The Macro Economy Today 14th Edition Bradley Schiller

464 INTERNATIONAL ECONOMICS
nations. Rich nations can focus on research, technology, and the spread of “brain power.”
Poor nations need the basics—the “bricks and mortar” elements of an economy such as
water systems, roads, schools, and legal systems. Bill Gates learned this firsthand in his
early philanthropic efforts. In 1996 Microsoft donated a computer for a community center
in Soweto, one of the poorest areas in South Africa. When he visited the center in 1997 he
discovered the center had no electricity. He quickly realized that growth policy priorities
for poor nations are different from those for rich nations.
Growth Potential
The potential of economic growth to reduce poverty in poor nations is impressive. The
40 nations classified as “low-income” by the World Bank have a combined output of only
$600 billion. That’s about twice the annual sales revenue of Walmart. “Lower-middleincome”
nations like China, Brazil, Egypt, and Sri Lanka produce another $5 trillion or so
of annual output. Hence every percentage point of economic growth increases total income
in these combined nations by nearly $60 billion. According to the World Bank, if these nations
could grow their economies by just 3.8 percent a year, that would generate an extra
$230 billion of output in the first year and increasing thereafter. That “growth dividend” is
twice the amount of foreign aid (Table 21.2).
China has demonstrated just how effective economic growth can be in reducing poverty.
Since 1990 China has been the world’s fastest-growing economy, with annual GDP growth
rates routinely in the 8–10 percent range. This sensational growth has not only raised average
incomes but has also dramatically reduced the incidence of poverty. In fact, the observed
success in reducing global poverty from 30 percent in 1990 to 21 percent in 2014
is almost entirely due to the decline in Chinese poverty. By contrast, slow economic growth
in Africa, Latin America, and South Asia has increased their respective poverty populations.
Reducing Population Growth
China not only has enjoyed exceptionally fast GDP growth but also has benefited from
relatively slow population growth (now around 0.8 percent a year). This has allowed aggregate
GDP growth to lift average incomes more quickly. In other poor nations, population
growth is much faster, making poverty reduction more difficult. As Table 21.3 shows,
Average Annual Growth Rate (2000–2009) of
GDP Population Per Capita GDP
TABLE 21.3
Growth Rates in Selected
Countries, 2000–2009
The relationship between GDP
growth and population growth is
very different in rich and poor
countries. The populations of rich
countries are growing very slowly,
and gains in per capita GDP are
easily achieved. In the poorest
countries, population is still
increasing rapidly, making it
difficult to raise living standards.
Notice how per capita incomes are
declining in many poor countries
(such as Zimbabwe and Haiti).
High-income countries
Canada 2.1 1.0 1.1
France 1.5 0.5 1.0
United States 2.0 1.1 0.9
Japan 1.1 0.2 0.9
Low-income countries
China 10.9 0.8 10.1
India 7.9 1.6 6.3
Ethiopia 7.5 2.8 4.7
Nigeria 6.6 2.4 4.2
Venezuela 4.9 1.7 3.2
Madagascar 3.6 2.9 0.7
Burundi 2.7 2.0 0.7
Haiti 0.7 1.8 21.1
West Bank/Gaza 20.9 3.8 24.7
Zimbabwe 27.5 0.9 28.4
Source: The World Bank, WDR2011 Data Set, data.worldbank.org.