Time keeps ticking

"Refuse to give up, your mistakes don't define you

They don't dictate where you're heading, they remind you

That time keeps ticking"

I think T.I. was talking more about personal growth than GDP growth, but you will soon see the importance of the last sentence "Time keeps ticking" for GDP.

Take for example two countries such as Sweden and Spain. In 1950 Sweden had a GDP/capita of $11316 and Spain's GDP/capita was $4012. That's a relation of 4012/11316 = 0,35, in other words, Spain's GDP back in 1950 was only 35 % of Sweden's. Now let us look at the GDP in 2009 of both countries. Sweden's GDP is $39488 and Spain's is $34769, that gives us a relation of 34769/39488 = 0,88 = 88%. From being 1/3 the size of Sweden's economy Spain's GDP is now 9/10 of Sweden's.

The interesting thing is what is behind this development. Let us look at the growth of GDP for both countries during this period. Using this equation and solving for g or by using the rate function of an excel spreadsheet this gives you a anual growth of 2,14% for Sweden and 3,73% for Spain between 1950 and 2009. Comparing the two economies' GDP in 1950 with 2009 shows that 1,5% more growth makes Spain's economy almost nine times larger in 50 year when 1,5% less growth makes Sweden's economy only about three times larger. That is the power of the time that keeps ticking.

I'm going to take advantage of some work from my Growth Theory class here and first show some very interesting but sad facts and then some equally interesting but a bit more positive facts.

First. Let us look at this graph that shows how world GDP/capita has converged over time the last 50 years.

This graph shows that during the last 50 years the GDP/capita for Western Europe, North America and Oceania has indeed converged, that is the standard deviance between these countries' GDP has become smaller. The graph also shows however that GPD/capita, if we count all countries, has not converged but rather, the standard deviance, which is the measure used here, has become larger with time. This sadly means that measured in GDP/capita the world is a more inequal place today than 60 years ago and that it has  gotten a lot worse in only the last 30 years.

Now the positive facts. If you look closer at the graph you can see that the standard deviance has become smaller in last couple of years, let us hope that is just not something tendency but that it will keep on falling.

If, by using the same formula as above, you compare World GDP/capita growth the between 1950-2009 with growth the last ten years, between 1999-2009, you can see that between 1950-2009 it was 1,59% and that in the last ten years it has been 2,37%. Add to that the fact that most rich countries has had slower average growth the last ten years than they had the last 60 years this must mean that there are other economies growing more than before.

This second graph shows GDP/capita growth of some countries the last ten years and there you can see that fortunately growth is now occuring in other places than the rich part of the world. You can also  see, a bit surprisingly, that some of the VISTA-countries have not had very high growth in the last ten years.

 

Hopefully this will mean that the blue line in the first graph will take a dive towards the red on in the coming decades.

Although. Keep in mind that even if Angola in future can keep the same incredible growth as the last ten years it would still take them more than 20 years to reach the same GDP/capita as Sweden has today!

Source: Groeningen Growth and Development Centre, The Conference Board: Total Economy Database

DJ:ing Economics' VISTA-series

”I know that we have to take it to the goal 'cause everyone's depending on we
See we ain't got nowhere to go but up, it's our destiny”

The financial crisis started in the USA, a country considered to be world’s most developed economy. We got pulled out of the crisis partly by China, a country with a dubious leadership, limited freedom of speech and a weak democracy. China’s economic growth on the other hand barely slowed down and instead it is getting closer to something looking like overheating. The chinese stimulus package was huge, but very efficient and in contrast to the western world where it is questionable how many bridges you really need to build just to keep the economy going, China is still in great need of infrastructure, which means that the stimulus package will give great ROI and a more efficient economy in the future and lead to even more growth.

So, where am I going with this and what does it has to do with the title of the post. Well, in the footsteps of China and the other BRIC-countries (Brazil, Russia and India) several other economies are on the rise, all with great growth potential. These economies are often named the VISTA-countries. VISTA is an acronym for Vietnam, Indonesia, South Africa, Turkey and Argentina. They are economies with all the natural requirements you need to be a rich and developed country, for example an abundance of relatively cheap labor and plenty of natural resources, but where corruption and decades of politic and economic instability has hampered their development. With the situation now getting better, so is their economic growth.

That is why DJ:ing Economics will begin a series with posts about the five VISTA-countries, their possibilities, pros and cons and their macroeconomic and political situation. We are going to follow the order of acronym, which means that the first post will be about Vietnam.

The comparison with the US and China is to show that you should never underestimate nor overestimate any country and to me it is clear that the VISTA-countries so far are underestimated, something we soon may have to reconsider.



So, don’t sleep on these countries.



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The VISTA countries also offers great investments oportunities for those who are interested. If you look at the development of the BRIC-countries in the last years you get an idea of the enormous potential of the VISTA-countries. You can read an interesting article by Claes Hemberg about investing in the VISTA-countries here.