Macroeconomic Goal - Economic Growth

 LECTURE 2 :
MACROECONOMIC
GOAL – ECONOMIC
GROWTH
1– 1
Learning Outcome (s) November 14, 2021
At the end of the lecture, students will be able to :
 define economic growth and discuss the factors that promote

economic growth
 analyze the features of LDCs.
© I-Station Solutions Sdn Bhd

1–2 2
The Basics of Economic Growth
 Economic growth is the increase in GDP
over a given period.
• GDP = total market value of all final goods and

services produced within a country in a given
period of time.
1– 3
Growth rate
 Growth rate =
Real GDP last year
 Real GDP this year – Real GDP last year X

100
1– 4
GDP per person/ GDP per capita
 GDP per person tells us the income and

expenditure of the average person in the economy.
 GDP / Total population = GDP per capita
 Higher GDP per person indicates a higher

standard of living.
1– 5
November 14, 2021
GDP per head (2020)

Malawi USD480
Cambodia USD1215
Uganda USD860
India USD2,338
Malaysia USD11,484
China USD8,130
Singapore USD58,500
UK USD39,800
US USD53,240
Japan USD47,200

1–6 6
The Sources of Economic Growth
 Aggregate Hours
– Aggregate hours, the total number of hours worked
by all the people employed, change as a result of:
– 1. Working-age population growth
– 2. Changes in the employment-to-population
ratio
– 3. Changes in average hours per worker
– Population growth increases aggregate hours and
real GDP.
1– 7
 Labor Productivity
– Labor productivity is the quantity of real GDP produced by an
hour of labor; it equals real GDP divided by aggregate hours.
– The growth of labor productivity depends on
– Physical capital growth
– Human capital growth
– Technological advances
 World bank (2005) found that higher productivity is strongly
and positively related with favourable “investment climate”
1– 8
 Human Capital Growth
– Human capital acquired through education, on-
the-job training, and learning-by-doing is the most
fundamental source of economic growth.
– It is the source of increased labor productivity and
technological advance
1– 9
The sources of growth
 Rate of savings
To provide funds for investment there need
to be a good level of savings. This should in
turn mean more growth in the future.
1– 10
The sources of growth
 Technological progress
 Increase production from the same quantity of
resources
 boosts the potential level of output of the
economy.
 The pace of technological change will depend
on:
• the scientific skills of the country
• the quality of education
• the amount of GDP devoted to research and development
1– 11
Sources of Growth
– Encourage International Trade
– Free international trade stimulates growth by extracting
all the available gains from specialization and trade.
– The fastest growing nations are the ones with the
fastest growing exports and imports.
– World Bank (2004) estimated that removing trade
protection in developed countries could provide gain to
developing countries of $ 85 b by 2015,
1– 12
November 14, 2021
Features of Less Developed Countries

(LDCs) -47 coutries
 Low income per capita
 earned less than 3% of the average employed
adult in US.
 This is usually the result of low productivity, low
savings, low investment, less resources,
backward technology

1– 13
13
Features of Less Developed
November 14, 2021
Countries (LDCs)
 High population growth
 Many LDCs have experienced high population

growth rate.
 47 LDCs have grown at 2.5% per annum over

the period 1975 – 2003, compared to only 0.6%
for high income countries.

1– 14
14
November 14, 2021

(LDCs)
 Large scale of unemployment
 Contributed by low level of economic activity

especially in industrial sector.
 75 per cent of the LDCs' population still live in

poverty

1– 15
15
November 14, 2021

(LDCs)
 Inequalities in the distribution of income.

 The richest 10% in Sierra Leone have 43.6% of
all income but the poorest 10% have only 0.5%.
 In Norway, richest 10% have 23. 4% of all
income and poorest 10% have 3.9% of all
income.

1– 16
16
Features of Less Developed
November 14, 2021
Countries (LDCs)
 Large but neglected agricultural sector
 In most LDCs, agriculture accounts for 40 – 85%
of national income and 60 – 90 % of total
employment.
 Nevertheless, policy makers have opted for
industrialization, often at the expense of
agricultural development to promote rapid
economic growth.
 Such neglect of agriculture has often led to food
shortages, poverty and famine.
1– 17
17
November 14, 2021

(LDCs)
 Environmental degradation
 Developing countries are acting as pollution
havens, particularly attractive to firms in toxic
intensive industries which release large
amounts of toxic chemicals per unit output.

1– 18
18
November 14, 2021

(LDCs)
 Volatile export earnings
 Foreign trade has tended to contribute relatively little to
national income of many LDCs. Many LDCs remain net
exporters of primary goods and net importers of industrial
goods.
 Export of primary goods fluctuates due to fall in price ,
increase in supply of primary goods, low income elasticity
– rising prosperity in developed countries has resulted in
modest increases in demand for primary goods.

1– 19
19
Features of Less Developed November 14, 2021
Countries (LDCs)
 Poor governance
 Corruption.
 In 2019 :
– Denmark 1,
– New Zealand – 1
– Finland – 3
– Singapore – 4
– India – 80
– Pakistan – 120
– Indonesia – 85
– Maaysia-53
 constrain corruption is a key ingredient for growth and prosperity.

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20
November 14, 2021
The UN Millennium Development Goals for LDCs

Eradicate extreme poverty and hunger
Achieve universal primary education
Promote gender equality
Reduce child mortality
Combat HIV
Ensure environmental sustainability.

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21
Conclusion/Summary November 14, 2021
 Economic growth of a country can be measured

using GDP. However, GDP is not a perfect
measurement because it excludes some important
factors. Business cycle shows the trend in GDP
growth rate. A country can achieve economic
growth by investing in human capital, technology,
increasing the volume of trade, increase savings,
promote research and development.

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22
November 14, 2021
References:
Griffiths, A. and Wall, S. Eds. (2011). Applied

Economics.
Financial Times Prentice Hall
Parkin,M (2008). Economics 8th edition, Pearson
International Edition.

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Macroeconomic Goal - Economic Growth

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 LECTURE 2 :

At the end of the lecture, students will be able to :

 define economic growth and discuss the factors that promote

© I-Station Solutions Sdn Bhd

• GDP = total market value of all final goods and

 Real GDP this year – Real GDP last year X

 GDP per person tells us the income and

 GDP / Total population = GDP per capita

 Higher GDP per person indicates a higher

GDP per head (2020)

© I-Station Solutions Sdn Bhd

Features of Less Developed Countries

© I-Station Solutions Sdn Bhd

 Many LDCs have experienced high population

 47 LDCs have grown at 2.5% per annum over

© I-Station Solutions Sdn Bhd

Features of Less Developed Countries

 Contributed by low level of economic activity

 75 per cent of the LDCs' population still live in

© I-Station Solutions Sdn Bhd

Features of Less Developed Countries

 Inequalities in the distribution of income.

© I-Station Solutions Sdn Bhd

Features of Less Developed Countries

© I-Station Solutions Sdn Bhd

Features of Less Developed Countries

© I-Station Solutions Sdn Bhd

© I-Station Solutions Sdn Bhd

The UN Millennium Development Goals for LDCs

© I-Station Solutions Sdn Bhd

 Economic growth of a country can be measured

© I-Station Solutions Sdn Bhd

Griffiths, A. and Wall, S. Eds. (2011). Applied

© I-Station Solutions Sdn Bhd

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