A comparison between the USA and Chinese economies: Why is one growing and one receding

1
A comparison between the USA and Chinese
economies Why is one growing and one receding
2

• Why countries have different standards of living?
• Why some countries grow faster than others?

3
A Typical Family in Mali
4
A Typical Family in Mexico
5
Observation

• Different countries have different standards of
  living
• What causes the difference?

6
Ability to Produce

• Productivity causes the differences in standard
  of living over time and across countries
• Why productivity is important
• If live in a isolated island
• Productivity Goods and services produced from
  each unit of input

7
Labor
Technology
Capital
Output
8

• Economists use GDP to measure a countrys
  productivity of goods and services

9

• GDP
• The total income and total expenditure of
  everyone in the economy
• The higher the GDP, the higher the standard of
  living

10
Growth

• Material standards of living have improved
  substantially over time
• A nations GDP is growing
• Economic growth

11
The Variety of Growth Experience
12
Growth Rate for China and USA
China
USA
13

• Why national income grows
• Why one country grows faster than the other

14
1. Saving and Investment

• Capital is a key determinant of the economys
  output
• Where the capital comes from?
• Saving from consumption
• Capital accumulation is investment
• Consequence capital accumulation leads to
  economic growth

15

• The personal saving rates

16
Why High Saving in China

• The savings rate in China
• Almost 20 of GDP in 1981 30 of GDP in 1988
  Above 40 of GDP in 1990s
• Without a well-developed social safety net
• Social benefits for losing jobs
• Medicare and health insurance for elders
• Difference in financial system

17
Why Low Saving in US

• The saving rate in US

• Wealth effect increase the real value of assets
• Higher productivity higher labor income

18
2. Catch-up Effect

• Capital is subject to diminishing returns
• The extra output produced from an additional unit
  of capital falls

19

• The Catch-up Effect
• The countries that start off poor (China) tend to
  grow more rapidly than countries start off rich
  (USA)
• With a small initial capital stock, the benefits
  to capital accumulation are much greater

20
3. Investment From Abroad

• Foreign direct investment (FDI)
• Capital investment owned and operated by a
  foreign entity
• Ford Motor Company builds a car factory in China
• Provide the capital accumulation in China
• Increase the technological knowledge

21

• FDI in China

22

• FDI comes to China
• Increase the access to capital market
• Low manufacturing costs
• An increasingly wealthy consumer market
• Most unique part of FDI in China
• Earlier emigration from China still have links to
  the motherland

23
What Weve Learned

• Standard of living varies substantially around
  the world
• Productivity is an important reason
• How can government policy do to raise
  productivity and living standard

24
Other Factors Raise Living Standards

• Education human resources
• Property rights and political stability how
  price system works
• Free trade integrate with the rest of the world
  and gains from trade
• Population growth size of the labor force