Economic Growth Rates

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Magnus Jennings
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1 4 Economic Growth Rates Will the poor countries catch up with the rich? GDP and GNP growth rates in developing countries are on average higher than those in developed countries. Moreover, the difference became even larger in recent years because GNP growth in developed countries slowed from more than 3 percent a year in the 198s to about 2 percent a year in the first half of the 199s. Low-income countries, by contrast, appear to have performed much better during this period, with GNP growing by almost 6 percent a year in So, will the poor countries soon catch up with the rich? Unfortunately, the economic growth patterns described above do not mean that the world is on its way to convergence that is, to the gradual elimination of the economic gap between rich and poor countries. Much faster population growth in most developing countries is offsetting comparatively faster GNP growth, causing GNP per capita growth rates in these countries to be low or even negative (Figure 4.1; Map 4.1). As a result the gulf between the average GNP per capita in developing and developed countries continues to widen. Figure 4.1 Average annual growth rates of GNP, population, and GNP per capita, % % % 1.4% 2.8% 1.9% 2.6% 1.7%.7% 2.1% 1 2.4%.9% GNP Population GNP per capita Low-income countries Low-income countries excluding China and India Middle-income countries High-income countries 22

the 199s. Low-income countries, by contrast, appear to have performed much better during this period, with GNP growing by almost 6 percent a year in 198 95.

4 ECONOMIC GROWTH RATES Map 4.1 GNP per capita growth rates, 1985 95 3% or more 2 2.9%

2 4 ECONOMIC GROWTH RATES Map 4.1 GNP per capita growth rates, % or more 2 2.9% 1 1.9%.9% Less than % No data According to a World Bank study, per capita income in the richest countries was 11 times greater than in the poorest countries in 187, 38 times greater in 196, and 52 times greater in In the early 199s, of 23 trillion in global GDP, only 5 trillion less than 2 percent was generated in developing countries even though these countries accounted for about 8 percent of the world s population. The rapid average growth in developing countries also masks growing disparities among these countries. Between 1985 and 1995 East Asia experienced the fastest growth of GNP per capita more than 7 percent a year (Figure 4.2). But in two other regions of the developing world, the average annual growth rate was negative: 1.1 percent in Sub-Saharan Africa, and.3 percent in the Middle East and North Africa,. The biggest drop in GNP per capita growth occurred in Eastern Europe and Central Asia because of the economic crisis caused by the transition from planned to market economies. The news is not all bad for developing countries, however. The two developing 23

9% Less than % No data According to a World Bank study, per capita income in the richest countries was 11 times greater than in the poorest countries in 187, 38 times greater in 196, and 52 times

3 BEYOND ECONOMIC GROWTH Figure 4.2 Average annual GNP per capita growth rates, % Europe and Central Asia 1.1% Sub-Saharan Africa.3% Middle East and North Africa Latin America and the Caribbean.3% South Asia 2.9% East Asia and the Pacific 7.2% 4 2 Percent Figure 4.3 Shares of 1995 world population by groups of countries with different GNP per capita growth rates Average annual GNP per capita growth rate, % or more 9% % 46% 17% % 7%.9% 4% 17% Less than % No data countries with the biggest populations did comparatively well in In India GNP per capita grew by about 3.2 percent a year, and in China by an unprecedented 8.3 percent a year. Rapid growth in China and India explains why more than half of the world s population lives in economies growing faster than 2 percent a year (Figure 4.3). But when China and India are excluded from the 24

3 Shares of 1995 world population by groups of countries with different GNP per capita growth rates Average annual GNP per capita growth rate, 1985 95 3.% or more 9% 2. 2.9% 46% 17% 1. 1.9% 7%.

4 4 ECONOMIC GROWTH RATES sample of low-income countries, average annual growth in this group turns negative (see Figure 4.1). In more than half of developing countries had negative growth rates, and four-fifths of those with positive growth rates were growing slower than high-income countries (see Map 4.1). Between 1965 and 1995 the gap between developed countries and most developing countries widened considerably (Figure 4.4). Asia was the only major region to achieve significant convergence toward developed countries level of GNP per capita. Per capita income in the newly industrialized economies of Asia Hong Kong (China), the Republic of Korea, Singapore, and Taiwan (China) increased from 18 percent of the developed countries average in 1965 to 66 percent in At the same time Africa, for instance, became even poorer in relative terms. The average per capita income in African countries equaled 14 Figure 4.4 Real GDP per capita in developed and developing countries, How has the economic gap between developed and developing countries changed over the past few decades? Percentage of 1995 average for developed countries 1 9 Developed countries Rapidly industrializing countries c Major oil exporters b Developing countries excluding Asian newly industrialized economies Asian newly industrialized economies a 3 2 Middle East and Europe d Africa d Western hemisphere e China 1 Asia f a. Asian newly industrialized economies: Hong Kong (China), Republic of Korea, Singapore, and Taiwan (China). b. Excluding Iraq. c. Consists of Chile, Indonesia, Malaysia, and Thailand. d. Excluding major oil exporters. e. Excluding major oil exporters and Chile. f. Excluding China, Hong Kong (China), Indonesia, Republic of Korea, Malaysia, Singapore, Taiwan (China), and Thailand. 25

Between 1965 and 1995 the gap between developed countries and most developing countries widened considerably (Figure 4.4).

5 BEYOND ECONOMIC GROWTH percent of the developed countries level in 1965 and just 7 percent in You can mark the 1995 position of your country on Figure 4.4 using Data Table 1 at the end of this book (see the PPP estimates of GNP per capita and use the average of 24,93 for GNP per capita in developed countries). Today only about 1 developing countries those with GNP per capita growth rates more than 1 percentage point higher than the average for developed countries can look forward to catching up with developed countries within the next hundred years. And those 1 countries will only catch up if they can maintain their high growth rates. Doing so will be a challenge. In fact, the poorer a country is, the harder it is to maintain the high investment needed for growth (see Chapter 6). 26

Today only about 1 developing countries those with GNP per capita growth rates more than 1 percentage point higher than the average for developed countries can look forward to catching up with

Economic Growth Rates

BEG_i-144.qxd 6/10/04 1:46 PM Page 23 4 Economic Growth Rates GDP growth rates in developing countries are on average higher than those in developed countries. Over the 1965-99 period, the average annual