Question

Distinguish between a low and high income and a low and high economic growth rate. What are the key features of an economy that are present when incomes are high or fast growing and absent when incomes are low and stagnating or growing slowly? Provide an example of an economy with a low income and slow growth rate, a low income and rapid growth rate, and a high income with sustained growth over many decades.

Answer 1

Low income is when the per capita human capital is less on average. High income is when per capita income is high. Low economic growth is when investment, government expenditure and several other characteristics of GDP are not growing sufficiently and fast. High economic growth is when GDP continues to grow year after year and more than expected.

Key features which are present in an economy whose income is growing fast are that investment is high, consumption is more, people are spending as they have extra income to spend. Technological growth is emphasized and there are no external pressures such as political tensions.

All the above features are absent in low income country. Key features when incomes are low and stagnating are that there is not much investment occurring which is creating jobs and innovation. People are not educated which reduces the skill level of a country. This makes them go for low skill jobs which have less remuneration. Low income and low saving creates a vicious cycle where investment doesn't get generated.  

Low income and slow growth rate example is South Sudan and several countries in sub Saharan Africa.

Low income and high growth rate is India, or China as their population creates a consumption demand which drives their economy.

Classic example of high income and sustained growth over many years is United States as it has grown over many decades to make it the top grossing GDP country.