Economic growth and economic development 30

1.5

Introduction to Modern Economic Growth

Density of coutries
.5

1

1820

2000

0

1913

4

6

8
log gdp per capita

10

12

Figure 1.10. Estimates of the distribution of countries according to
log GDP per capita in 1820, 1913 and 2000.

Figure 1.11 also illustrates the divergence; it depicts the evolution of average
income in five groups of countries, Western Offshoots of Europe (the United States,
Canada, Australia and New Zealand), Western Europe, Latin America, Asia and
Africa. It shows the relatively rapid growth of the Western Offshoots and West European countries during the 19th century, while Asia and Africa remained stagnant
and Latin America showed little growth. The relatively small income gaps in 1820
become much larger by 2000.
Another major macroeconomic fact is visible in Figure 1.11: Western Offshoots
and West European nations experience a noticeable dip in GDP per capita around
1929, because of the Great Depression. Western offshoots, in particular the United
States, only recover fully from this large recession just before WWII. How an economy can experience such a sharp decline in output and how it recovers from such a
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