The global population continues to increase. By the end of 2011, it had surpassed seven billion people. Astonishingly, over 20% of the population lives in poverty. Majority of the poor are living in abject poverty implying that they survive with less than a dollar per day. In developed countries, most citizens are affluent and earn decent wages and salaries. According to Sullivan and Sheffrin, the disparities between the rich and poor countries also continue to increase with the wage gap being the strongest indicator of this assertion (9).
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The level of economic growth and development between the developed countries and developing countries is staggering. This a comparative study of United States (a developed country) and Brazil (considered a developing country by economic indicators). The paper will concentrate on the differences in various macroeconomic indicators including GDP, GNP, rate of inflation, unemployment, per capita income and growth of the countries.
Comparative Analysis of Macroeconomic Indicators of USA and Brazil
United States stand outs as the largest national economy in the entire world (Todaro and Smith 76). By the end of last fiscal year, the country had a Gross Domestic Product (GDP) of well above $15 trillion and it contributes hugely to the global output. On the other hand, Brazil is considered a developing country although it ranks sixth as per the standards of World Bank owing to its national output.
This is in lieu of the fact that the country has a high productivity with its GDP standing at $2.5 trillion. Although both countries have high output, it was only lately that Brazil joined the G-20 (Sullivan and Sheffrin 20). The rationale is that GDP is not the sole macroeconomic indicator of a country’s economic development and growth. Nonetheless, the two countries contribute hugely to the aggregate global output due to their expansive industries and adoption of technology and innovation.
Todaro and Smith assert that major contributors of productivity in the US include services, industry, and agricultural sectors constituting 79%, 19% and 1.2% of the GDP respectively (87). For Brazil, services sector contributes huge percentage of the productivity standing at almost 70%. Agriculture and industry sectors contribute 5.5% and 28% respectively (Baer 56).
The rate of inflation is a macroeconomic indicator that focuses on the monetary forces that cause fluctuations in the currency affecting trade with other countries. In US, the rate of inflation has remained relatively low averaging at 1.7% by the last fiscal year while in Brazil the rate stood at 5.4% within the same period. Inflation rate is a very sensitive macroeconomic indicator that affects a country’s ability to import goods.
With high inflationary rate, a country may have a discrepancy in the balance of trade and payment (BOT and BOP) where importation is very expensive in comparison to exportation. As elucidated by Sullivan and Sheffrin, this may impair the ability of a country to stimulate growth of the local industries especially those dependent on the importation of raw materials from other countries (27).
In addition, high rate of inflation leads to fluctuation in the international stocks since investors prefer stable currencies (Todaro and Smith 74). This may have many impacts to a country’s economy including decelerated economic growth and high unemployment rate. As such, Brazil’s economy is more susceptible to such consequences than US economy given the differentials in their rates of inflation (Baer 45).
Further, rate of unemployment remains as a major indicator of an economy’s productivity. Given the recent global economic crises that engulfed the world in 2008, unemployment rate rose dramatically in the United States. In particular, the unemployment rate stood at 9.3% in 2009 – a figure that has slightly dropped to reach 8.3% by March 2012.
Although the rate of unemployment in the country seems to be relatively high given its global economic status, layoffs and outsourcing were major drivers of the unemployment. According to economists, it is rational for a company to shift its production to a country where labor is cheap and a country that possesses a comparative advantage in production (Sullivan and Sheffrin 33).
To this end, many companies in the US have resulted to outsourcing as a way to cushion themselves from the unstable global economic trends. For Brazil, the rate of unemployment stood at 5.4% implying that the country has managed to control the levels of unemployment. This however does not imply that the standards of living of Brazilians are higher than in the US.
The rationale is that unemployment refers to a proportion of the population that has skills and is willing to provide the skills to the labor market. Acquisition of skills may imply high rates of literacy. As such, Todaro and Smith articulate that it is not necessarily true that high unemployment rate indicates deplorable conditions for Americans since they may have more skills than the Brazilians but not willing to work (89).
Another macroeconomic indicator is the rate of economic growth for a specific country. Growth rate may mean an increase in productivity, improvement of infrastructure, improved access to healthcare and generally, all positive attributes that augment the standards of living for a population.
In the US, the economy has continued to grow at a very sluggish rate. The most possible explanation of such a scenario from an economics perspective is that the country has fully industrialized. According to US Bureau of Labor and Statistics, the country economic growth rate grew marginally by 2% at the end of third quarter of 2012. On the other hand, Brazilian economy suffered from slowed growth in the global economy.
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By the second quarter of 2011, the economy grew by only 2.7% (Baer 76). To this end, there is a dissenting view that the sluggish economy in the US may hamper its efforts to reduce the high unemployment rate. For Brazil, the economy is projected to accelerate in growth owing to the unexploited sectors (Baer 76). Indeed, economists agree that a developing country has a potential for growth especially when basic infrastructures and amenities improve.
Sullivan and Sheffrin say that Per Capita Income (PCI) measures the average income for every person in a country (34). It is also a major indicator of the standards of living for a country. While many economists cite the large number of people living below two dollars per day, it is undeniable that over 15% of Americans lived below global poverty line by 2010.
For Brazil, only 8.4% of the citizens lived below poverty line. In reality, Brazil has a higher population than its counterparts and the poverty line only concentrates on people earning below $2. It is therefore important to focus on the larger picture where the American economy employs higher number of people and concentrates majority of its efforts to the service sector.
The financial institutions in the two countries are different with the US having the largest stock market in the world. Wall Street financial firms have been major shapers of the global financial trends (Todaro and Smith 90). Undoubtedly, the financial and economic crises of the last decade resulted from the ripple effect of the country’s stock market. To this end, it is important to highlight that both the US and Brazil have continued to be major economies whose disparities are reducing with time.
In sum, global economy has continued to grow despite the apparent gap in wage differentials and living standards between developed and developing countries. However, Brazil (a G-20 country) compares largely with the US.
At the outset, USA has the largest GDP in the world while Brazil is sixth in terms of economic output according to the World Bank (Baer 56). Besides, the two countries have managed to control their rates of inflation that stand below the global average. However, Baer states that the rate of unemployment in the US remains a major point of reference in terms of its inability to contain it since the global economic crises (87).
Analysts say that the high rate of the unemployment in the country is prone to fluctuations owing to the sluggishness of the economy (Sullivan and Sheffrin 57). Further, it is notable that the income per capita for the two countries is comparable. Nonetheless, there are disparities in the growth rates of the two countries in favor of Brazil. This is because the country still has the potential to reach full industrialization and maturation.
Baer, Werner. The Brazilian Economy: Growth and Development. Westport, CT: Praeger Publishers, 2012. Print.
Sullivan, Arthur and Sheffrin, Steven. Economics: Principles in action. Upper Saddle River, New Jersey: Pearson Prentice Hall, 2011. Print.
Todaro, Michael and Smith, Stephen. Economic Development. New Jersey: Pearson & Addison Wesley Publishers, 2009. Print.