July 4, 2002  Each year about this time the leaders from eight of the world's largest economies gather together to discuss the world's most pressing economic issues.  This year's G8 Economic Summit was held last week in Kananaskis, Canada.

Prior to the meeting, it was determined that the three most urgent issues scheduled for discussion in 2002 were to be (1) global economic growth and sustained development, (2) Africa's development, and (3) fighting international terrorism.

The global economy is in the process of recovering from an economic slowdown in 2001.  The G8 economies (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States) account for nearly 50% of the global economy's GDP and trade.  The macroeconomic performance of these countries significantly affects virtually all of the other countries in the world.  If the G8 economies were to grow faster this year, then it's likely that the rest of the world's economies would also grow faster.

The spring 2002 forecast by the International Monetary Fund (IMF) suggests that global economic growth will be only moderately faster this year than last year.  Russia is expected to experience the most rapid growth among the G8 economies.  Growth in Canada and the United States is expected to be slightly faster than in the five other G8 economies.  Japan's economy is predicted to suffer another recession this year.  The table below presents the IMF's 2002 forecasts for each of the G8 economies in terms of growth, inflation, and unemployment.

G8 Economic Forecast -- 2002
4.4 %
14.1 %
2.5 %
0.9 %
7.1 %
United States
2.3 %
1.4 %
5.5 %
United Kingdom
2.0 %
2.4 %
5.4 %
1.4 %
1.5 %
9.2 %
1.4 %
2.2 %
9.3 %
0.9 %
1.5 %
8.2 %
-1.0 %
-1.1 %
5.8 %
Source: IMF Spring 2002 Economic Outlook

The data from the table above is used to illustrate the anticipated 2002 macroeconomic performance of the G8 economies on the playing field of The Global Economics Game in the image below.   When an economy's flag moves from left to right, its economy is growing faster.  Moving from right to left indicates an economic slowdown or recession (as in the case of Japan).  Cyclical unemployment increases when an economy's production slows down or declines.  Moving up and down the playing field indicates inflation (up) or deflation (down).  Russia's flag, for example, is higher up than the others because Russia is expected to experience 14.1 % inflation this year.  Japan's flag, on the other hand, is lower than the other countries because Japan is predicted to experience 1.1% deflation this year.  The illustration reveals that most of the G8 economies are expected to experience growth rates below 4% this year.  The first priority of the 2002 G8 Economic Summit is to maintain this year's economic recovery, increase the rate of growth in the global economy, and to sustain that growth in the future without causing inflation.  [Editor's note: The numbers in the playing field indicate a country's score as it attempts to balance growth, pollution, inflation, and unemployment.  Black numbers are positive; red numbers are negative.  The objective is to land in or near the center square. Placement of countries on the playing field based on IMF statistics is only an approximation.]


One of the best and most succinct discussions of economic growth can be found in Chapter 17 of McGraw-Hill's 15th edition of the introductory textbook entitled "Economics" by co-authors Campbell R.McConnell and Stanley L. Brue.  The text explains that economic growth means greater material abundance and higher living standards which are desired by most people.  Each generation of parents hopes that their children will be better off than they were and for good reasons.  Alice Rivlin of the Brookings Institution is quoted in the chapter to elaborate in specifics why economic growth is so important.  According to Rivlin, rising output and incomes allow people to buy "more education, recreation, and travel, more medical care, closer communications, more skilled personal and professional services, and better-designed as well as more numerous products.  It also means more art, music, and poetry, theater, and drama.  It can even mean more time and resources devoted to spiritual growth and human development."  The text goes on to state: "Growth also enables society to improve the nation's infrastructure, enhance the care of the sick and elderly, provide greater access for the disabled, and provide more police and fire protection.  Economic growth may be the only way to reduce poverty, since there is little political support for greater redistribution of income.  The way to improve the economic position of the poor is to increase household incomes through higher productivity and economic growth."


The second priority of the G8 Economic Summit in 2002 focuses on Africa.  Africa is the poorest continent in the world.  According to the G8's web site, "Africa is the only continent where poverty is on the rise. Over 40% of Sub-Saharan Africa’s 659 million people live below the international poverty line of US$1 a day. Africa’s share of world trade has plummeted, accounting for less than 2%. More than 140 million young people in Africa are illiterate, and Africa is the only region where the numbers of children out of schools is rising. Life expectancy in Africa is the lowest in the world, and continues to decrease with HIV/AIDS incidence rates of more than 25 percent in some countries. More than 200 million Africans have no access to health services, and more than 250 million lack access to safe drinking water. One African in five is affected by armed conflict and the number of civilian casualties of war is higher than anywhere else in the world."

The sharp contrast between the G8 (and other developed economies) on the one hand, and Africa (and other less developed economies) on the other hand, can be illustrated analytically using a production possibilities curve (PPC) model.  Introductory economics students are taught this diagram early in their studies.  It shows the production possibilities of an economy with respect to any two goods for a given amount resources.  An economy can only produce a combination of output somewhere on (or inside) a given PPC in the short run.  Economic growth and development is shown by moving the PPC outward.  The diagram below shows the production possibilities with respect to necessities and luxuries.

The G8 and other developed economies have historically experienced rapid economic growth and development.  Their economies have moved from point A to B to E and to F on PPC's 1, 2, 3, and 4.  They currently have the highest PPC's in the world.  Economic growth and development in these countries has permitted the production and consumption of more and more luxuries while providing for bare, subsistence (S) necessities.  Currently, the G8 economies are at point E, but their PPC is #4.  They are experiencing unemployment and recessionary gaps and are operating inside their PPCs.  The first priority of this year's G8 Economic Summit is to move these economies from point E to F and then move on to another PPC beyond #4 in the future.  This will not only enhance their living standards, but it will also increase their ability to help the African nations and other less developed economies.

By sharp contrast, African and other less developed economies are still at points A and B on PPCs #1 and #2.  They can barely provide for the bare, subsistence (S) necessities.  At point A on PPC #1, there are no luxuries.  Even at point B on PPC #2, there are few luxuries.  Most production is devoted to necessities. The second priority of this year's G8 Economic Summit is to help African and other less developed economies to move their PPC's outward, so that their citizens can enjoy more luxuries over time.

Trade between developed and less developed countries can enhance the living standards in both by exploiting comparative advantage.  In the diagram above, it would be possible for a less developed country on PPC #2 to be at point D.  By specializing in the production of goods and services for which they have a comparative advantage (Point C) and trading with developed countries that are specializing in their comparative advantage (Point G), the less developed countries can get to point D and developed countries can get to point H.  [Note:  In reality, less developed countries need not specialize in necessities.  Specialization need only be in those goods and services for which the country has a comparative advantage.]  By exploiting comparative advantage, international trade augments growth.


It is most unfortunate that time and resources must be devoted to anti-terrorism.  But alas, it is an economic imperative.  Neither necessities nor luxuries can be enjoyed anywhere under the threat of terrorist bombings and other life-threating activities.  Last September, the G8 leaders adopted a statement condemning terrorism.  For this year's G8 Economic Summit, they have drawn up "a list of specific measures to enhance counterterrorism cooperation, including: expanded use of financial measures and sanctions to stop the flow of funds to terrorists, aviation security, the control of arms exports, security and other services cooperation, the denial of all means of support to terrorism, and the identification and removal of terrorist threats."


Each year the leaders from eight countries, called the G8, gather together to discuss global issues and coordinate policies that will improve living standards and the quality of life in the world.  This year's G8 Economic Summit was held in Canada.  It focused on global economic growth, development and poverty in Africa, and fighting global terrorism.  Other global issues were discussed, as well.  The G8 Economic Summit represents an on-going political and economic effort to make the world a better place for all to live.

Sources and Recommended Links

The G-8 Economic Summit 2002: http://www.g8.gc.ca/summitprior-e.asp

The IMF World Economic Outlook (April 2002): http://www.imf.org/external/pubs/ft/weo/2002/01/index.htm

Return to Home Page     Return to World Economics News

The Global Economics Game   (C) 2000 Ronald W. Schuelke   All Rights Reserved