Progress of Civilization: from BBC's Hans Rosling

Happy 2011 everyone!

As we celebrate the coming year with hope and optimism for change and progress, let us look at the video clip below to remind us, despite the apparent global convulsion due to the  flawed economic paradigm of neoliberalism, how much the world has progressed across centuries. The presentation by Hans Rosling, a Swedish medical doctor, academic, statistician and public speaker, can serve as inspiration of how much innovation and technological change can push nations from the brink of poverty towards modernity.

The trajectory of growth (and how they sort of "converge") reminds me of the Solow–Swan model (also known as the exogenous growth model and the neoclassical growth model) - a model of a long-run economic growth. The model was developed independently by Robert Solow and T. Swan from the earlier  Harrod-Domar model used to explain an economy's growth rate in terms of the level of saving and productivity of capital.

Conditional Convergence - Solow Swan Model

A key prediction of Solow-swan is that the income levels of poor countries will tend to catch up with or converge towards the income levels of rich countries as long as they have similar characteristics – like for instance saving rates (http://bit.ly/solowconvergence). This is because growth in more developed nations will supposedly tend to be slower than that of developing nations. But of course, we still have to isolate the effect of inflation and impacts of currency wars and dollar fluctuations on income per capita.

Image via Wikipedia

Empirical evidence still needs to be gathered though, and we yet have to confront the intrinsic limitations of the neoclassical framework. For instance, we have to take into account the leapfrogging of several countries like Japan and South Korea which doesn't conform to the model. Also, Solow-Swan suffers from major theoretical limitations, which makes it inapplicable for predicting future trends. It is for this reason that endogenous growth models have been developed, which can be a different topic for this blog another day.