3.3.2. Historical Trends

Rostow (1990) described several stages in the economic development process:

• First, the pre-industrial economy, in which most resources must be devoted to agriculture because of the low level of productivity.
• Second, the phase of capacity-building that leads to an economic acceleration.
• Third, the acceleration itself, which requires about two decades.
• Fourth, about six decades of industrialization and catch-up to the "productivity frontiers" prevailing in the industrialized countries.
• Fifth, the period of mass-consumerism and the welfare state.

It is important not to conceptualize economic development as a quasi-autonomous, linear development path. Numerous socio-institutional preconditions have to be met before any "take off" into accelerated rates of productivity and economic growth can materialize (see Section 3.3.4). "Leading sectors" (Fogel, 1970) that drive productivity and output growth change over time (Freeman and Perez, 1988; Freeman, 1990), and different "industrialization paths" (Chenery et al., 1986) have been identified in historical analyses. Still, historical evidence, consistent with neoclassic growth theory, allows a number of generalizations as to the patterns of advances in productivity and economic growth.

By and large, growth rates are lower for economies at the technology and productivity frontier, compared to those approaching it. For instance, in the 19th century productivity and per capita GDP growth in the rapidly industrializing US far exceeded those of England, then at the technology and productivity frontier. Likewise, in the post-World War II period growth rates in Japan and most of Western Europe exceeded those of the US (by then at the technology and productivity frontier) (Maddison, 1991, 1995). High human capital (education), a favorable institutional environment, free trade, and access to technology are acknowledged as key factors for rapid economic catch-up (see Section 3.3.4). Likewise, entrenchment in progressively outdated capital and technology vintages acts as a retarding force against growth (Frankel, 1955), and rapid capital turnover and possibilities to "leapfrog" (Goldemberg, 1991) outdated technologies and infrastructures provide the potential for faster economic catch-up.

Perhaps the most comprehensive compilation of data on historical economic development is that of Maddison (1995). Table 3-2 shows Maddison's per capita GDP growth rate estimates for selected regions and time periods. Since 1820 global GDP has increased by a factor of 40, or at a rate of about 2.2% per year. Per capita GDP growth was 1.2% per year faster than population growth. In the past 110 years (a time frame comparable to that addressed in this report) global GDP increased by a factor of 20, or at a rate of 2.7% per year, and global per capita GDP grew by a factor of more than five, or at a rate of 1.5% per year. There is substantial variation in the rates of economic growth over time and across countries. Even for the present OECD countries modern economic growth dates only from approximately 1870 onward, and for developing economies comparable conditions for economic growth and catch-up in productivity levels existed only in the second half of the 20th century. These approximate dates also set the time frame for drawing useful comparisons between historical experiences and future projections (see Section 3.3.3).

Historically, economic growth has been concentrated in Europe, the Americas, and Australasia. Sustained high-productivity growth (per capita GDP growth) resulted in the current high levels of per capita income in the OECD countries. Latecomers (such as Austria, Japan, Scandinavia) rapidly caught up to the productivity frontier of the other OECD economies (most notably that of the US) in the post-World War II period. Per capita GDP growth rates of 3.5% per annum were, for instance, achieved in Western Europe between 1950 and 1980. Similarly, high per capita GDP growth rates were achieved in the developing economies of Asia. Per capita GDP growth rates of individual countries have even been higher - 8% per annum in Japan over the period 1950-1973, 7% in Korea between 1965 and 1992, and 6.5% per year in China since 1980 (Maddison, 1995). Progress in increasing per capita income levels has been significant in many regions and countries over the long term, although income gaps in both absolute and relative terms have not been reduced in the aggregate. For instance, per capita GDP in Africa is estimated to have been about 20% of the level of the most affluent OECD region in 1870; by 1990 this ratio had decreased to 6% (Maddison, 1995).

Other key indicators of human development have also improved strongly in recent decades. For instance, since 1960 (in little more than a generation) infant mortality rates in developing countries have more than halved, malnutrition rates have declined by one-third, primary school attendance rates have increased from about half to three-quarters, and the share of rural families with access to safe drinking water has increased from 25% to 65% for low-income families and to more than 95% for high-income families (UNDP, 1997; World Bank, 1999).

Equally noticeable in Table 3-2 is the slowdown of per capita GDP growth in the OECD countries since the end of the 1970s and the serious setbacks in Eastern Europe and developing countries outside Asia over the same time period. After a decade of decline in economic output, a trend reversal to positive growth rates is expected to occur only after the year 2000 (World Bank, 1998b). Even optimistic scenarios indicate that the pre-crises (1989) levels of per capita income cannot be achieved again until 2010 (Nakicenovic et al., 1998a).

The effects of the recent Asian financial crises are estimated to reduce significantly short-term economic growth in the region, but longer-term growth prospects remain solid. After a sluggish growth to the year 2000, economic growth in the developing countries of Asia is anticipated to resume at 6.6% per year for the period 2001-2007 (World Bank, 1998b).

The past two centuries have seen major structural shifts, with inter-related changes in demography, economic structure, and technology. The world's largest economies have seen a continuous shift in economic structure, from agricultural production to industry and, to a greater extent, services (see Figure 3-9). During the past half-century, the industry share declined to leave these economies dominated by service sectors. A similar pattern has occurred in most other economies in Europe, North America, and Australasia. Another major feature of the past two centuries, not shown in Figure 3-9, is the growing role of government in the economy. The literature on structural change is reviewed in more detail in Jung et al. (2000).

Differences in statistical definitions make it difficult to compare structural change in the former centrally planned economies with that in mature market economies. Also, in the less-developed regions a marked decline in the contribution of agriculture to GDP has occurred in recent years, but the contribution of services is larger than it was historically in industrial countries at the same level of income. This indicates the dangers of using past history too literally as a guide to future behavior.

These economic developments have accompanied the processes of urbanization, increased access to education, improved health care, and longer life expectancies. They have been linked to increasing complexity in economic, legal, and social institutions (Tainter, 1996). The pattern seen in the six countries shown in Figure 3-9 is reproduced in most parts of the world. In general, increasing income per capita is associated with a shift in production patterns, first from agriculture to industry, and then more gradually away from industry into services. Succession processes beneath these macro-level changes are important. Industrial sectors and technologies have risen and fallen in importance over the past few centuries. These processes and analysts' various attempts to find patterns to describe them are further discussed in Section 3.3.4.

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