Growth, Poverty and the Productivity Puzzle Prof. Rafi Melnick Herzliya Conference January 2007.
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Transcript of Growth, Poverty and the Productivity Puzzle Prof. Rafi Melnick Herzliya Conference January 2007.
Growth, Poverty and the Productivity Puzzle
Prof. Rafi Melnick
Herzliya Conference
January 2007
GDP per GDP per Capita in Israel in Israel))Rates of Growth, Percent)Rates of Growth, Percent)
-5
0
5
10
15
20
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
1985
Actual and Potential per Capita GDP in Israel
(U.S. Dollars, Constant 2000 Prices)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
Actual Potential with 1/2 pre - 1973 growth
Relative per Capita GDPIsrael/U.S.
0
10
20
30
40
50
60
70
80
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
Actual Ratio Potential Ratio with 1/2 pre - 1973 growth
Two Conclusions
I. Sustained economic growth is necessary (but perhaps not sufficient) to reduce poverty.
II. Policies that slow economic growth worsen the problem of poverty.
GDP per Capita in Israel)Rates of Growth, Percent)
-5
0
5
10
15
20
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
1985
Testing Two Hypotheses: The Main Issues Discussed
during the Last Economic Crisis in Israel (2001-2003)
I. The policy needed to restore growth is increasing government expenditure and increasing the fiscal deficit.
II. The Israeli economy cannot grow without a political horizon.
Government Consumption 2000-2006 (Rates of Growth, Percent)
-3
-2
-1
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006
Control Experiment?
General Government Deficit 2000-2006 (Percent of GDP)
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006
Public Debt 2000-2006 (Percent of GDP, Gross Debt)
75
80
85
90
95
100
105
2000 2001 2002 2003 2004 2005 2006
Economic Outcome
GDP and Business GDPGDP and Business GDP 2000-20062000-2006 (Rates of Growth, Percent) (Rates of Growth, Percent)
-4
-2
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006
GDP GDP Business
Rate of InflationRate of Inflation 2000-20062000-2006 (CPI, Percent) (CPI, Percent)
-3
-2
-1
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006
Unemployment 2000-2006 (Percent)
8
8.5
9
9.5
10
10.5
11
2000 2001 2002 2003 2004 2005 2006
Current Account 2000-2006)Percent of GDP(
-2
-1
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006
Foreign Investment 2000-2006(Million U.S. dollars)
0
5,000
10,000
15,000
20,000
25,000
2000 2001 2002 2003 2004 2005 2006
Direct Securities
Production Function Decomposition
LaborCapitalTotal Factor Productivity
Business GDP
Output and Total Factor Output and Total Factor Productivity Productivity 1961-20061961-2006
(Average Rates of Growth, Business Sector GDP, Percent)(Average Rates of Growth, Business Sector GDP, Percent)
Period Output Labor
Contribution Capital
Contribution TFP
1961-2006 5.7 1.9 1.9 1.9
1961-1972 9.2 2.2 2.8 4.2
1973-2006 4.5 1.8 1.6 1.1
1986-2006 5.2 2.5 1.7 1.0
2003-2006 5.2 1.1 1.0 3.0
Necessary Conditions for Growth and Necessary Conditions for Growth and the Reduction of Povertythe Reduction of Poverty
Fiscal RetrainA prudent rise in government expenditure serving
as the anchor for fiscal policyLow fiscal deficitsFiscal consolidation
Financial StabilityAchievement of the inflation targetsCredibility, transparency and effective regulation
Structural Reforms