Chapter 25 — Exercises

Section A — The Rule of 70

A1. If GDP per capita grows at 3% per year, how long until it doubles?

A2. China's GDP per capita grew at about 8% per year from 1980 to 2020. How many doublings is that in 40 years?

A3. The U.S. grows at 2% per year; India at 6%. If U.S. GDP per capita is $85,000 and India's is $2,500, how many years until India's GDP per capita reaches the U.S.'s current level? (Assume both rates persist.)

A4. Argentina's GDP per capita was comparable to France's in 1900. If Argentina grew at 1% and France at 2% per year since 1900, what's the ratio of French to Argentine GDP per capita after 120 years?

Section B — Sources of growth

B1. Rank the four sources of growth (physical capital, human capital, natural resources, technology) by their importance for long-run sustained growth. Justify your ranking.

B2. "Just building more factories will make a country rich." Apply diminishing returns to capital to evaluate this claim.

B3. Japan has almost no natural resources. South Korea has almost no natural resources. Both are rich. Nigeria and Venezuela have enormous natural resources. Both have struggled. What does this tell you about the role of natural resources in growth?

B4. What is TFP, and why is it the only source of sustained long-run growth in the Solow model?

Section C — Institutions

C1. Compare North Korea and South Korea. Both started at roughly the same level of development in 1945. What explains the 20:1 GDP per capita gap today?

C2. Define "inclusive" and "extractive" institutions (Acemoglu-Robinson). Give one example of each.

C3. "The colonial history of a country determines its economic prospects today." Evaluate using the Acemoglu-Johnson-Robinson settler-mortality evidence. Is the past truly destiny?

C4. Botswana and the DRC are both in sub-Saharan Africa, both have valuable natural resources. Botswana grew rapidly; the DRC did not. Apply the institutional framework.

Section D — Case studies

D1. The East Asian miracle (Korea, Taiwan, Singapore, Hong Kong): identify three specific policies or institutions that drove their growth.

D2. Argentina in 1900 was one of the richest countries in the world. It declined over the 20th century. List three institutional or policy failures that explain the decline.

D3. Haiti is the poorest country in the Western Hemisphere. Apply the institutional framework to explain why. What would it take for Haiti to grow?

D4. Apply the growth framework to a country of your choice. What are its sources of growth? What are its constraints?

Section E — Convergence

E1. "Poor countries should grow faster than rich ones because they can adopt existing technology rather than inventing it." What is this argument called? Does the evidence support it?

E2. China has been converging toward rich-country income levels since 1980. India has been converging more slowly. Why the difference?

E3. Many sub-Saharan African countries have NOT converged. What conditions are missing?

Section F — Growth and the environment

F1. "Infinite growth on a finite planet is impossible." Evaluate. What kind of growth might be sustainable?

F2. If a country's GDP grows 3% per year but environmental damage grows 2%, is the country actually getting richer? How would GPI (Chapter 22) measure this?

Section G — Data lookup

G1. Look up real GDP per capita for the U.S. since 1947 on FRED (A939RX0Q048SBEA). What has been the average annual growth rate? Has it been steady or variable?

G2. Compare GDP per capita trajectories for South Korea and Argentina since 1960 on the World Bank's data portal. When did Korea overtake Argentina?

G3. Look up the Rule of Law index (World Bank Governance Indicators) for five countries of your choice. Is there a correlation with GDP per capita?

Section H — Reflection

  • Which of the four sources of growth do you think matters most for the U.S. going forward?
  • After reading about institutions, do you think the U.S. has inclusive or extractive institutions? Is the answer changing?
  • The chapter asks: "Is infinite growth possible on a finite planet?" What is your answer?

Selected answers in appendices/answers-to-selected.md.