When we talk about growth, we typically focus on growth rates, and so if we were to look at which countries had the greatest percentage increase in GDP per capita over the last decade (at constant international prices according to the World Development Indicators), we would get a table like this:
Of course in all these exercises where you choose the start and end year can matter a lot – 2010 being a particularly bad time to end these comparisons for many countries with the global crisis (see a 2002-2012 list with IMF data and forecasts here). Nonetheless, we see that amongst the oil- and energy-led growth of some countries the impressive growth rates of countries like Myanmar, China, India and Ethiopia, while developed countries like Germany and the U.S. look like they are getting left behind.
However, Berk’s post on Mark Rosenzweig’s review of Poor Economics, in which Mark makes the point that large percentage changes on a small base can mask pretty small absolute changes inspired me to look at which countries have seen the greatest absolute growth (as measured by the change in levels of GDP per capita) over the past decade. This list looks quite a lot different:
Looking at percentage growth rates are relevant when we are thinking of “exits” from poverty, since small absolute changes may be enough to get people from below the magical $1.25 line to just above it. But they are still poor by global standards. Diminishing marginal utility of income is presumably also a reason to think the same level increase matters less if you start at a higher point. But for a number of questions (e.g. thinking about which countries are producing more stuff for their people and moving the global production frontier, which countries a potential migrant might want to go to, which countries are going to have most potential to buy exports and supply tourists, etc.) looking at levels is perhaps more appropriate than growth rates.
For these questions, the impressive growth rates of some of the countries that we typically think of as growth stars look much less impressive when we consider the results in levels. Ethiopia’s 123% growth over the 2000s only added $574 to per-capita GDP, which would rank it 154th in the world. India’s much vaunted growth only increased per capita income by less than 1/5 of the increase in the U.S. and Germany, and even China only achieved half the U.S. and German gains.
Moreover, a fixation with growth rates perhaps causes us to underappreciate the truly impressive growth of more developed countries. When countries have pursued bad policies for years, and then start doing things a little bit less bad or even a little bit right, it should be no surprise that we see growth from income levels well below what should be steady-state. But generating large level increases in growth in countries which are much closer to the world production frontier is much more impressive – and so perhaps, if we want to learn the secrets of sustained and large growth, we should be paying more attention to the Singapores and Hong Kongs of today than to their experiences 30 or 40 years ago or to what’s going on in poor countries that are growing fast on a low base.
Oh, and if you really want to know the secret of level growth, it is opening up lots of casinos next to China!
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