The Facts of Economic Growth

Chad Jones

Stanford GSB

Prepared for the Handbook of Macroeconomics

The Facts of Growth – p. 1

Outline

• Facts of Frontier Growth (e.g. U.S. or West)

◦ Basic facts

◦ Growth accounting and components

◦ Miscellaneous

• The Spread of Growth

◦ Basic facts

◦ Development accounting

◦ Why such large TFP differences?

The Facts of Growth – p. 2

GDP per person in the United States

1880 1900 1920 1940 1960 1980 2000

2,000

4,000

8,000

16,000

32,000

64,000

2.0% per year

YEAR

LOG SCALE, CHAINED 2009 DOLLARS

The Facts of Growth – p. 3

The Stability of U.S. Growth

Growth GrowthPeriod Rate Period Rate

1870–2007 2.03 1973–1995 1.82

1870–1929 1.76 1995–2007 2.13

1929–2007 2.23

1900–1950 2.06 1995–2001 2.55

1950–2007 2.16 2001–2007 1.72

1950–1973 2.50

1973–2007 1.93

The Facts of Growth – p. 4

Economic Growth over the Very Long Run

0 200 400 600 800 1000 1200 1400 1600 1800 2000

5

10

15

20

25

30

35

40

45

Population

Per capita GDP

YEAR

INDEX (1.0 IN INITIAL YEAR)

The Facts of Growth – p. 5

Growth Accounting for the United States

——— Contributions from ———Output Labor Labor-Aug.

Period per hour K/Y Composition TFP

1948–2013 2.5 0.1 0.3 2.0

1948–1973 3.3 -0.2 0.3 3.2

1973–1990 1.6 0.5 0.3 0.8

1990–1995 1.6 0.2 0.7 0.7

1995–2000 3.0 0.3 0.3 2.3

2000–2007 2.7 0.2 0.3 2.2

2007–2013 1.7 0.1 0.5 1.1

The Facts of Growth – p. 6

U.S. Investment in Physical Capital

Equipment

Structures

YEAR

1930 1940 1950 1960 1970 1980 1990 2000 2010

SHARE OF GDP

0%

5%

10%

15%

20%

25%

The Facts of Growth – p. 7

U.S. Capital and Labor Shares of Factor Payments

Labor share

Capital share

YEAR

1950 1960 1970 1980 1990 2000 2010

PERCENT

20

30

40

50

60

70

80

The Facts of Growth – p. 8

U.S. Educational Attainment

1880 1900 1920 1940 1960 1980 20007

8

9

10

11

12

13

14

15

Adult labor force

By birth cohort

YEAR

YEARS OF SCHOOLING

The Facts of Growth – p. 9

College Graduates and the College Wage Premium

1960 1970 1980 1990 2000 2010

0

20

40

60

Fraction of hours worked

by college-educated workers

(left scale)

College wage premium

(right scale)

PERCENTPERCENT

40

60

80

100

The Facts of Growth – p. 10

U.S. Research and Development Spending

Private R&D

Government R&D

Software and

Entertainment

YEAR

1930 1940 1950 1960 1970 1980 1990 2000 2010

SHARE OF GDP

0%

1%

2%

3%

4%

5%

6%

The Facts of Growth – p. 11

Share of Employment in R&D

1950 1960 1970 1980 1990 2000 20100%

0.1%

0.2%

0.3%

0.4%

United StatesOECD

OECD plus China

and Russia

YEAR

SHARE OF THE POPULATION

The Facts of Growth – p. 12

U.S. Patents

1900 1920 1940 1960 1980 20000

50

100

150

200

250

300

Total in 2013: 302,000

U.S. origin: 147,000

Foreign share: 51%

Total

U.S. origin

YEAR

THOUSANDS

The Facts of Growth – p. 13

Employment in Agriculture

1840 1860 1880 1900 1920 1940 1960 1980 20000

10

20

30

40

50

60

70

80

90

YEAR

PERCENT

United States

Japan

The Facts of Growth – p. 14

Health Spending as a Share of GDP

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20102

4

6

8

10

12

14

16

18

YEAR

PERCENT

U.S.

Germany

France

U.K.

Japan

The Facts of Growth – p. 15

Average Annual Hours Worked

1950 1960 1970 1980 1990 2000 20101400

1600

1800

2000

2200

2400

2600

2800

S. Korea

U.S.

Japan

France

U.K.

YEAR

AVERAGE ANNUAL HOURS WORKED

The Facts of Growth – p. 16

Top Income Inequality

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

2%

4%

6%

8%

10%

United States

France

YEAR

INCOME SHARE OF TOP 0.1 PERCENT

The Facts of Growth – p. 17

GDP per person, Top 0.1% and Bottom 99.9%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

5

10

20

40

80

160

320

640

1280

2560

5120

Top 0.1%

Bottom 99.9%

0.72%

6.86%

2.30%

1.82%

YEAR

THOUSANDS OF 2009 CHAINED DOLLARS

The Facts of Growth – p. 18

The Real Price of Industrial Commodities

YEAR

1900 1920 1940 1960 1980 2000

EQUALLY-WEIGHTED PRICE INDEX (INITIAL VALUE IS 100)

0

20

40

60

80

100

120

140

The Facts of Growth – p. 19

The Great Divergence

1200 1300 1400 1500 1600 1700 1800 1900 2000

20

40

60

80

100 U.S.

U.K.

Japan

Argentina

China

Ghana

YEAR

GDP PER PERSON (MULTIPLE OF 300 DOLLARS)

The Facts of Growth – p. 20

The Spread of Economic Growth since 1980

United States

Japan

Western Europe

Brazil

Russia

China

India

Sub-Saharan Africa

YEAR

1980 1985 1990 1995 2000 2005 2010

GDP PER PERSON (US=100)

5

10

20

40

80

The Facts of Growth – p. 21

Convergence in the OECD

1/4 1/2 1 1.5%

2%

2.5%

3%

3.5%

4%

4.5%

Austria

Belgium

Canada

Switzerland

Germany

Denmark

Spain

Finland

France

United Kingdom

Greece

Ireland

Iceland

Italy

Japan

Luxembourg Netherlands

Norway

Portugal

Sweden

Turkey

United States

GDP PER PERSON (US=1) IN 1960

GROWTH RATE, 1960 - 2011

The Facts of Growth – p. 22

The Lack of Convergence Worldwide

1/64 1/32 1/16 1/8 1/4 1/2 1 -3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Argentina

Burundi

Burkina Faso

Brazil

Botswana

C. Afr. Republic

Chile

China

Cote dIvoire

DR Congo

Congo

Comoros

Cape Verde

Cyprus Egypt

Ethiopia Gabon

Guinea

Equatorial Guinea

Guatemala

Hong Kong

India

Iran

Israel

Jamaica

South Korea

Lesotho Morocco

Madagascar

Malta

Mozambique

Malawi

Malaysia

Namibia

Niger

Nigeria

Nepal New Zealand

Panama

Philippines

Paraguay

Romania Singapore

El Salvador

Thailand

Trinidad/Tobago

Tunisia

Taiwan

Venezuela

Canada

Switzerland

Germany Finland

France

UK

Ireland

Iceland

Italy

Japan

Luxembourg

Norway

Portugal

Turkey US

GDP PER PERSON (US=1) IN 1960

GROWTH RATE, 1960 - 2011

The Facts of Growth – p. 23

Divergence since 1960

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

1

1.1

1.2

1.3

1.4

1.5

Standard deviation of

log GDP per person

(left scale)

Ratio of GDP per person,

5th Richest to 5th Poorest

(right scale)

STANDARD DEVIATIONRATIO

30

40

50

60

70

80

The Facts of Growth – p. 24

The Very Long-Run Distribution

—— Distribution —— Years to

“Bin” 1960 2010 Long-Run “Shuffle”

Less than 5 percent 14 29 27 1470

Between 5 and 10 percent 21 12 9 1360

Between 10 and 20 percent 25 13 8 1040

Between 20 and 40 percent 18 16 8 1120

Between 40 and 80 percent 14 18 28 1450

More than 80 percent 7 12 20 1500

The Facts of Growth – p. 25

The Distribution of World Income by Population

1 2 4 8 16 32 64 128

20

40

60

80

100

2011

1960

India

China

DAILY INCOME PER PERSON

SHARE OF WORLD POPULATION (PERCENT)

The Facts of Growth – p. 26

Development Accounting

GDP per Human Share

worker, y (K/Y )α

1−α capital, h TFP to TFP

U.S. 1.000 1.000 1.000 1.000 ...

France 0.790 1.184 0.840 0.795 55.6%

U.K. 0.733 1.015 0.780 0.925 46.1%

Japan 0.683 1.218 0.903 0.620 63.9%

Argentina 0.376 1.109 0.779 0.435 66.5%

China 0.136 1.137 0.713 0.168 82.9%

India 0.096 0.827 0.533 0.217 67.0%

Malawi 0.021 1.107 0.507 0.038 93.6%

Average 0.194 0.978 0.694 0.286 64.3%

1/Average 5.146 1.022 1.440 3.496 70.4%

The Facts of Growth – p. 27

The Share of TFP in Development Accounting

1/128 1/64 1/32 1/16 1/8 1/4 1/2 1 2 0

10

20

30

40

50

60

70

80

90

100

Albania

Burundi

Belize

Brazil

Barbados

Brunei

China

Cote dIvoire

Cameroon

DR Congo

Egypt Spain

France

U.K.

Guatemala

Hungary

Indonesia

India

Ireland

Iraq Israel

Jordan

Japan South Korea

Kuwait

Lesotho

Macao

Maldives

Mexico

Mali

Mozambique

Mauritius

Malawi

Malaysia

Niger

Netherlands

Norway

New Zealand

Pakistan

Philippines

Qatar

Rwanda

Sudan

Senegal

Singapore

Sierra Leone

El Salvador

Slovenia

Syria

Togo

Thailand

Trinidad/Tobago

Turkey

Taiwan

Uganda

Ukraine Vietnam

Yemen

Zimbabwe

GDP PER WORKER, 2010 (US=1)

PERCENT

The Facts of Growth – p. 28

Korea at Night

The Facts of Growth – p. 29

The Reversal of Fortune

1/16 1/4 1 4 16 64 1/256

1/128

1/64

1/32

1/16

1/8

1/4

1/2

1

Argentina

Australia

Burundi

Bangladesh

Bahamas

Brazil

Barbados

Botswana

C. Afr. Republic

Canada

Congo

Ecuador Egypt

Ethiopia

Ghana

Guinea

Hong Kong

Honduras

Indonesia

India

Lao

Sri Lanka

Lesotho

Morocco

Mexico

Mali

Malawi

Malaysia

Namibia

Niger

Nigeria

Nepal

New Zealand

Pakistan

Panama

Peru

Philippines Paraguay

Rwanda

Sudan

Senegal

Singapore

El Salvador

Suriname

Swaziland

Chad

Tunisia

Tanzania Uganda

United States

St. Vincent

Venezuela

Vietnam

South Africa

Zambia

Zimbabwe

POPULATION DENSITY IN 1500 (PEOPLE PER SQUARE KM)

GDP PER PERSON (US=1) IN 2011

The Facts of Growth – p. 30

Taxes and Growth in the United States

1880 1900 1920 1940 1960 1980 2000

0

5

10

Total government revenues

as a share of GDP (right scale)

Annual growth of GDP per person

(moving average, +/-5 years, left scale)

GROWTH RATE (PERCENT)TAX SHARE (PERCENT)

10

20

30

The Facts of Growth – p. 31

Tax Revenues as a Share of GDP

1/128 1/64 1/32 1/16 1/8 1/4 1/2 1 2 0

10

20

30

40

50

60

70

Angola

Argentina

Australia

Azerbaijan

Belgium

Burkina Faso

Bangladesh

Bahrain

Bahamas

Bosnia/Herz.

Brazil

Botswana

Canada

Switzerland

Chile

China

DR Congo

Congo

Colombia

Cyprus

Germany

Ethiopia

Fiji

France

United Kingdom

Equatorial Guinea

Greece

Honduras

Croatia

Indonesia

India

Ireland

Japan

Kenya

South Korea

Kuwait

Lebanon Liberia

Lesotho

Luxembourg

Macao

Morocco Moldova

Madagascar

Mexico

Malta

Mozambique

Niger Nigeria

Norway

Qatar

Senegal Singapore

El Salvador

Serbia

Sweden

Syria

Togo

Ukraine

United States

S. Africa

GDP PER PERSON (US=1) IN 2011

PERCENT OF GDP

The Facts of Growth – p. 32

The Distribution of TFPR in 4-digit Manufacturing

U.S.

China

India

REVENUE TFP, TFPR

1/8 1/4 1/2 1 2 4 8

DENSITY

0

0.2

0.4

0.6

The Facts of Growth – p. 33

Average Employment over the Life Cycle

< 5 5-9 10-14 15-19 20-24 25-29 30-34 35+

1

2

4

6

8

10U.S.

Mexico

India

AGE

AVERAGE EMPLOYMENT (AGE<5 = 1, LOG SCALE)

The Facts of Growth – p. 34

Technology Adoption is Speeding Up Over Time

1800 1850 1900 1950 20000

20

40

60

80

100

120

140

Cars

PCs

Electricity

Trucks

Blast oxygen

Railways (freight)

Railways (passengers)

Telegrams

Telephones

Aviation (freight)

Aviation (passengers)

Cellphones

Internet users MRI units

Steam- and motorships

YEAR OF INVENTION

ADOPTION LAG (YEARS)

The Facts of Growth – p. 35

Conclusion: Missing facts?

• Trade and growth

◦ Something like Sachs-Warner — open economies growfaster for awhile?

• Spread of growth feeds the frontier

◦ PhD’s in science/engineering in China

• Other

◦ Hsieh-Moretti misallocation of population across space

◦ Karabarbounis-Neiman factor shares for other countries

The Facts of Growth – p. 36