GDP Growth is Ruled by the Clock.

Attention conservation notice: It turns out that in advanced countries, GDP per capita seems to increase by about the same amount every year. In 2011 US dollar terms, about $565 per person per year.

 The first two posts in this series looked at the last fifty years of growth in GDP per capita for each of the top ten advanced countries: the biggest countries in GDP terms, excluding China, Russia, Brazil, and India.  For those countries FRED doesn't seem to have good long-term data--or maybe I haven't looked in the right places.

In this post I'm looking at the same data, for the "big advanced countries" as a unit. Adding countries together will, I hope, smooth out some of the year-to-year variation in real GDP. (When one country is having a banner year, another might be having a poor one, and the effects partly cancel.)

I have also dropped Mexico. Mexico was not considered an advanced country at the start of the period, so including it might introduce some "winner bias" in the results. (South Korea, by contrast, had adopted some modern institutions and a policy of industrialisation.) In Mexico's place, I wasn't sure whether to include Australia or the Netherlands...so I chose both.

These charts present combined data for the top 11 advanced countries, for which FRED has real GDP and population series going back to 1960: the USA, Japan, Germany, France, Great Britain, Italy, Spain, South Korea, Canada, Australia, and the Netherlands.

The year-over-year percent change for the group (above) shows a pretty clear trend. Per-person GDP growth was high in the 1960s, and the trend has steadily declined.

The charts in the last two posts were built on the assumption that growth in GDP depends on its current size. The underlying idea is that a country produces stuff, and a part of what it produces (machinery, buildings, roads) can be used to produce more stuff the next year. This implies that the more a country produces in one year, the more new machinery it has for the next year's production.

With this perspective it made sense to focus on growth in terms of percentages. But as the chart shows, the trend in the percentage is continuously declining.  That suggest that maybe the underlying assumption is wrong, or countries are continuously reducing their savings rates (the fraction of output that is machinery and offices).

So let's look at the raw data.

Looks pretty close to a straight line.  What does a chart of the absolute increments look like--the number of dollars per year that each person's GDP goes up? Like this:

There's a slight downward trend, but it's not significant. Given that there were a couple of large-ish recessions in the 1950s, if we started the chart a few years earlier the trend would be flat, or even point up-hill.

So the simplest interpretation that fits the data is that GDP per person in these countries increases the same amount every year (plus some random variation).  That amount comes out to be about $565, in 2011 US dollars.