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Economic SYNOPSES
short essays and reports on the economic issues of the day
2005 ■ Number 4

OECD Growth
Michael R. Pakko
ot too many years ago, the Organisation for Economic
rates of population growth or high rates of productivity
Co-operation and Development (OECD) was characgrowth. In countries with rapid growth of population or
terized as the “rich man’s club” of international econlabor participation rates, more rapid economic growth is a
omic organizations. Comprising the relatively mature, industrialnatural outcome of increasing employment. In 2004, the counized economies of the West, the OECD represented a relatively
tries with the most rapid rates of labor force growth include
homogenous collection of nations. With the addition of new
New Zealand, Spain, Korea, Luxembourg, and Mexico. The
members in recent years—including Mexico, Korea, and some
other source of economic growth is labor productivity.
of the nations of Eastern Europe—the OECD is now a far more
Nations on the high end of the scale of productivity growth
dissimilar group.
include Iceland, Poland, the Czech Republic, Sweden, and
This diversity is reflected in recently published projecNorway. Increases in productivity are the holy grail of ecotions for economic growth in OECD
nomic growth: Rapid rates of increase in
countries. As shown in the table, growth
output per worker are translated directly
Real GDP growth
estimates for 2004 and projections for
into higher standards of living.
(% ∆ from previous year)
2005 display a fairly wide range. In 2004,
Among the more highly developed
2004
2005
the fastest growing economy in the OECD
economies, the growth rate of the United
was Turkey, with a growth rate of 9.8
States stands out. At 4.4 percent, the U.S.
Australia
3.6
3.8
percent. Other rapidly growing econgrowth rate in 2004 significantly exceedAustria
1.8
2.3
Belgium
2.7
2.4
omies include Iceland, Ireland, Korea,
ed the growth rates of Western European
Canada
3.0
3.3
and the Slovak Republic. Relatively
countries such as Germany, France, and
Czech Republic
3.9
4.2
speaking, the older members of the
Italy. It is also notable that the strong
Denmark
2.4
2.7
Finland
3.1
2.8
“club” experienced much slower growth
growth performance in the United States
France
2.1
2.0
in 2004. Austria, Germany, Italy, the
has been driven by rising productivity:
Germany
1.2
1.4
Greece
3.8
3.2
Netherlands, Portugal, and Switzerland
Productivity growth in the U.S. was 3.7
Hungary
3.9
3.6
all grew at rates below 2 percent.
percent in 2004 and is projected to advance
Iceland
5.9
5.2
The differences among growth rates
at a healthy 2.0 percent rate in 2005.
Ireland
4.9
5.5
Italy
1.3
1.7
are consistent with some basic principles
The differences in growth rates among
Japan
4.0
2.1
of economic growth theory. In particular,
the
advanced economies are also important
Korea
5.0
4.5
the less mature industrializing countries
for evaluating cyclical movements of the
Luxembourg
4.2
4.5
Mexico
4.2
3.9
of Central and Eastern Europe, along with
U.S. trade deficit. Relatively rapid growth
Netherlands
1.2
1.2
Mexico and Korea, have lower output and
in the United States implies strong import
New Zealand
4.8
2.1
Norway
3.2
3.2
capital per worker than do the older memdemand, while slower growth among our
Poland
5.4
4.3
bers of the OECD. The principle of “conlarge trading partners in Western Europe
Portugal
1.5
2.2
vergence” suggests that these economies
dampens demand for U.S. exports. With
Slovak Republic
4.9
4.8
Spain
2.6
2.7
should experience more rapid growth
the projections indicating a moderation
Sweden
3.3
3.3
through capital accumulation as developof growth in the United States and modest
Switzerland
1.9
1.9
Turkey
9.8
6.4
ment proceeds and standards of living
increases in the growth rates of Western
United Kingdom
3.2
2.6
rise to meet those of the richer nations.
European economies, at least one source
United States
4.4
3.3
Other patterns are also revealed in the
of pressure driving a widening U.S. trade
Total OECD
3.6
2.9
data. Countries that are experiencing reladeficit should subside in 2005. ■
SOURCE: OECD Economic Outlook, No. 76,
December 2004.
tively rapid growth also display either high

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