Hochschule Düsseldorf
University of Applied Sciences
Fachbereich Wirtschaftswissenschaften
Faculty of Business Studies

​​​​​​​​​​​​​Materials

These materials have been choosen to provide an introduction to the teaching and research topics covered by the chair. The topics selected are particulary suited for a web-based presentation. For a more detailed analysis please refer to the quoted sources. The disclaimer is valid for all links included here.

​Economic Growth

Economic Growth as the growth rate of the GDP (Gross Domestic Product) is of prime importance in economic analysis. The current process of globalisation is marked by significant differences in the growth of individual economies. In this contribution some basic concepts are explained (such as the link between GDP and economic wealth) and data are shown by using a GIS (Geographic Information System).
The reasons for the development disparities are briefly analysed and international growth developments demonstrated by an animation.


Meaningful international GDP comparisons require a suitable selection of the appropriate data sets

The economic performance of countries is typically measured by the Gross Domestic Product (GDP) or the Gross National Product (GNP – for a definition of GDP and GNP according to the European System of Accounts [ESA] refer to Eurostat; the following charts show GDP-data). To put in simply, GDP is a measure of the value of goods and services produced within a country during a calendar year. By looking at global GDP a considerable concentration can be observed in some countries.





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Gross Domestic Product 2000 in US-$ bn.

As the map shows, Western Europe, North America as well as China have an important share of the worldwide GDP. This may be surprising, as GDP is used as a measure of wealth. Why do countries like India that are evidently “poor” have a high GDP?

The answer lies in the population. A high GDP of a country does not reflect the “richness” of a single resident. A more reasonable picture is therefore derived by calculating the GDP per capita


Gross Domestic Product per Capita 2000 in US-$ at Purchasing Power Parity

The chart above reflects a picture that is much closer to intuition: only the industrial countries are “rich” nations. Yet, international comparative analysis do adjust data even further: national GDP data are not converted into a common currency denominator (usually the US-$) by using the actual exchange rate, but by taking an exchange rate that corresponds to the purchasing power parity (PPP). The reason for this is evident: in less developed countries, prices for non-tradable goods and services are lower. Good examples of this are the cost of a haircut or of real estate. Accordingly, a dollar has a higher purchasing power in developing countries than in industrial countries.

After an adjustment for purchasing power parity differences, the difference in GDP per capita data for industrial and developing countries diminishes.

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Gross Domestic Product per Capita 2000 in US-$ at Purchasing Power Parity

Such data are used in international comparative analysis as an indicator of wealth. But is the GDP per capita at PPP really equal to wealth? There are important arguments against this:

  • The GDP only measures the income of a country (so called “flow data”); the stocks available are not considered in the calculation. However, common sense shows that one may very well be rich without income, if sufficient assets are available. In comparative analysis this would result in a higher wealth of industrial countries.
  • Wealth is not only generated by money. Health, the distribution of incomes and property, the infrastructure and the environmental status also influence the wealth of nations. These factors are tentatively incorporated into indicator systems like the Human Development Index. However, the concept of such indicators often causes dispute, as they are not independent of value judgements. 

In Summary: the measurement of wealth by GDP data is a statistical necessity. The interpretation of these data has to be made cautiously and may require some modifications.

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Development of international GDP over time

Only some global regions have achieved their goal of narrowing the development gap to the industrial countries during the last quarter of the 20th century. Differing GDP figures of countries are in essence a result of differences in the historic GDP growth rates. The following animation shows the global development of GDP in the period from 1976 to 2000.

Animation​
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Worldwide GDP 1975-2000

In the animation the GDP of each country in the base year 1975 is taken as the initial level (sea level). The cumulative increase in GDP from the initial level is reflected by the altitude of the bars. Colours show annual growth rates.

There are some apparent developments in the respective period:

  • Relatively constant growth figures of the industrial countries over the time span. The reason for this is a constant economic policy that is based on free market principles.
  • High growth figures in Asia; this development success results from high capital formation combined with an international liberalisation of the economies. Many of the Asian countries have narrowed the growth gap to the traditional industrial countries essentially.
  • Volatile growth in Latin America. The reason for the diverging development of the Latin American countries can be seen in the lack of economic stability (see e.g. inflation figures). Even though single country data need to be interpreted cautiously (for example due to the starting period of the animation that is random for statistical reasons), the relative success of Chile with its relatively stable economic policy is exceptional.
  • Low growth rates in Africa resulting from political and economic instability (see also inflation figures).
  • Low growth rates in the (Eastern European) socialist countries (due to the political disruptions in the region the data coverage is low). Evidence of the effect of the socialist economic framework can be derived by comparing pairs of countries like Eastern and Western Germany, North and South Korea or Taiwan and the Peoples Republic of China.

The above statements can also be employed to make long-term forecasts of economic development. The higher the economic and political stability and the higher the free-market orientation of a country, the higher growth rates will be. For companies this provide advantages for turnover increases. In corporate planning such GIS-data can be specified in order to show the regional distribution of demand. Such data are relevant e.g. for location decisions.

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Ausgewählte Quellen zur weiteren Information:

  • Zum Sozialprodukt und zur Entwicklungstheorie: Todaro, M.P.: Economic Development, 7. Aufl., Reading Ma. 2000
  • Zum Human Development Index (http://hdr.undp.org/en/humandev/indices/)
  • Weitere geograpische Darstellungen von Entwicklungsdaten bieten Links zu GIS (geographischen Informationssystemen) unter Links.

Stand: Juni 2004 - Update der Links: November 2010

 

Copyright © Prof. Dr. Hans-H. Bleuel

Grafiken erstellt durch Christoph Kachel