Output Gap

And finance Allah Shmoop What are the determinants of economic

growth Shmoop let's talk money And specifically let's talk The

reason some countries have a lot of money and some

countries have well less This is pretty much the oldest

question in economics Aside from the one about you know

why the Kinsey in cross the road anyway this guy

this guy's Adam Smith He's the godfather of economics He'll

make you an offer You can put on a supply

and demand curves Well his first best selling book was

as you probably know everybody poops Yeah you confined it

today in your local book suppository But here we're talking

about macro economics Yeah his second big hit It was

published in seventeen seventy six and was called the Wealth

of Nations Sort of a tale of two cities only

with countries The book covers question of Well why some

countries that had a lot of money and others had

last and well here we are almost two hundred fifty

years later on everything's been solved and people are all

happy around the world and every economic issue of inequality

and someone is clear now right Yeah I know Pretty

much the absolute opposite So what are the determinants of

economic growth Or set another way What makes some countries

wealthy and what makes some poor eye what determines economic

success You know what A countrywide level Okay let's think

about how economic growth is measured Well the main measure

of economic growth in most of the world is GDP

I eat gross domestic product which is what you used

to clean up that crowd that started growing on the

floor of your bathtub last week Yeah your little brother

Trevor claims he had nothing to do with actually GDP

As a measure of an economies output it represents the

sum total of all the stuff people make and all

the services they provide Well there's nothing economist love more

than when GDP well grows you know like a kid

from the eighties taking care of their Chia pet Well

the same is true with GDP Constant growth is seen

as a sign that an economy is Elfi Think of

it like a tree If there's enough rain and sunlight

even giant sequoias are going to get a little bigger

each year until they're chopped down and used to make

packaging material Another thing to keep in mind Economies come

in different sizes The U S Economy is like that

giant sequoia you know pre chain sawing annual GDP Around

eighteen trillion dollars Biggest economy in the world Other countries

economies are smaller Some of them are much smaller This

thing here Yeah this country It's Lichtenstein It's a tiny

country In Europe the GDP of Liechtenstein is six point

seven billion dollars If the U S is a sequoia

Well Lichtenstein is Ah bonzai tree while Lichtenstein's GDP is

basically the change found in the couch cushions of the

U S But remember we're talking about GDP growth here

not just the overall aggregate number that comprises GDP For

instance Lichtenstein had a good run of GDP growth back

in the nineties and Lichtenstein has also had a pretty

good run lately Like Ramon I know fourteen GDP The

country grew four point five billion dollars to that six

point seven billion dollars figure there That's an annual average

growth of eight point one percent over that six year

span Pretty good Well Lichtenstein's GDP is driven by resort

skiing and the production of helmets and the production of

Well Lichtenstein Ian's Yeah of which they're the number one

producer in the world So how does this all happen

What makes GDP grow Whether an economy is bigger small

Well Lichtenstein for instance benefits from its strong banking and

financial sector It's no surprise that it saw big growth

in the go go nineties Lots of sudden dot com

millionaires looking for offshore places Teo you know store their

cash and avoid taxes presumably And then there's Saudi Arabia

Well for generations this was just a sandy homeland for

wondering nomadic tribes Not much growth Then oil was discovered

And while suddenly one of the biggest economic growth spots

on the glove right there well how about China Well

during the early communist days the country was isolated and

pour It had trouble feeding everybody much less leading the

world in economic exuberance Well then the country opened itself

up to trade made itself the world's leading manufacturer Of

all the trinkets and commemorative plates that we all order

every night from Amazon it has become the growth story

of the last thirty years So what do these examples

have in common Well that question brings us to the

determinants of economic growth Like we said economists have been

thinking about this stuff for a long time Exactly how

many determinants you list depends on how specific you want

to be Some economists get more specific than others but

the list breaks down into some general categories here for

major ones that contribute to GDP growth Access to natural

resource is right access to labor intellectual capital in a

stable society right Well first on our list a country

that control's important or scarce resource is that everybody wants

everybody cares about Well if Khun generate a lot of

growth by mining that resource recall Saudi Arabia same goes

for you a United Arab Emirates and a bunch of

other Middle Eastern countries In the second half of the

twentieth century they discovered oil and well They stopped riding

camels and started driving Lam Bo's a natural resource had

become a determinant of their economic growth Up next on

the list access to labor countries with a lot of

people can provide an important economic contributor right Lots of

cheap man hours Well sometimes this is just labor in

general Like with China When it opened itself up for

trade and put its billion plus people to work while

it basically became the unskilled labour capital of the world

Everyone's factory floor labor force which has driven growth in

the country for decades and made it a superpower well

Countries with big populations tend to have an edge in

this area but just having a lot of people are

a lot of valuable resource is doesn't always lead to

economic growth There are other elements involved that matters what

kind of labor you have So what kind of labor

Well let's think Intellectual capital Someone who can engineer a

self driving car has a lot more value than a

worker who can you know drive a car as another

example Well let's look at South Korea The country famously

has one of the world's most elaborate cellphone networks No

trouble getting a superfast data coverage there Even though it's

a relatively small country both in terms of population Natural

resource is it's able to grow its economy by staying

on The technological cutting edge aren't also helpful Yeah a

strong education system It can be true within countries as

well that you have this this cultural edge Look at

Silicon Valley High tech companies thrive here because well they

can draw from the PhDs that air cranked out from

Stanford and UC Berkeley And you know they're right around

the corner Or country might have a strong court system

that can enforce patents and intellectual property if it chooses

Teoh right If you came up with a new baldness

cure would you go found a company in the U

K Where they can enforce your patents Or would you

go to Somalia or India and you know talk to

the bald headed pirates there Yeah another example A stable

banking system that attracts capital Remember our buddies and Lichtenstein

while those banks bringing in global wealth or you just

walk around the southern tip of Manhattan for a while

When you think about sustainable economic growth you're thinking places

like the US UK China etcetera like the UK is

government goes back almost a thousand years no civil wars

of no roving bands of paramilitary groups and no warlords

And there's actually a thing called the Fragile States Index

put out by a think tank called Fund for Peace

Top of list South Sudan then Somalia then Yemen and

then Syria Alright well not coincidentally South Sudan's GDP dropped

six point three percent Two thousand seventeen Yemen saw two

percent contraction Syria Well it's hard to get the figures

for Syria because it's in the middle of an active

civil war and then you have Somalia which is actually

the best of the bunch Its GDP expanded two point

four percent in two thousand seventeen taking advantage of its

intellectual capital in piracy to drive growth Now stable society

doesn't necessarily mean a free society It might be nice

to get free speech and free assembly like you have

in the U S or the U K But just

for economic growth while the key component is stability or

trust places like China where the communist government keeps a

lid on political dissent and on Google which it has

to censor its search results Or you have Singapore where

chewing gum is illegal and you can literally get caned

for breaking law Well the's air still traditionally high growth

places The growth comes despite there being famously repressive government

Well so country like Nigeria which has the seventh highest

population in the world and abundant natural resource is including

membership in OPEC Well they can't sustain any economic growth

Why will the country continues to see cycles of revolution

and unrest from unfair wealth allocation by the corrupt government

there it can't sustain a stable society which doesn't allow

it to build sustained intellectual capital It can't take advantage

of its access to labor or access to natural resource

is to drive sustained economic growth so well it's prospects

are pretty dim But if you bring all the determinants

of growth together big population lots of resource is stable

society Strong intellectual capital Well you've got something like well

say the U S In the nineteenth century where we

went from Well a nearly forgettable former colony to being

the largest economy in the world producing one of the

all time great GDP growth spurts in World history Way

did it only after we got rid of the pirates 00:09:02.644 --> [endTime] So hey Somalia You paying attention No