Economic Growth and Development

(singke) #1

financial crisis lasts. That is the central fact of our economic world and it will
remain so for a very long time.
Two questions arise from these comparisons. When did this global inequal-
ity originate, and how have a relatively small number of countries managed to
achieve such high levels of income and welfare?
Chapter 7 of this book shows that it was only quite recently that significant
gaps in income levels between countries began to emerge. Depending on
which historian one reads or what evidence one uses, in ca.1800, ca. 1600 or
ca.1500 average incomes in the richest and poorest countries in the world were
quite similar. Chapter 1 shows that disparities between many other measures of
well-being, such as life expectancy, were also much smaller in these years than
today. In his 2012 BBC Reith Lectures, Niall Ferguson asked:

Why, after around 1500, did Western civilization – as found in the quarrel-
some petty states of Western Eurasia and their colonies of settlement in the
New World – fare so much better than other civilizations? From the 1500s
until the late 1970s, there was an astonishing divergence in global living
standards, as Westerners became far richer than, well, Resterners.
(Ferguson 2012:21)

What distinguishes those earlier years (some time between ca.1500 and
ca.1800) when average incomes were quite similar from the contemporary
world marked by massive inequality is economic growth. Lots of economic
growth. Economic growth over many decades in some parts of the world, and
intermittent bursts of economic growth dragged down by long decades of stag-
nation and economic decline in other parts. Economic growth is discussed in
more detail in Chapter 2,but for the purposes of this Introduction a couple of
quick clarifications may be useful at this stage. First, economic growth can be
defined as the increase in the amount of goods and services produced in an
economy over a period of time, usually one year. Second, economic growth is
usually expressed in ‘real terms’ to account for population growth. So if an
economy has expanded by 5 per cent and population by 2 per cent over the
course of one year, real growth, or income per capita (they mean the same) has
gone up by 3 per cent. The maths is straightforward: economic growth (5 per
cent) minus population (2 per cent) equals increase in real average incomes
(3 per cent).
The first countries to surge ahead in this Great Divergence were mainly
located in Western and Central Europe, North America, and Australasia. In the
last 150 years they have been joined by a small number of catch-up countries,
including Japan after the 1870s and especially after the 1950s, and South
Korea, Hong Kong, Singapore and Taiwan after the 1960s. Though they
remain further behind, many would add Malaysia and Thailand after the
1970s. China and Vietnam have enjoyed rapid economic growth since the
1980s but remain so far behind that it will be many decades before incomes and
well-being have caught up with the global leaders.

Introduction 3
Free download pdf