Review of last lecture• Perceptions of Africa• Negative views of Africa leads to particular wa y to solve African problems‐not a lot of emphasis given to local solutions to local problems• Need an understanding of context to see how/where/when these perceptions are true• Lots of heterogeneity across Africa• Hans Rosling TED talkGDP Comparisons across Countries• Per capita GDP in US: $55,805• Per capita GDP in Niger: $405• Why might these comparisons not be accurate?• 1. Cost of living differences• How do you make this adjustment:• Purchasing Power Parity• Construct international prices of basket of goods and services by taking average prices (in $) for each good and service over all different countries. National income for a country then estimated by valuing its output at these international prices (instead of domestic prices)• 2. Under‐reporting of income: –Subsistence farmers/self ‐consumption–Informal economy (black market)• Try to adjust by estimating total production number with “guesses” for subsistence agricultural production/informal sector.• 3. per capita GDP= GDP/population. Need to have current and accurate census to measure population• 4. Conventional GDP measures may not tak e account of negative externalities and environmental degradation/problems. Hard to measure how much these things are worth.• Growth rates: why do growth rates matter? • Rule of 70: Gives approximation to calculate doubling time given a specific growth rate• Doubling time=70/(annual growth rate)• Example:• China: 10% annual growth rate; 70/10=7 years to double economy• Chad: 1% annual growth rate; 70/1=70 years to double economy• Both countries start at $500 per capita GDP in 1980• In 7 years China will double to $1000, in 14 years to $2000, in 21 years to $4000, in 28 years to $8000, in 35 years to $16000. • Same 35 year time period, what does Chad do?• Goes from $500 to $750• Power of compounding interest/growth rates over timeWhy do we think poor countries might catch up?• Technology adoption• Infrastructure improvements• High returns to capital investment because capital is very scarce in these places• Resource discoveries (oil, gold, coltan)• Improved political stability• Learn from mistakes that developed countries made in the process of developmentIncome Mobility of CountriesDanny Quah• What does the data tell us about whether poor countries can catch up over