Comparison of GDP Growth Rate of USA and UK | Economics Assignment

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ECONOMICS, FINANCE AND BANKING
– ECONOMICS

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Contents
Introduction................................................................................................................................3
Drivers of economic growth of USA.........................................................................................3
Growth accounting of the USA..................................................................................................4
Drivers of economic growth of UK...........................................................................................4
Growth accounting of the UK....................................................................................................5
Comparison of the drivers and growth accounting....................................................................5
Conclusion..................................................................................................................................6
Reference....................................................................................................................................7

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Introduction
Real economic growth rate measures the real progress of an economy nullifying the influence
of time and inflation. The government of most of the countries of the world have a common
objective to increase the real GDP growth rate of their respective countries. The real GDP
growth rate of countries is not same. It depends on the type of governance and the role of the
government in the economic operation of the country. The objective of this paper is to
compare the drivers of real GDP growth rate for the USA and UK. The paper will dig in the
forces that influence real GDP growth rate for each of the countries.
Drivers of economic growth of USA
The real GDP growth rate of the USA depends on the creation of the human and the physical
capital. Hall (2018) stated that human capital is the pillar of the production system of the
economy. The human capital that also includes the labours create the values of the production
using the physical capital. Therefore, growth in the physical capital and the advancement in
the human capital is a major power that provides boost to the production of the US economy.
This further increases the aggregate demand for the goods and the services leading to an
increase in the real GDP of the country.
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Figure 1: the technological advancement of the USA over the years
(Source: Imf.org, 2020)

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Other than that, another driver of real GDP growth rate of the USA is the advancement in the
technology of production. The advancement technology of production increases the
production with the same amount of resources (Taylor and Ömer, 2019). In this context it
needs to be noted that technological advancement is a commonplace in the case of USA. The
companies are trying out different methods of production and operation in order to increase
the value of production using the same resources.
Growth accounting of the USA
Economic growth happens when the consumers of the market spend more on the goods and
the services or the government spends in the infrastructure development. The consumers’
spending increases the demand for the goods and the services which compels the producers to
produce more to in order to meet the demand. In the period of 2000 to 2018 the consumer
spending of the USA increased with each passing year. Although, in 2007, the economy
suffered a shock as a form of financial crisis and hence the consumer spending dropped, it
bounced back immediately in the next year even though the economy was still having
problems (Knoblach et al. 2020). The real GDP growth rate of the country of the USA
therefore, is not influenced by the consumer spending. Gupta et al. (2020) stated that in
theory the consumer spending contributes to the aggregate demand that further increases the
national product. However, during that period the country increased its imports compared to
the export and hence the influence on the real GDP growth rate was low.
Drivers of economic growth of UK
The creation of the human capital has also been an important source of real GDP growth rate
in case of the UK as well. The intervention of the UK government on the economic activities
has been immense in the past years where it has focused significantly on developing human
capital. There is a positive relationship between the investment of the government on
education and the real growth rate of the country. The scatter diagram below shows that
expenditure on the human capital directly influences the real GDP growth rate of the
economy of the UK.

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Figure 2: The scatter diagram of real GDP and expenditure on education of UK
(Source: Conference-board.org, 2020)
Growth accounting of the UK
The aggregate demand equation of the UK is also comprised of the same components as that
of the USA. However, the main driver that contributes to the real GDP growth rate of the
economy of the USA is the government expenditure. The government expenditure in case of
the UK is used differently than many other countries of the world. The investment in
infrastructure from the side of the government increases the productivity of the resources
thereby increasing the real GDP of the economy (Sun and De, 2019). Although, other
components of the aggregate demand such as the consumer expenditure also drive the real
GDP growth rate of the country, they are not as significant as the government expenditure in
case of the UK.
Comparison of the drivers and growth accounting
The different between the real GDP growth rates of the two countries are different from each
other in terms of the factors that drive the growth rate. While the USA is driven by the
consumers spending, the driver crucial for that of the UK is the government expenditure.
Apart from that, the pattern of investment of the government is also different among the two
countries. The real GDP growth rate of the USA is catered mostly by the advancement in the
technology without much investment from the side of the government. On the other hand, the

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government of the UK in the past years has significantly increased its investment in the
education sector so that human capital of the country increases and contributes to the increase
in the real GDP of the country. However, there is also a commonality between the two
economies as well. The consumer spending in both the economies increases when there is an
increase in the consumer spending. This is also the case for the UK as well; however its
intensity is lesser than the influence of the government expenditure.
Conclusion
Therefore the real GDP growth rate of the two countries studied in the paper have different
pattern. The major driver of the increase in the real GDP in case of the USA is the consumer
spending owing to the advancement in the technology, whereas, the dependence of the
economy of the UK is on the government expenditure. In the last 20 years, USA has focused
mainly on the technological advancement that has provided the boost to the economy. The
economy of the UK on the other hand has focused on the creation of the human capital
spending more on the education sector.

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Reference
Conference-board.org. (2020). The Conference Board | Trusted Insights for What's Ahead.
[online] Available at: https://www.conference-board.org/us/ [Accessed 4 Mar. 2020].
Gupta, R., Lau, C.K.M. and Sheng, X., 2020. Graph theory-based network analysis of
regional uncertainties of the US Economy. Physica A: Statistical Mechanics and its
Applications, 540, p.123064.
Hall, R.E., 2018. New evidence on the markup of prices over marginal costs and the role of
mega-firms in the us economy (No. w24574). National Bureau of Economic Research.
Imf.org. (2020). International Monetary Fund. [online] Available at: https://www.imf.org/
[Accessed 4 Mar. 2020].
Knoblach, M., Roessler, M. and Zwerschke, P., 2020. The Elasticity of Substitution Between
Capital and Labour in the US Economy: A Meta‐Regression Analysis. Oxford Bulletin of
Economics and Statistics, 82(1), pp.62-82.
Sun, W. and De, K., 2019. Real exchange rate, monetary policy, and the US economy:
Evidence from a FAVAR model. Economic Inquiry, 57(1), pp.552-568.
Taylor, L. and Ömer, Ö., 2019. Where do profits and jobs come from? Employment and
distribution in the US economy. Review of Social Economy, pp.1-20.