Comparing the Economic Growth of Australia, China and the United States

Only available on StudyMode
  • Download(s) : 173
  • Published : January 27, 2013
Open Document
Text Preview
Comparing the economic growth of
Australia, China and the United States

Christopher Hadges
May 2012

ECON 2012
Growth, Development and the Macroeconomy

ID: 110060029

Contents
Page 3: Introduction
Page 4: Theory/Model
Empirical Findings
Page 5: TFP and the Production Model
Page 8: Population and the Romer Model’s growth rate of knowledge
Page 11: Migration and economic growth
Page 13: Trilateral Trade between Australia, China and the United States Page 14: Conclusions
Page 15: References

Introduction

This research paper is an empirical investigation comparing the economic growth of Australia, China and the United States. It covers four topics which include the production model, the Romer model’s growth rate of knowledge as it relates to population, migration and trilateral trade. The paper attempts to explain why growth rates differ between the three countries being studied and how Australian policy makers can stimulate future economic growth.

By using the production model and the empirical evidence we can see that TFP is an important part of long run economic growth. But factors such as population and net migration also influence a nation’s economy by altering per capita output, either positively or negatively. Skilled migrants increase a country’s human capital but often their accompanying families end up being inactive which mitigates the initial positive effects. Finally the paper discusses the dependency of Australia on the United States and China due to the strong trilateral trade links between the three nations.

All data has been sourced from The World Bank online data catalogue unless otherwise indicated and all graphs have been generated from the raw data in Microsoft Excel.

Theory/Model

TFP and the Production Model: Y*=AK1/3L1/3
Firms employ all the capital and labor in the economy, so that total production in the economy is given by the production function evaluated at K and L. A is the TFP (Total Factor Productivity) which is an efficiency parameter measuring how productive countries are at using their factor inputs, K and L. Population and the Romer Model’s growth rate of knowledge: g=zlL Increasing the population means there are more researchers producing more ideas which leads to faster growth (Jones 2011, p. 147).

Migration Theory
Tertiary educated immigrants positively affect per capita GDP but not enough to clear the negative effect of immigration (Orefice 2010)

Trilateral Trade between Australia, China and the United States Australia’s number one trading partner is China and the number one trading partner of China is the United States. This suggests that in terms of output in relation to net exports Australia is somewhat reliant on the growth of the US via the growth of China.

Empirical Findings
TFP and the Production Model: Y*=AK1/3L1/3
Figure 1
Total Factor Productivity Growth
Total Factor Productivity Growth

Data Source: The Conference Board Total Economy Database™, January 2012 Figure 2
Time in years
Time in years

In the production model firms employ all the capital and labor in the economy, so that total production in the economy is given by the production function evaluated above at K and L. A is the TFP (Total Factor Productivity) which is an efficiency parameter measuring how productive countries are at using their factor inputs, K and L. Total Factor Productivity (TFP) growth accounts for the changes in output not caused by changes in labor and capital inputs. It is calculated as the percentage increase in output that is not accounted for by changes in the volume of inputs of capital and labour. TFP growth represents the effect of technological change, efficiency improvements, and our inability to measure the contribution of all other inputs. Figure 3

From the evidence gathered, a major factor in China’s annual GDP growth since 1990 has been due to strong TFP growth as seen in Figure 1. Figure 2 then shows China’s GDP growth...
tracking img