Why Are Some Countries Rich And Others Poor?

Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national Product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used….. Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material….

Why are some countries rich and others poor? Why do some countries experience sustained levels of high growth that propel them into the ranks of the rich while others stagnate, seemingly in perpetuity? These are perhaps the most fascinating and important questions in all of economics…. Since the late 1980s, economists have done extensive work on the determinants of economic growth. As yet, however, there are few widely agreed-on results. The lack of consensus is unfortunate because increasing the growth rates of the world’s many poor countries is a primary global policy goal. We do have at least two natural experiments in which a single nation was bisected by very different forms of governments: the two Germanys from the end of World War II to reunification in 1991, and the two Koreas…. Investment is usually the result of forgoing consumption. In a purely agrarian society, early humans had to choose how much grain to eat after the harvest and how much to save for future planting. The latter was investment.

In a more modern society, we allocate our productive capacity to producing pure consumer goods such as hamburgers and hot dogs, and investment goods such as semiconductor foundries. If we create one dollar worth of hamburgers today, then our gross national product is higher by one dollar. If we create one dollar worth of semiconductor foundry today, gross national product is higher by one dollar, but it will also be higher next year because the foundry will still produce computer chips long after the hamburger has disappeared. This is how investment leads to economic growth. Without it, human progress would halt…. Kevin Kelly on the Future, Productivity, and the Quality of Life. Kevin Kelly talks with EconTalk host Russ Roberts about measuring productivity in the internet age and recent claims that the U.S. Then the conversation turns to the potential of robots to change the quality of our daily lives.

Paul Romer on Growth, podcast on EconTalk with Paul Romer (subsequently awarded the Nobel Prize). Paul Romer, Stanford University professor and Hoover Institution Senior Fellow talks with EconTalk host Russ Roberts about growth, China, innovation, and the role of human capital. Also discussed are ideas in creating growth, the idea that ideas allow for increasing returns, and intellectual property and how it should be treated. This 75 minute podcast is a wonderful introduction to thinking about what creates and sustains our standard of living in the modern world…. William Easterly of NYU talks about why some nations escape poverty while others do not, why aid almost always fails to create growth, and what can realistically be done to help the poorest people in the world…. Author Gregg Easterbrook talks about the ideas in his latest book, The Progress Paradox: How Life Gets Better While People Feel Worse. How has life changed in America over the last century?