We continue testing our model of the real economic growth by presenting more developed countries. The next example is Austria. Originally, we calculated the inertial term A in
G(t-t0)= G0+A(t-t0) (1)
where G(t) is real GDP per capita as observed in developed countries; G0 is the initial level of GDP per capita at time t0 in a given country; and A is the country dependent annual increment measured in PPP dollars. Since the empirical model and is based only on observations of real GDP in developed countries its predictive power depends on how well it fits observations. (No mainstream macroeconomic model has ever been tested by data according to strict statistical procedures.)
Figure1 presents the case of Austria: annual increment in real GDP per capita is plotted against the level of real GDP per capita. (Equation (1) uses time implicitly.) Since the increment is assumed to be constant, the mean value of the annual GDP increment should coincide (at least should be very close to) with its linear trend. In 2002, the linear regression line for Austria shows a distinct positive trend of +0.0041. According to (1) such deviations must be compensates in the long-run by negative rates of growth. However, the years after 2002 have been demonstrating increasing positive trend. This deviation has been compensated by a severe decline in 2009. Therefore, the inertia of real economic growth has won again. Any deviation creates a returning force likely proportional to the size of the deviation. One can see this effect of the example of Ireland.
In 2009, the trend is almost 0 and the hypothesis of the constant increment looks sound. The next case is Belgium.
Figure 1. Annual increment of real GDP per capita (2002 and 2009 US$) vs. real GDP per capita in Austria for the period between 1950 and 2002 (upper panel) and between 1950 and 2009 (lower panel). Two sets are presented - the original (open circles) and that corrected for population (filled diamonds). Subsequent values of the latter set are connected by a solid line for illustration of the evolution in time. Bold lines represent the mean value of $548 (2002 US$) and $700 (2009 US$) for the population corrected sets. Two solid lines show linear regressions lines
1. Kitov, I., (2006). Real GDP per capita in developed countries, MPRA Paper 2738, University Library of Munich, Germany, http://ideas.repec.org/p/pra/mprapa/2738.html
2. Kitov, I., (2009). The Evolution of Real GDP Per Capita in Developed Countries, Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. IV(1(8)_ Summ), pp. 221-234.