merged

Example 8: Countries A, B, C, and D from Examples 7A, 7B, 7C, and 7D on the previous page
are assumed to be equal in per capita GDP in 2014. With their different annual growth rates, per
capita GDP for each country is very different by 2084.
Country A B C D
Percapita GDPgrowth rate 1% 2% 5% 7%
Percapita GDP (2014) $5,000 $5,000 $5,000 $5,000
Percapita GDP (2024) x x x $10,000
Percapita GDP (2028) x x $10,000 x
Percapita GDP (2034) x x x $20,000
Percapita GDP (2042) x x $20,000 x
Percapita GDP (2044) x x x $40,000
Percapita GDP (2049) x $10,000 x x
Percapita GDP (2054) x x x $80,000
Percapita GDP (2056) x x $40,000 x
Percapita GDP (2064) x x x $160,000
Percapita GDP (2070) x x $80,000 x
Percapita GDP (2074) x x x $320,000
Percapita GDP (2084) $10,000 $20,000 $160,000 $640,000
Example 9: In 1960, Argentina’s per capita Real GDP was about 1.4 times higher than
Singapore’s. From 1960 to 2010, Argentina’s per capita Real GDP grew at 1.44% per year, and
Singapore’s per capita Real GDP grew at 5.22% per year. By 2010, Singapore’s per capita Real
GDP was about 4.5 times higher than Argentina’s. (Per capita Real GDP numbers from Penn
World Tables.)
Even a small difference in economic growth rates can make a large difference in standard of
living over a long period of time. This is true due to the power of compounding (discussed in
Chapter 31).
Example 10: In 2000, U.S. per capita GDP was $34,759. A table in an appendix at the end of this
chapter indicates what U.S. per capita Real GDP (Base 2000) will be over the course of the 21 st
century assuming different annual growth rates in per capita Real GDP. At an annual growth rate
of 1%, U.S. per capita Real GDP will increase by 2.7 times over the 21 st century. At an annual
growth rate of 2.5%, U.S. per capita Real GDP will increase by over 12 times.
Economic Freedom and Economic Growth
Most economists believe that economic freedom is important to economic growth. Economic
freedom is measured by such factors as strength of private property rights, relative size of
government, level of taxation, degree of government regulation of economic activity, international
trade policy, etc.
Example 11: According to the “Economic Freedom of the World, 2013 Annual Report”, the
twenty-five percent of nations with the freest economies experienced an average annual increase
in per capita Real GDP of 3.69% from 1991 to 2011, thus on pace to double their standards of
living in about 21 years. The twenty-five percent of nations with the least free economies
experienced an average annual increase in per capita Real GDP of 1.09% from 1991 to 2011,
thus on pace to double their standards of living in about 64 years.
Per Capita GDP for Selected Countries
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
The table on the next page provides information for selected countries, listed in order of per
capita GDP. The table includes the 43 most populous countries in the world and the 31 countries
with the largest economies in the world. The information is for 2013, and is from the “CIA World
Factbook”.
15 - 3 Less Developed Countries