Why Do Economies Grow?

Lesson 3

Colonial Economy Mystery

North America offered no known gold or silver for the taking. There were no spices to trade. Eventually, however, the colonies were able to prosper. Why?

Mystery Nations

Who is Wealthy?

Some nations of the world have become wealthy, while others have not.

What do you think are the most important reasons this has been so?

Who Has the Highest Income? Country A Wealth Score

= ___ Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1

Under European colonial rule from early 1500s until 1816

Benefits from rich natural resources including fertile plains, lead, zinc, iron ore, petroleum and uranium

Population of nearly 40 million people in 2004 (small for a nation of this size)

Land size about three-tenths the size of the United States

Country B Wealth Score = ___ Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1

Under European colonial rule from early 1500s until 1822

Benefits from rich natural resources including bauxite, gold, iron ore, nickel, phosphates, tin, uranium, petroleum, hydropower and timber

Population of over 184 million

Land area slightly smaller than the United States

Who Has the Highest Income? Country C Wealth Score

= ___ Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1

Under European rule from the nineteenth century until 1947

Benefits from rich natural resources including large coal reserves, iron ore, manganese, mica, titanium ore, chromite, natural gas, petroleum, limestone and agricultural land

Population of more than 1 billion

Land area slightly more than one-third of the United States

Country D Wealth Score = ___ Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1

Under European rule from 1841 to 1997

Good harbor but no natural resources

Population of nearly 7 million Land area six times larger

than Washington D.C.

Mystery Nations Revealed

Country A

Argentina Population

39,921,833 (July 2006 est.)

GDP per capita 13,700 (2005 est)

Life Expectancy 76.12

Literacy Rate 97.1%

Infant Mortality 12.78 deaths/1,000 live

births

Country B

Brazil Population

188,078,227 (July 2006 est.)

GDP per capita 8,400 (2005 est)

Life expectancy 71.97

Literacy rate 86.4%

Infant mortality 28.6 deaths/1,000 live

births

Country C

India Population

1,095,351,995 (July 2006 est.)

GDP per capita 3,400 (2005 est)

Life Expectancy 64.71

Literacy Rate 59.5%

Infant Mortality 54.63 deaths/1,000 live

births

Country D

Hong Kong Population

6,940,432 (July 2006 est.) GDP per capita

$37,400 (2005 est.) Life Expectancy

81.59 Literacy Rate

93.5% Infant Mortality

2.95 deaths/1,000 live births

Two Additional Cases

United States

United States Population

298,444,215 (July 2006 est.)

GDP per capita $42,000 (2005 est.)

Life Expectancy 77.85

Literacy Rate 99%

Infant Mortality 6.43 deaths/1,000 live

births

Saudi Arabia

Saudi Arabia Population

27,019,731 (July 2006 est.)

GDP per capita $12,900 (2005 est.)

Life Expectancy 75.67

Literacy Rate 78.8%

Infant Mortality 12.81 deaths/1,000 live

births

Natural Resources Paradox

Natural resources have contributed to the economic success of some nations.

Yet, many nations with vast stocks of natural resources are poor.

Factors Associated with Economic Growth

Lesson 3 Activity 3.1

Activity 3.1Factors Associated with Economic Growth

Private Property RightsQuestion A: Would you keep a savings account or want to own a farm in a nation that expropriated savings and farmland every few years?

Physical Capital Question B: What incentives might encourage the development of physical capital?

Human Capital Question C: What

incentives could a nation provide to encourage the development of human capital?

Activity 3.1Factors Associated with Economic Growth

Investment

Question D: What incentives might encourage people to save and invest?

Infrastructure

Question E: How is infrastructure similar to investment?

Be a Planet Planner

Lesson 3 Activity 3.2

Activity 3.2Be A Planet Planner

The Spanish and the English had much in common. Both were powerful European colonial powers. But the results of colonial development led to different outcomes in North and South America. Why?

Be A Planet Planner

You have just been appointed by Dr. Julie Verne to the United Nations Intergalactic Development Administration (UNIDA) Task Force for Planet Z93.

Your job is to advise Dr. Verne on Z93 development plans by applying two rules:

1. People respond to incentives in predictable ways. Rewarding people for their work, for example, encourages them to be productive.

2. People create economic systems that influence individual choices and incentives. In order for an economy to grow, its rules must include a system of incentives that encourages people to produce.

English Development

England by the 17th century had transferred some power from the king to the parliament. Individual property rights were better defined and enforced.

• The Pilgrims experimented with common land ownership but nearly starved.

• In 1623, they replaced group land ownership with individual ownership.

“This had very good success for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use.”

William Bradford Of Plymouth Plantation,

1620-1647

Spanish Development

Spain in the 16th century was an absolute monarchy. Individual property rights were not well defined and enforced.

The plan for development was to seek gold and riches - - a transfer of wealth, not expansion.

Questions for Discussion

Questions for Discussion How did the political institutions differ between

Spain and England? Describe ways in which Spain influenced the

economic development of South and Central America?

Describe ways in which the English developed the eastern coast of North America?

Policy Recommendations Who should be allowed to own property in Z93?

Individuals? Government? Why?