Read Chapter 17 of Macroeconomics: Private and Public Choice.
Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018).Macroeconomics: Private and public choice(16th ed.). Retrieved from https://www.cengage.com
From the tables presented in Chapter 17, what did you find most striking or unusual in the given income levels and growth rates of the different countries? Are rich countries getting richer while the poor are getting poorer? Has the United States become more or less economically free and how might this impact the future growth of the US? How does political decision-making impact the economy?
\fExhibit 10 Economic Freedom of the United States, 1980-2013 While the EFW rating of the United States increased from 7.9 in 1980 to 8.7 in 2000, it has declined substantially during the past decade. By 2013, the rating fell to 7.7, its lowest level in more than three decades. Unless this trend is reversed, future growth of the U.S. economy is likely to be sluggish. 9.0 8.5 EFW rating 8.0 7.5 7.0 - 1980 1985 1990 1995 2000 2005 2010 2013 Source: James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World: 2015 Annual Report (Vancouver, British Columbia: Fraser Institute).Exhibit 2 The Growth of per Person GDP for High-Growth, High-Income Industrial, and Low-Growth Countries, 1990-2014 High Growth Growth High- Growth Low Growth Growth + of per Income of per of per Person Industrial Person Person GDP, GDP, GDP, 1990- 1990- 1990- 2014 2014 2014 (/%) (/0) (0) China 9.2% Australia 1.7% Liberia -0.3% Vietnam 5.5% Norway 1.6% Kyrgyz Republic -0.4% India 4.8% United 1.6% Madagascar -0.8% Kingdom Sri Lanka 4.5% Netherlands 1.5% Ukraine -1.0% South Korea 4.4% United States 1.4% Moldova -1.3% Panama 4.2% Germany 1.4% Tajikistan -1.4% Chile 3.7% Canada 1.3% Burundi -1.5% Source: World Bank, World Development Indicators 2014.Exhibit 3 The Economic Freedom Rating for the Top-, Middle-, and Lowest- Rated Countries, Average for 1990-2013 Top-Rated Countries Middle-Rated Countries Lowest-Rated Countries 1 Hong Kong 8.9 13 Germany 7.7 104 Nigeria 5.2 2 Singapore 8.6 15 Japan 7.6 105 Syria 1.8 3 Switzerland 8.4 16 Chile 7.6 106 Burundi 4.8 4 New Zealand 8.3 29 France 7.3 107 Congo, Rep. Of 4.8 5 United States 8.2 40 South Korea 6.9 108 Zimbabwe 4.6 6 United 8.2 50 Indonesia 6.7 109 Venezuela 4.6 Kingdom 7 Canada 8.2 56 Mexico 6.6 110 Congo, Dem. 4.5 R. 8 Australia 8.0 76 Argentina 6.0 111 Algeria 4.5 9 Ireland 8.0 90 Brazil 5.7 112 Guinea-Bissau 4.4 Netherlands 7.8 94 China 5.6 113 Myanmar 4.0 O Source: James Gwartney, Robert Lawson, and Joshua Hall. Economic Freedom of the World, 2015 Annual Report. Vancouver: Fraser Institute, 2015.Exhibit 4 Economic Freedom and Income The 2013 income per person of countries ordered by economic freedom rating is shown here by quartiles. Note the strong positive linkage. The income per person in countries in the freest quartile was nearly six times the figure for the least free group. $45,000 $38,601 $40,000 $35,000 $30,000 $25,000 2013 GDP per capita, PPP $20,000 $18,414 $15,000 $10,737 $10,000 $6,986 $5,000 $0 Least free 3rd quartile 2nd quartile Most free quartile quartile Economic freedom quartile Source: James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World, 2015 Annual Report (Vancouver, British Columbia: Fraser Institute, 2015).Exhibit 5 Economic Freedom and Growth The relation between the economic freedom of a country and its growth rate during 1990- 2013 is shown here. Countries in the most economically free quartile grew at an annual rate of 3.3 percent compared to 1.2 percent growth for the least free quartile. 4.0 3.5 3.3 3 2.8 2.8 2.5 GDP per capita growth (annual %), 1990-2010 1.5 1.2 0.5 0 Least free 3rd quartile 2nd quartile Most free quartile quartile Economic freedom quartile Note: The data for growth were adjusted to control for the initial level of income. Source: James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World, 2015 Annual Report (Vancouver, British Columbia: Fraser Institute, 2015).Exhibit 6 Economic Freedom and the Level and Productivity of Private Investment Here, data are presented for both the level and productivity of private investment for countries with an average EFW rating during 1980-2005 of greater than 7.0, between 5.0 and 7.0, and less than 5.0. As frame (a) shows, private investment as a share of GDP was substantially higher in the more free countries. Frame (b) presents data on the impact of a percentage point increase in investment as a share of GDP on the annual rate of economic growth during 1980- 2005. Note the productivity of investment in the freest economies was more than three times the level for the least free countries. These figures are after adjustment for the impact of initial income level, changes in human capital, tropical location, share of the population residing near an ocean coastline, and government investment as a share of GDP. 20 18.7 15.6 15 11.2 Private investment as a share of GDP, 1980-2005 10 :5.0 5.0 to 7.0 >7.0 (a) Economic freedom rating 0.3 0.25 0.2 0.16 Change in growth rate per percentage point change in investment, 1980-2005 0.1 0.07
