Contemporary picture of the global economy

Week 1: Course intro, What is growth?, Historical growth patterns, Contemporary picture of the global economy.


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Read provided material prior to class each week

Attend class for quizzes and activities

Complete assessment

Course outline

What is economic growth and development?

What are the prevailing theories that account for the massive differences in standard of living across countries?

How do researchers attempt to untangle the factors that contribute to economic growth and development?

What is globalisation, and how does the process of international economic integration affect national economies?


Historical patterns of growth.

What do we mean by growth and globalisation?

Emerging issues you need to be aware of.

Mostly talkfest. Ask questions, share ideas. Will have class activity most weeks in second hour.

Very long run

Why didn’t human societies really grow until the industrial revolution?

Yuval Noah Harari argues that we simply didn’t collectively believe we could, so we didn’t organise our society towards that outcome.

Transformation / industrial revolution was accompanied by the belief system of Mercantilism.

Once we collectively believed in growth we took action to get it (individually, commercially, politically).


Thomas Malthus (1766 – 1834): An Essay on the Principle of Population (1798)

“Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. A slight acquaintance with numbers will shew the immensity of the first power in comparison of the second”

Evidence from high fertility of US where “the means of subsistence have been more ample”


“might fight for glory, for the fame of extensive conquests, but the true cause that set in motion the great tide of northern emigration, and that continued to propel it till it rolled at different periods against China, Persia, Italy, and even Egypt, was a scarcity of food, a population extended beyond the means of supporting it.”

“The reason that the greater part of Europe is more populous now than it was in former times, is that the industry of the inhabitants has made these countries produce a greater quantity of human subsistence.”

Modern era

Idea that per capita economic growth is easier with more stable population influences economics and policy advice.

“Obviously, reducing fertility will reduce population growth thereby raising economic development. In view of this, the paper discusses incentives and disincentives for fertility reduction, those factors which influence both policy making for fertility reduction and the actual effectiveness of family planning programs. The central conclusion of this paper is that direct population policies and general development policies reinforce each other in raising per capita incomes and in reducing fertility.”


Hong Kong – “Two is enough”

South Korea – “Stop at two, regardless of sex”

Bangladesh – “One child is ideal, two children are enough”

Family planning subsidies in Sweden (1950s), Sri Lanka, Pakistan and India (1962).

China – One child policy 1979.

India – National Population Policy 2000.

Total fertility was to be reduced by nearly 50%, from 7.7 children per woman to 4.0. The contraceptive prevalence rate, which stood at 4.8% in 1990, was to be increased to 44%.

The policy also aimed (but with no fixed targets) to reduce infant, child and maternal mortality rates, and to increase female participation at all levels of the educational system.

The policy proposed the elimination of all legal and customary practices affecting women’s economic, social and political rights; and incorporated an ambitious programme of measures to guarantee spatially balanced population distribution patterns, and improve productivity in agriculture and introducing off-farm non-agricultural activities.

The policy also proposed the launching of a country-wide population information, education and communication programme (TGE 1993).



What is GDP?

Growth of what? Is GDP the economy?

When and why was GDP invented?

Why choose this metric?

Gross Domestic Product

GDP measures the total market value of all final goods and services newly produced in a specified country or region during a specified period of time.

Link to welfare (utility, or well-being) is that a higher GDP means more goods and services are produced, and it is the consumption of these that provides utility.

Excludes assets (property, bonds, equities).

Includes own-home occupation, government sector.

Hard to measure

GDP is criticised as a development metric because it doesn’t measure ‘what we value’. Which is true.

GDP is very difficult to measure and its definition has changed repeatedly over time.

Comparisons over time difficult (changing types of goods and services which are incomparable).

Comparisons between countries difficult for similar reasons.

Correlates with GDP

Use of log graphs

Use of log graphs

It looks like US GDP per capita is accelerating. Is that true?

Labour Productivity

Global distribution

What is globalisation?

Many possible approaches/interpretations. An increase in global:

trade interdependencies (i.e. international trade a % of GDP).

cross-ownership of financial assets (international ownership of property, bonds, equities etc).

formal institutions that play a role in regulating human society (World Bank, IMF, etc).

culture exchange (e.g. US entertainment culture).


Invert the idea

Why is the world fragmented into different groups (countries) rather than having always been a single human society?

First wave

Commonly acknowledged that British colonialism was the ‘first wave’ of globalisation from about 1870 to 1913, though arguably starter a century earlier.

“From the domestication of the camel around 1,000BC to the first commercial steam engine in 1712, the first great wave of globalisation unbundled production and consumption. From 1820, British prices were set by international demand, and café-goers could sip Chinese tea sweetened with Jamaican sugar.”


Financial assets

If a country has a trade imbalance, the difference is made up by a financial transaction.

“…running a trade deficit was similar to a very rich family over-consuming each year and selling a small piece of their farm in order to consume. Slowly, the rich family’s wealth is transferred to those selling them what they are consuming. Another way of putting this is that the family is running a negative current account balance and offsetting that with a positive capital account balance.”


Tourism, film and TV, music. US dominated in English-speaking world post-WWII.

Now have global fashion trends, global music hits, global video game markets, etc.

Global migration

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20th Century Wars

We shouldn’t underestimate the effect of conflict on economic conditions, growth, and patterns of globalisation.

The end of the First Wave of globalisation coincided with WWI, and the Second Wave did not begin until after WWII.

Note coincided and not “caused by”. We need to be cautious attributing causality.

The end WWII saw nations looking to establish a global order that would impede nations waging large scale war.

Bretton Woods

Post-war meeting at Bretton Woods, New Hampshire designed to ensure economic power and trade imbalances do not flare up again and result in war.

John Maynard Keynes (UK) & Harry Dexter White (US)

Created the International Monetary Fund and World bank (originally the International Bank for Reconstruction and Development – IBRD)

Used IMF as institution to agree on fixed (and managed) exchange rate regime to ensure balance trade.

World Trade Organisation

The WTO sprang out of the General Agreement on Tariffs and Trade (GATT), which was signed on October 30, 1947 in Geneva by 23 countries.

Original “contracting parties”: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia (now Zimbabwe), Syria, South Africa, United Kingdom and the United States.

The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995.

World Trade Organisation

Notice that GATT was an agreement between nations — a set of rules that they each independently and collectively agreed to comply with.

The WTO is very different. It was established as a fully fledged international institution/organisation, with its own hierarchy and structure, headquarters, staff etc. It provides technical assistance, handles disputes, administrates agreements, etc.

This is an example if institutional globalisation.

United Nations

Another post WWII international institution.

Established 24 October 1945 with 51 member States. Now with 193 members.

Similar attempts after WWI with League of Nations.

Objective is to foster cooperation and peace.


Why do some countries stay poor?

What factors determine the observed patterns of development and globalisation?

What is the effect of globalisation and its component parts of economic development and well-being?

What policies are available to improve welfare and what are their effect on economic development and the income distribution?

Asian Tigers

Also called “Little Dragons”

Hong Kong, Singapore, South Korea and Taiwan.

Sustained (> decade) high growth rates of over 7%.

Transformation to world leading producers.

Controversy over how they did it! A lot of this course is about what made these countries different to all the other poor countries that stayed poor.

Most poor stay poor

Asian Tigers are the exception rather than the rule.

Most countries that were poor in the 1960s grow slower in the subsequent half century.


Just the OECD – so convergence here.

Elephant in the World


Took thousands of years for economic growth to take off

Long periods of Malthusian limits

Industrial revolution, population control, seems to have changed global economic growth dynamic

The idea of a thing called “the economy” didn’t enter the realm of public debate until after WWII. GDP invented during depression era then later used for war purposes.

GDP correlated with many other things that improve well-being


Arguably the thing that matters is making more stuff per hour. That is called Labour Productivity.

Many facets to globalisation – trade, finance, culture, people, institutions.

Wars correlate with big changes to patterns of globalisation

Asian tigers show that in modern times poor countries becoming rich is the exception rather than the rule.

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