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Thursday, May 30, 2013

Generating the Wealth of Nations 25: Disruption, Catch-Up, and Convergence in Europe--and Japan

Following on to the discussion in Lecture 6 on disruption, catch-up growth, and convergence, I have looked at three major European countries--the United Kingdom, France, and Germany--and in Japan.  However, instead of looking at real GDP, I looked at real GDP per capita.  In each chart, the black line is the actual path of real GDP per capita in the country and the green line is the trend of real GDP per capita (usually, but not always, based on the 1900-1929 period.

Looking first at the UK, I used the 1900-1920 period to identify a trend, because of the disruption to the UK economy caused by attempting to return to the gold standard.   That disruption was followed fairly quickly by the Great Depression, and the UK did not return to its 1920 level of real GDP per capita until roughly 1933 (by going off the gold standard quickly, the UK had begun its recovery from the Depression more quickly as well).  real GDP per capita did not return to its trend level until 1940.  And World War II represented another disruption, with the return to trend not occurring until about 1960.  Rapid growth in the UK actually began during the post-WW2 "catch-up" period, about 1947 or 1948, and growth exceeded the early 20th century trend until the recent worldwide contraction (2007 and following).

(Click to enlarge.)

 France presents a similar picture, differing (of course) in the details.  Following the severe disruption of World War I (it's never good for a country's economy to have a major war fought on its own territory), the French economy caught back up to its trend by about 1927 or so...just in time for the Great Depression.  The Depression was prolonged in France by its persistence in remaining on the gold standard, and catch-up did not begin until 1935.  It was short-circuited in 1939 , with the outbreak of another major war, with major combat operations in France.  Catch-up in this case did not begin until WW2 ended, and France returned to its growtht rend level of real GDP per capita in about 1962.  Growth, however had been faster than the pre-WW1 trend since 1945, and that faster growth continued until 2007.

 (Click to enlarge.)

Germany's pre-Great Depression trend really terminates in 1913 (despite what the legend on the chart says; I forgot to correct it).  World War I was not kind to the German economy, either.  Germany's catch-up was aborted by the Great Depression and resumed about 1933--and continued into the late phases of World War II.  Real GDP per capita fell by almost 60% between 1944 and 1946, as invasion and destruction wiped out a greatedeal of Germany's productive capacity (both its physical capital and its human capital).  The post-WW2 catch-up phase was quite strong, and Germany was back to its previous peak by about 1956, and back to its old trend by 1960.  Clearly growth was much mmore rapid in this phase, and continued to be more rapid than the pre-war trend until reunification in the 1990s.

(Click to enlarge.)

Japan's economy was apparently little affected by the Great Depression (this somewhat surprised me; real GDP per capita, which fell on the order of 20% or more in the US, the UK, France, and Germany, fell by only 9%, and had returned to its trend level by 1936 or 1937).  As in Germany, real GDP per capita maintained its trend growth until late in the war, with US naval forced by 1944 essentially cutting Japan off from its pre-war and wartime suppliers.  Real GDP per capita fell by about 50% between 1944 and 1946.  Japan's growth exploded in the post-WW2 period, reaching its earlier peak by 1955 and its pre-war trend growth level by 1 958.  Its growth continued at this new more rapid trend until about 1985, and growth in Japan has been quite modest since.

(Click to enlarge.)

All data from the Maddison Project.


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