Chapter 16, Problem 1.3P

To determine

Annual growth rate in real GDP per capita 1980 to 2016.

Explanation of Solution

The annual growth rate in real GDP per capita can be calculated as follows:

${\text{Real GDP per capita}}_{\text{Annual growth rate}}=\frac{\left(\frac{\begin{array}{l}{\text{Real GDP per capita}}_{\text{New}}\\ -{\text{Real GDP per capita}}_{\text{Old}}\end{array}}{{\text{Real GDP per capita}}_{\text{Old}}}\right)}{\text{Number of years}}$        (1)

Substitute the respective values in Equation (1) to calculate the annual grow rate of real GDP per capita in the U.S.

$\begin{array}{c}{\text{Real GDP per capita}}_{\text{Annual growth rate}}=\frac{\left(\frac{52,152-28,734}{28,734}\right)}{36}\\ =\frac{\frac{23,418}{28,734}}{36}\\ =0.22\end{array}$

Real GDP per capita annual growth rate is 0.22%.

Table 1 shows the real GDP per capita annual growth rate for different countries, which is obtained using equation (1).

Table -1

Country	Real GDP per capita 1974	Real GDP per capita 1974	Annual growth rate
U.S	28,734	52,152	0.22%
E.S	2,577	3,919	0.14%
RSA	6,560	7,727	0.49%
CA	234	1,065	0.98%
RU	8,282	11,436	0.10%

Table-1 shows that the annual growth in real GDP per capita is higher in Cambodia from 1980 to 2016, and the lowest real GDP per capita is in El Salvador. United States holds the third position.

Convergence theory states that the growth rates of countries that are less developed will exceed the growth rate of developed countries if the less developed countries are allowing to catch-up the growth. Therefore, this theory is also called as the catch-up theory. In Table-1, the highest growth rate is achieved by the country Cambodia (CA), 0.98% which is greater than the growth rate of the United States (US), where the convergence theory is consistent. But in the case of other countries, such as El Salvador (ES), Republic of South Africa (RSA), and Russia (RU), they are not consistent with convergence theory. Because the growth rates of these countries did not significantly exceed the growth rates of United States. Therefore, in short, the majority of data in Table-1 is not consistent with the convergence theory.

Economics Concept Introduction

Convergence theory:  This theory states that the growth rate of less developed nations will exceed the growth rate of highly developed nations if they allow the less developed nations to catch up.