2/14/12

Real GDP per capita - the danger of fast growth

Having presented real GDP per capita in Germany, we continue with three more developed countries: Ireland, Greece and Norway. They are different from the economies earlier presented. Figure 1 depict the available historical estimated made by Angus Madison and Groningen University, and also the most recent update of the Total Economy Database maintained by the Conference Board.

As for other developed countries, we expected that real GDP per capita, G, follows a linear trend in the long run:
G(t) = At + C (1)

Ireland has a relatively short historical time series started in 1921. The period after 1945 is better to approximate by two linear segments with a kink near1990 and a sharp fall in 2007. We have presented the case of Ireland in this blog and actually has predicted this deep fall many years ago – the real GDP curve must return to the long term linear trend. Interestingly, the TEDI and historical curve deviate from 2000 signalling some problems with the GDP estimation procedures – both time series are given in 1990 Geary-Khamis dollars. We expect the TEDI curve to fall even deeper but the annual increment of $359 dollars, i.e. the slope of the linear trend, is quite good for developed countries. In any case the countries experienced fast growth due to sharp peaks in age pyramids always suffer longer period of very slow growth. Japan just leads Ireland by 20 years in the peak age.

Greece is currently below its long term trend and likely to start growing at an elevated rate to return to the trend. We wrote about this possibility in May 2011. Hence, Greece needs a few years to recover to the trend.

Norway is the fastest economy in terms of real GDP per capita - $398 per year. And it follows the long term linear trend since 1945. It is slightly above the trend and therefore the economy can move any direction, i.e. to grow fast of to fall slightly.



Figure 1. The evolution of real GDP per capita in Ireland, Greece, and Norway

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