An Introduction to Demand Management, Long-Run Growth and Global Economic Governance
Chapter 10: Long-Run Growth
So far we have dealt with short-term fluctuations and the macroeconomic policies that we studied by and large were designed to stabilize the economy. In this chapter we take a look at the long run. We start with a graph that depicts the very long run indeed. Figure 8.1 is based on the pioneering historical statistics by Angus Maddison. The figure shows how GPP and the world population developed since the year ‘0’. Note that the time axis is not linear. It jumps in earlier periods because Maddison estimated production and population at appropriate moments in time. Essentially until the Middle Ages the world economy was stagnant in terms of the people that inhabited the Earth and their production. Here the underlying mechanism was that income was and remained at the survival level or slightly above. Only after the increases in productivity during the Industrial Revolution a substantial increase in the rates of growth of world population and GPP became possible. It is important to see that real GPP grows for two reasons. Firstly, population grows so that total production increases because the number of workers increases. Secondly, workers become more productive as knowledge builds and more capital goods become available: their productivity increases (that is the units of output in relation to the units of input). Figure 10.2 summarizes twenty centuries of real average annual GPP growth and its drivers, presenting a statistical decomposition by means of the growth rate of the population and productivity, respectively. You can see that the 2000s are exceptional because in this period the rate of population growth decreases, while productivity increases (but note that the data unfortunately stop in 2008 and thus do not cover the impact of the financial and economic crisis).
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