Economic Growth over the Long Run

Economic Growth over the Long Run.

From the long-term perspective of social history, we know that economic prosperity and lasting economic growth is a very recent achievement for humanity. In this section we will look at this more recent time and will also study the inequality between different regions – both in respect to the unequal levels of prosperity today and the unequal economic starting points for leaving the poverty of the pre-growth past.

Economic prosperity is measured as via growth domestic product (GDP) per capita, the the value of all goods and services produced by a country in one year divided by the country's population. Economic growth is the measure of the change of GDP from one year to the next. This entry shows that the current experience of economic growth is an absolute exception in the very long-run perspective of social history.

# Empirical View

# GDP per Capita Growth around the World Since the Year 1 CE

There are many reconstructions of GDP per capita over the last centuries; here I will focus on the reconstructions by the British economist Angus Maddison who was working in Groningen (Netherlands) and where, after his death in 2010, younger colleagues are advancing his work in the 'Maddison Project'.¹

The following graph shows Maddison's reconstructions for eight major world regions.

# Real GDP (absolute levels) by major world region in million 1990 International GK-$, 1-2008 CE²

Click on 'Expanded' to see the share of the world GDP produced by each world region over time.

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Maddison's data confirms what he have learned from the very long-run perspective before: before the onset of modern economic growth, every region in the world was extremely poor. But there are also important insights gained from Maddison's data: The starting points of economic growth are very different from region to region. Until the year 1000, everyone was equally poor but we learn that as early as the year 1500 Western Europe had achieved some very limited economic prosperity; until the early 19th century the region could slowly increase the economic wealth. But the wealth enjoyed at the time is still incomparably low with the level that Europe enjoys now at the beginning of the 21st century. Starting from 772 Int. $ in 1500, it doubled until 1820 but since has increased more than 12-fold!³

In 1700 the 'Western Offshoots' of Australia, New Zealand, Canada, and the US were as poor as any region except Western Europe. But although they had a later start leaving poverty behind, they caught up quickly with Western Europe and surpassed it by 1900.

It is often the case that progress creates inequality between regions because it is not happening equally as fast everywhere, but if we compare the economic prosperity of every region in 2003 with any earlier time we see that every single region is richer than ever before in its history. Though some regions are more productive than others, every region is doing better than ever before – much better.

After looking back on more than a million years of world poverty the question arises: why did economic growth not happen before? Why were our ancestors kept in poverty for millennia after millennia? To answer this question it is helpful to look at just a single country.