Real GDP grows when the quantities of labour, physical capital and human capital grow and when technology advances. As per the WEO (2023), global growth is forecasted to fall from 3.2 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024. This is happening within a very uncertain global environment, compounded with the cost-of-living crisis.
Using data from the Conference Board, calculate 1) the yearly growth accounting equations and 2) sustainable growth rate of output for the period 2000 to 2022 for a) the U.K and b) a country of your choice. Discuss some of the drivers of growth for the U.K over this 22-year period and provide a short comparison to drivers of growth for the country chosen for (b).
1) Yearly Growth Accounting Equations
The growth accounting equation is given by:
ΔY/Y = ΔA/A + α(ΔK/K) + (1-α)(ΔL/L)
where:
ΔY/Y is the percentage change in real GDP
ΔA/A is the percentage change in total factor productivity (TFP)
ΔK/K is the percentage change in physical capital
ΔL/L is the percentage change in labor
α is the share of physical capital in national income
To calculate the yearly growth accounting equations for the U.K and a country of your choice, we would need data on real GDP, TFP, physical capital, and labor for each year from 2000 to 2022.
2) Sustainable Growth Rate of Output
The sustainable growth rate of output is given by:
g = ΔA/A + α(ΔK/K) + (1-α)(ΔL/L)
where g is the sustainable growth rate of output.
To calculate the sustainable growth rate of output for the U.K and a country of your choice over the period 2000 to 2022, we would need to average the yearly growth rates of total factor productivity, physical capital, and labor over that period.
Drivers of Growth for the U.K and a Country of Your Choice
Some of the drivers of growth for the U.K over the period 2000 to 2022 include:
1. Technological advancements: The U.K has been at the forefront of innovation and technology, which has contributed to its economic growth over the years.
2. Human capital development: Investment in education and training has led to a skilled workforce, boosting productivity and economic growth.
3. Infrastructure investment: The U.K has seen significant investment in transportation, communication, and other infrastructure projects, which have supported economic growth.
For a country of your choice, the drivers of growth could vary depending on its specific circumstances. For example, a country like China may have seen rapid economic growth due to its large population, abundant labor force, and policies promoting industrialization and export-led growth. On the other hand, a country like Norway may have seen growth driven by its natural resource wealth and prudent management of its oil revenues.
In conclusion, understanding the drivers of growth for different countries can help policymakers identify strategies to promote sustainable economic growth and development.