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And finance Allah Shmoop What are the determinants of economic

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

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reason some countries have a lot of money and some

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countries have well less This is pretty much the oldest

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question in economics Aside from the one about you know

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why the Kinsey in cross the road anyway this guy

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

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make you an offer You can put on a supply

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and demand curves Well his first best selling book was

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as you probably know everybody poops Yeah you confined it

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

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about macro economics Yeah his second big hit It was

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published in seventeen seventy six and was called the Wealth

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of Nations Sort of a tale of two cities only

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with countries The book covers question of Well why some

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countries that had a lot of money and others had

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last and well here we are almost two hundred fifty

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

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happy around the world and every economic issue of inequality

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and someone is clear now right Yeah I know Pretty

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much the absolute opposite So what are the determinants of

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economic growth Or set another way What makes some countries

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wealthy and what makes some poor eye what determines economic

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

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about how economic growth is measured Well the main measure

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of economic growth in most of the world is GDP

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I eat gross domestic product which is what you used

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to clean up that crowd that started growing on the

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floor of your bathtub last week Yeah your little brother

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Trevor claims he had nothing to do with actually GDP

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As a measure of an economies output it represents the

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sum total of all the stuff people make and all

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

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than when GDP well grows you know like a kid

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from the eighties taking care of their Chia pet Well

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the same is true with GDP Constant growth is seen

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as a sign that an economy is Elfi Think of

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

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even giant sequoias are going to get a little bigger

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

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packaging material Another thing to keep in mind Economies come

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in different sizes The U S Economy is like that

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giant sequoia you know pre chain sawing annual GDP Around

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eighteen trillion dollars Biggest economy in the world Other countries

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economies are smaller Some of them are much smaller This

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

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country In Europe the GDP of Liechtenstein is six point

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seven billion dollars If the U S is a sequoia

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

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basically the change found in the couch cushions of the

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

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not just the overall aggregate number that comprises GDP For

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instance Lichtenstein had a good run of GDP growth back

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in the nineties and Lichtenstein has also had a pretty

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good run lately Like Ramon I know fourteen GDP The

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country grew four point five billion dollars to that six

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

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growth of eight point one percent over that six year

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

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skiing and the production of helmets and the production of

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

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producer in the world So how does this all happen

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What makes GDP grow Whether an economy is bigger small

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Well Lichtenstein for instance benefits from its strong banking and

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

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in the go go nineties Lots of sudden dot com

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millionaires looking for offshore places Teo you know store their

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

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Well for generations this was just a sandy homeland for

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wondering nomadic tribes Not much growth Then oil was discovered

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And while suddenly one of the biggest economic growth spots

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on the glove right there well how about China Well

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during the early communist days the country was isolated and

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pour It had trouble feeding everybody much less leading the

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world in economic exuberance Well then the country opened itself

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

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all the trinkets and commemorative plates that we all order

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every night from Amazon it has become the growth story

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of the last thirty years So what do these examples

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have in common Well that question brings us to the

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determinants of economic growth Like we said economists have been

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thinking about this stuff for a long time Exactly how

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many determinants you list depends on how specific you want

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to be Some economists get more specific than others but

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the list breaks down into some general categories here for

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major ones that contribute to GDP growth Access to natural

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resource is right access to labor intellectual capital in a

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stable society right Well first on our list a country

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

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everybody cares about Well if Khun generate a lot of

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growth by mining that resource recall Saudi Arabia same goes

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for you a United Arab Emirates and a bunch of

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other Middle Eastern countries In the second half of the

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twentieth century they discovered oil and well They stopped riding

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

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become a determinant of their economic growth Up next on

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the list access to labor countries with a lot of

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people can provide an important economic contributor right Lots of

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cheap man hours Well sometimes this is just labor in

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general Like with China When it opened itself up for

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trade and put its billion plus people to work while

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it basically became the unskilled labour capital of the world

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

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the country for decades and made it a superpower well

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Countries with big populations tend to have an edge in

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this area but just having a lot of people are

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

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economic growth There are other elements involved that matters what

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kind of labor you have So what kind of labor

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

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self driving car has a lot more value than a

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worker who can you know drive a car as another

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

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

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

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a relatively small country both in terms of population Natural

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

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

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strong education system It can be true within countries as

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well that you have this this cultural edge Look at

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Silicon Valley High tech companies thrive here because well they

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can draw from the PhDs that air cranked out from

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

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the corner Or country might have a strong court system

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that can enforce patents and intellectual property if it chooses

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Teoh right If you came up with a new baldness

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cure would you go found a company in the U

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K Where they can enforce your patents Or would you

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go to Somalia or India and you know talk to

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the bald headed pirates there Yeah another example A stable

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banking system that attracts capital Remember our buddies and Lichtenstein

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while those banks bringing in global wealth or you just

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walk around the southern tip of Manhattan for a while

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

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like the US UK China etcetera like the UK is

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government goes back almost a thousand years no civil wars

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of no roving bands of paramilitary groups and no warlords

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

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put out by a think tank called Fund for Peace

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Top of list South Sudan then Somalia then Yemen and

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

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six point three percent Two thousand seventeen Yemen saw two

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

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

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civil war and then you have Somalia which is actually

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the best of the bunch Its GDP expanded two point

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four percent in two thousand seventeen taking advantage of its

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intellectual capital in piracy to drive growth Now stable society

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

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to get free speech and free assembly like you have

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in the U S or the U K But just

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for economic growth while the key component is stability or

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trust places like China where the communist government keeps a

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lid on political dissent and on Google which it has

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to censor its search results Or you have Singapore where

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chewing gum is illegal and you can literally get caned

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

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places The growth comes despite there being famously repressive government

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Well so country like Nigeria which has the seventh highest

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population in the world and abundant natural resource is including

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

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Why will the country continues to see cycles of revolution

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and unrest from unfair wealth allocation by the corrupt government

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

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

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of its access to labor or access to natural resource

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

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are pretty dim But if you bring all the determinants

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of growth together big population lots of resource is stable

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

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say the U S In the nineteenth century where we

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went from Well a nearly forgettable former colony to being

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the largest economy in the world producing one of the

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all time great GDP growth spurts in World history Way

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

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