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

This research paper is an empirical probe comparing the economic growing of Australia. China and the United States. It covers four subjects which include the production theoretical account. the Romer model’s growing rate of cognition as it relates to population. migration and trilateral trade. The paper attempts to explicate why growing rates differ between the three states being studied and how Australian policy shapers can excite future economic growing.

By utilizing the production theoretical account and the empirical grounds we can see that TFP is an of import portion of long run economic growing. But factors such as population and net migration besides act upon a nation’s economic system by changing per capita end product. either positively or negatively. Skilled migrators increase a country’s human capital but frequently their attach toing households end up being inactive which mitigates the initial positive effects. Finally the paper discusses the dependence of Australia on the United States and China due to the strong trilateral trade links between the three states.

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

Theory/Model

TFP and the Production Model: Y*=AK1/3L1/3
Firms employ all the capital and labour in the economic system. so that entire production in the economic system is given by the production map evaluated at K and L. A is the TFP ( Entire Factor Productivity ) which is an efficiency parametric quantity mensurating how productive states are at utilizing their factor inputs. K and L. Population and the Romer Model’s growing rate of cognition: g=zlL Increasing the population means there are more research workers bring forthing more thoughts which leads to faster growing ( Jones 2011. p. 147 ) .

Migration Theory
Tertiary educated immigrants positively affect per capita GDP but non plenty to unclutter the negative consequence of in-migration ( Orefice 2010 )

Trilateral Trade between Australia. China and the United States Australia’s figure one trading spouse is China and the figure one trading spouse of China is the United States. This suggests that in footings of end product in relation to net exports Australia is slightly reliant on the growing of the US via the growing of China.

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

Data Beginning: The Conference Board Total Economy Database™ . January 2012 Figure 2
Time in old ages
Time in old ages

In the production theoretical account houses employ all the capital and labour in the economic system. so that entire production in the economic system is given by the production map evaluated above at K and L. A is the TFP ( Entire Factor Productivity ) which is an efficiency parametric quantity mensurating how productive states are at utilizing their factor inputs. K and L. Total Factor Productivity ( TFP ) growing histories for the alterations in end product non caused by alterations in labour and capital inputs. It is calculated as the per centum addition in end product that is non accounted for by alterations in the volume of inputs of capital and labor. TFP growing represents the consequence of technological alteration. efficiency betterments. and our inability to mensurate the part of all other inputs. Figure 3

From the grounds gathered. a major factor in China’s one-year GDP growing since 1990 has been due to strong TFP growing as seen in Figure 1. Figure 2 so shows China’s GDP growing vibrating around the 10 per centum point from around 1990. This growing is besides apparent in Figure 3 which shows a clear addition in the incline of China’s GDP curve from 1990 while Australia and the United States are on a steadier incline. All three states took a hit to GDP growing in the 1970’s due to the oil monetary value dazes and more late the planetary fiscal crisis has stunted growing in the past four to five old ages. Both Australia and China were able to avoid falling into a recession but the United States was non so fortunate ( see Figure 2 ) .

An article in The Economist from November 13th 2009 written by Joshua M Brown titled ‘Secret Sauce’ supports my findings of why China’s GDP growing can be explained by their TFP growing. Brown ( 2009 ) argues that China’s rapid growing is non merely due to heavy investing as is the common claim. but to the fact they have the fastest productiveness additions of any state in the universe. The United States has achieved little but steady TFP growing which translates into a similar smaller one-year GDP growing than that of China. Australia on the other manus has in the past 10 old ages experienced a lag in TFP growing but it has seemed non to hold affected entire GDP growing excessively much. The Australian authorities should be looking at implementing policies to excite TFP growing in the hereafter to retroflex the China’s rapid growing. The two chief methods to accomplish this are through engineering and efficiency. Government passing on research and development to farther enhance engineering every bit good as the acceptance of established foreign engineering could help Australia’s TFP growing. Improvements in instruction would make more efficient workers over clip and aid to better overall productive efficiency.

Population and the Romer Model’s growing rate of cognition: g=zlL Figure 4
Population Growth 1961 -2010
Population Growth 1961 -2010

Jones ( 2011. p. 147 ) experiments with the Romer theoretical account by altering the population. L and so altering the research portion l. Jones provinces that because the research portion cubic decimeter is held changeless. a larger population means there are more research workers. More research workers produce more thoughts. and this leads to faster growing. The equation for end product per individual in the Romer Model Yt=A0 ( 1-l ) ( 1+g ) T besides tells us that an addition in the growing of per capita GDP would happen as g is increasing. China has a theoretical advantage in the Romer theoretical account in that they have the largest population of the three states. a sum of about 1. 3 billion people compared to 22 million and 309 million of Australia and the United States severally. Figure 4 shows the population growing between 1961 and 2010 of Australia. China and the United States. From 1961 to 1992 there was a clear spread between the population growing of Australia and China compared to the lower growing of the United States. From 1992 onwards the US overtook China while Australia experienced a steep addition.

Table 1 shows the per centum addition in population from 1960-2010: Country| Australia| China| United States|
1960| 10. 28 million| 667. 07 million| 180. 67 million|
2010| 22. 3 million| 1. 34 billion| 309. 35 million|
Percentage increase| 116. 99 % | 100. 62 % | 71. 22 % |

Over the clip surveyed Australia had a higher population growing than that of China and the United States. but China experienced much greater long tally per capita GDP growing than of the other two states ( see Figure 5 ) . However. there is still a considerable spread between the entire per capita GDP of China compared to Australia and the United States because of the entire population spread. These per capita GDP figures are a good index that in comparing the Chinese see a lower criterion of life. The One Child Policy which was implemented by the Chinese authorities in 1979 to decelerate down the country’s rapid population growing has prevented about 400 million births since its origin ( English. peopledaily. com. cn 2011 ) . Without the policy. China’s population would be in surplus of 1. 7 billion people. It is interesting to see whether China would be sing such rapid economic growing today had they non enforced the One Child Policy. Per capita GDP and the criterion of life would certainly be much lower than its current criterion and one admirations if today’s growing would be sustainable under a population of 1. 7 billion. In relation we could chew over how this state of affairs might hold affected Australia’s growing with China today playing such an of import function in foreign direct investing and Australian excavation trade good exports.

Figure 5

As GDP per capita is measured by spliting entire GDP by the population it is obvious that GDP per capita decreases as the population additions. But as the Romer Model suggests. the addition in population has brought with it an addition in research workers which has produced more thoughts and created long tally growing. The Romer Model’s theory on the growing rate of cognition impacting the growing of per capita GDP supports my findings in this subdivision.

From Table 1 we see that China’s entire population growing from 1960-2010 is 100. 62 % which is comparatively similar to Australia’s at 116. 99 % . yet from Figure 2 it can be observed that per capita GDP growing was well higher for China. We can mention back to the Romer Model one time once more and the growing rate of cognition and say that over the clip period China may hold allocated a greater proportion of the population to making research ( cubic decimeter ) than Australia did. Ceteris paribus. an addition in the fraction of the labour doing thoughts will increase the growing rate of cognition and later will increase the growing of per capita GDP. If more people work to bring forth thoughts. less people are bring forthing end product. So this consequences in an initial bead in the degree of per capita GDP but creates a higher growing rate for future old ages so end product per individual will be greater in the long tally.

As mentioned antecedently. research and development is one of the most of import investings a authorities can do in relation to hanker run economic growing through increasing TFP growing. Allocating a greater proportion of the population to research through authorities grants and additions in the quality of third instruction to bring forth higher quality research workers would besides assist Australia accomplish greater per capita GDP growing. Another option is to implement policies that allow skilled migrators easier streamlined entree to life and working in Australia. Figure 6 shows the net migration Numberss of Australia. China and the United States in 5 twelvemonth informations increases from 1960-2010.

Migration and economic growing
Figure 6

The effects of in-migration on the growing rate of GDP. like most of the other subjects mentioned so far. is a topic so to a great extent researched that this study is unable to sufficiently cover. but I will try to summarize some chief points from the informations shown diagrammatically in Figure 6 and the consequences from a treatment paper by Gianluca Orefice of the University of Milan. From an initial observation of Figure 6 it is seen that China has experienced 50 old ages of negative net migration. whereas Australia’s has been comparatively changeless and the US on the rise before dropping after the twelvemonth 2000. Table 2 shows the entire net migration from 1960-2010:

Country| Australia| China| United States|
Net Migration ( 1000000s ) | 5. 91| -8. 8| 42. 22|

Net migration figures since 1960 show that 8. 798. 756 people have left China and the United States has increased their population with migrators by a figure near dual the full population of Australia. So how are these Numberss related to per capita GDP growing of a state?

Below are the basic findings of Orefice ( 2010. p. 18 ) ; a survey of the effects of in-migration flows and their accomplishment content on per capita GDP in 24 OECD host states:

* A 1 % addition in the immigrants inflows leads to a 0. 69 % decrease in per capita GDP * Being third educated among immigrants increase per capita GDP by 0. 31 % * Being third educated among immigrants positively affects per capita GDP but non plenty to unclutter the negative consequence of in-migration

The paper concludes by saying:
Negative consequence of immigrants arises under a neoclassical production map where immigrants are considered as an addition in low productive workers. But leting for the possibility that migrators can convey with them some capital from their origin state. the capital dilution given by the increased population may be offset. Under this puting the consequence of in-migration on host states income depends on the capital content of immigrants ( Orefice 2010. p. 21 ) .

From the informations in Table 2. China’s negative net migration of 8. 8 million is arguably non a high adequate proportion of a entire population of 1. 34 billion people to demo any effects on per capita GDP growing. Conversely. Australia and the United States have net migration values that are significant plenty to impact per capita GDP growing. From Orefice’s ( 2010. p. 21 ) decisions stated supra skilled labour is the key to successfully hiking a country’s economic growing through migration. However. the high capital content of one worker could be accompanied by a household of inactive migrators which offsets the initial positive per capita effects gained from that one skilled unit of labour ( Orefice 2010. p. 18 ) .

The Australian in-migration policy shapers should be concentrating on increasing the degree of skilled labour that is migrating to the state. In a move in line with this recommendation ( workpermit. com 2012 ) the Australian authorities announced on May 14 2012 that they would be increasing the topographic points available in the 2012-13 migration plan by 5000 topographic points from 185. 000 to 190. 000. The Minister for Immigration and Citizenship Chris Bowen states that this move is to make full important accomplishments spreads in the economic system.

Trilateral Trade between Australia. China and the United States Figure 7 ( USA and China on left side Y axis and Australia on right side Y axis ) Time in old ages
Time in old ages

Overtaking Japan in 2007. Australia’s figure one bipartisan trading spouse is now China and the figure one bipartisan trading spouse of China is the United States. This suggests that in footings of GDP in relation to net exports Australia is slightly reliant on the US by manner of China. China’s GDP growing has been steady about 10 % since 1994 ( see Figure 2 ) which at the same time was the first twelvemonth of a current 17 twelvemonth run ( see Figure 7 ) where net trade in goods and services has been positive for the flourishing Asiatic state. This monolithic cyberspace trade that China produces. which in 2010 was US $ 232 billion. is most decidedly lending to the growing of the state. It is interesting to observe that as China has experienced a positive roar in net trade. its figure one trading spouse the USA has experienced an about mirror image antonym in negative net trade. which makes obvious sense as they are China’s biggest client.

Australia on the other manus has been harvesting the benefits of China’s high demand for their natural resources in the thick of a excavation sector roar and scored a record high net trade excess in 2010 of US $ 15. 2 billion. So the grounds exists where the USA is purchasing large from China which is in bend financing their imports from Australia. Australia’s hereafter is solid with China’s continued economic growing and high demand for their exports. It would be in the best involvements of Australian authorities functionaries to work on continually beef uping political ties with China to guarantee a long permanent trade relationship between the two states.

Decisions

Geting through the heat of the planetary fiscal crisis without falling into a recession proved that Australia’s economic system has a strong foundation and policy shapers were able to do the right determinations. Throughout clip every economic system experiences roars and recessions as is the concern rhythm but a strong economic system minimises the spread between possible end product and existent end product. Throughout this paper I have covered four of import subjects associating to long tally growing and presented constituted theories and academic literature that support my findings. The most of import consequences and subsequent recommendations are that the Australian authorities demands to hike TFP by increasing support in research and development and on instruction to bring forth higher skilled human capital which increases productive efficiency. Besides. Australia must go on to beef up trade relationships with China which will set up long term demand for exports. The other factor dealt with population and skilled migration policies where late the Australian authorities announced an addition in the 2012-13 migration plan to make full accomplishments spread in the economic system. This policy should ensue in a better quality of human capital come ining the state and hence hike economic growing.

Mentions

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

Brown. J. M 2009. Secret sauce: China’s rapid growing is due non merely to heavy investing. but besides to the world’s fastest productiveness additions. The Economist. viewed 16 May 2012. & lt ; hypertext transfer protocol: //www. thereformedbroker. com/2009/11/13/the-economist-total-factor-productivity-is-chinas-secret-sauce/ & gt ; .

English. peopledaily. com. cn 2011. 400 million births prevented by one-child policy. viewed 15 May 2012. & lt ; hypertext transfer protocol: //english. people. com. cn/90882/7629166. hypertext markup language & gt ; .

Jones. CI 2011. Macroeconomics. 2nd erectile dysfunction. . [ International Student erectile dysfunction. ] . W. W. Norton & A ; Co. . New York. N. Y.

Workpermit. com 2012. Australia announces in-migration addition to make full accomplishments spreads. viewed 15 May 2012. & lt ; hypertext transfer protocol: //www. workpermit. com/news/2012-05-14/australia/australia-announces-immigration-increase-to-fill-skill-gaps. htm & gt ; .