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Lecture 3: Growth Policy Chapter 4 Macroeconomics Dornbusch, Fischer, Startz (9/e) 1 Population - Oldest idea population growth works against fast economic growth - Extremely poor country very high birth rate accompanied by very high death rate moderate population growth rate - Developing country high birth rate and low death rate (drop in infant mortality) high population growth rate - Developed country very low birth rate and low death rate very low population growth or ZPO - Population control family planning programs, social security etc.

2 Lessons ASIAN TIGERS - Special trick of development is hard work and sacrifice - Save and invest - More people in employment - Education in order to raise human capital - *No remarkable increases in total factor productivity* - Old fashioned strategy, save hard work competition works

3 Growth in Asian Tigers 4 Hong Kong Singapore South Korea Taiwan Period 1966 - 1991 1966 - 1990 1966 - 1990 1966 -1990 GDP per capita growth 5.7 6.8 6.8 6.7 TFP growth 2.3 0.2

51 27 49 27 1.7 2.6 % labour force participation 38 37 % 36 28 66.3 26.5 71.4 15.8 secondary education or higher 27.2 67.675.0 25.8 Natural Resource - Limited natural resources (energy) is a risk factor for economic growth, but 1. Technical progress permits us to produce more using fewer resources 2. As specific resources come into short supply, their prices rise, leading producers to shift toward substitutes - Environmental protection is important however.

5 Social Infrastructure - the institutions and government policies that determines the economic environment - Social infrastructures play very important role in determining output - A good legal system, stable taxes limits on government bureaucracy are part of social infrastructure - In some countries people may save more and invest than some other countries because of improved social infrastructures - Save more when can keep major portion of income excluding taxes. Do not need to pay bribes, government protect business from being robbed, legal system helps enforcing contacts and resolving disputes - Save less when target of expropriation by other private parts or government

6 Truly Poor Country - Slow economic growth - Low per capita income - Very low savings - Higher population growth - Low investment in human capital - Poor social infrastructure