealth'. I understand it is easier to articulate using this terminology, but wealth is certainly not distributed.
in Mexico is said to have the richest man in the world and certainly this guy makes us all the favor we have no accumulated wealth, but even bringing their money so we can say that our PDG (GDP) is real.
percapitano income is, or should be uninstrumento reliable measure of wealth or poverty of a people.
in Mexico is said to have the richest man in the world and certainly this guy makes us all the favor we have no accumulated wealth, but even bringing their money so we can say that our PDG (GDP) is real.
percapitano income is, or should be uninstrumento reliable measure of wealth or poverty of a people.
in Mexico is said to have the richest man in the world and certainly this guy makes us all the favor we have no accumulated wealth, but even bringing their money so we can say that our PDG (GDP) is real.
percapitano income is, or should be uninstrumento reliable measure of wealth or poverty of a people.
in Mexico is said to have the richest man in the world and certainly this guy makes us all the favor we have no accumulated wealth, but even bringing their money so we can say that our PDG (GDP) is real.
percapitano income is, or should be uninstrumento reliable measure of wealth or poverty of a people.
Just off the colour of the dots in the final still, does the Gapminder graph also show that GDP and life expectancy are much less strongly correlated in Africa than the rest of the world?
Just a minor point, the fact that Nigerian GDP was recently revised upward by 40% makes it a somewhat not optimal candidate for a stagnating country. Probably growth was bigger before 2000 than depicted in the graph. Still relative to the other countries in the example it has been stagnating http://uk.reuters.com/article/2012/04/25/uk-nigeria-gdp-reaction-idUKBRE...
Just a minor point, the fact that Nigerian GDP was recently revised upward by 40% makes it a somewhat not optimal candidate for a stagnating country. Probably growth was bigger before 2000 than depicted in the graph. Still relative to the other countries in the example it has been stagnating http://uk.reuters.com/article/2012/04/25/uk-nigeria-gdp-reaction-idUKBRE...
1. It is said in the FAQ, that you will consider about giving a certificate in hard copy. Could you let me know when because I have got a certificate on Development Economics, and it would be great if I could get the hard copy of the certificate.
2. Your video materials are very good, and I have downloaded them to watch them again sometimes, and I thought it would be best if you provide the documents in pdf of the video materials.
Sorry I post the question and comment here, since I don't know where to put them in general home page.
In the video it was stated that a country's GDP grew or fell (Miracle and disasters) due to the policies made by their leader/govt's. I think that in most countries that have not shown a growth in their GDP is because of surrogate or covert practice of collectivism, by the local leaders, reinforced by the national leaders, so that the people remain subjugated/subservient and continue to act as a perpetual vote bank for them. This is more evident in countries lead by dictators and oligarchy economies. Your comment please.
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.