The theoretical foundations of the effect of infrastructure on growth and more generally on development outcomes are mostly found in Growth theory (Aghion and Howitt, 1998; Agenor, 2004; Agneor, 2010; Agenor and Moreno-Dodson, 2006; Barrow and Sala-i-Martin, 2004 and Straub, 2007). Economic growth is the increase in the amount of the goods and services produced by an economy over time (Sullivan, Arthur; Steven and Sheffrin, 2003). It is conveniently measured as the percentage rate of increase in real Gross Domestic Product (GDP). Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced.
The foundation of the discipline of modern political
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Much of modern growth theories build on the neoclassical model of exogenous growth (Solow, 1956, 1957; Swan, 1956) which views the accumulation of physical capital, associated with technical progress, as the driver of economic growth. The basic assumptions of the model are: constant returns to scale, diminishing marginal productivity of capital, exogenously determined technical progress and substitutability between capital and labour. Technological progress, though important in the long-run, is regarded as exogenous to the economic system and therefore it is not adequately examined by this model (Petrakos, et. al., 2007). The most basic proposition of growth theory is that in order to sustain a positive growth rate of output per capita in the long run, there must be continual advances in technological knowledge in the form of new goods, new markets, or new processes, which was demonstrated by the neoclassical growth model which shows that if there were no technological progress, then the effects of diminishing returns would eventually cause economic growth to cease (Aghion and Howitt, 1998). Turning to the issue of convergence/divergence, the model predicts convergence in growth rates on the basis that poor economies will grow faster compared to rich ones. The …show more content…
In the endogenous growth model, the longrun growth rate of output per worker is determined by variables within the model (Romer, 1986). The theory holds that economic growth is primarily the result of intrinsic factors and that investment in human capital, innovation and knowledge-based economy leads to economic development. This school attaches greater significance to certain types of investment that create externalities and generate an additional productivity boost through production spill-over or the associated diffusion of technology (Stiroh,
...conomically beneficial trade and technology development. In this regard the Epilogue uses sound logic to plausibly answer the wealth question. On the other hand, Mr. Diamond uses the same "national competition" thesis to purport that Asia's large, centralized governments were conspicuously growth-inhibitive. This argument would not seem to pass muster given what we have learned about the role of governments. Professor Wright's slides state that "Centralization may limit predation and even allow for growth" as "centralized predation = incentives to maximize the haul " This clearly refutes Mr. Diamond's argument that centralized, monopolistic Asian governments impaired societal advances. Thus, Guns, Germs, and Steel can scantly explain why China and the Middle East remain emerging markets while Western and Northern Europe enjoy significantly larger national wealth.
Robert E. Lucas Jr.’s journal article, “Some Macroeconomics for the 21st Century” in the Journal of Economic Perspectives, uses both his own and other economist’s models to track and predict economic industrialization and growth by per capita income. Using models of growth on a country wide basis, Lucas is able to track the rate at which nations become industrialized, and the growth rate of the average income once industrialization has taken place. In doing so, he has come to the conclusion that the average rate of growth among industrialized nations is around 2% for the last 30 years, but is higher the closer the nation is to the point in time that it first industrialized. This conclusion is supported by his models, and is a generally accepted idea. Lucas goes on to say that the farther we get from the industrial revolution the average growth rate is more likely to hit 1.5% as a greater percentage of countries become industrialized.
Empirical growth models typically rely on changes in per capita GDP as their measure of economic growth although a number rely on levels of per capita income. As Hall and Jones (1999: 114) indicate, the results from both are relevant since ‘many of the predictions of growth theory can be successfully considered in a cross section context by examining the levels of income across countries’. The independent variables of these studies include a number of those that have been established as significant in the growth literature: initial per capita GDP to account for a conditional convergence mechanism or the catch up effect (namely the hypothesis that poorer countries – starting from a lower starting level of per capita income – grow more rapidly than wealthier ones), fertility rates/population growth and life expectancy to capture labour supply and levels of health; investment rates; human capital; various measures of the ...
Every year there is a ‘league table‘ published showing the level of economic growth achieved by each country. The comparison is made using each countries Gross Domestic Product, or GDP. An important factor to look at is the difference between actual and potential economic growth. Actual economic growth increases in real GDP. This increase can occur as result of using previously unemployed resources, or reallocating resources into more productive areas or improving existing resources. Whereas potential economic growth is the productive capacity of the economy. For example, it can be shown by the predicted ability of the country to produce goods and services. This changes when there is an increase in the quantity or quality of the resources. All countries have different ways of achieving this with the resources they have available to them. For this reason it party answers the question of why some countries are richer than others. It is widely thought that the productive capacity of an economy will increase each year largely due to improvements in education and technology. This will obviously differ from country to country. For example, in the UK the quality of fertilizer could be improved, hence forth increase the years fruit and vegetable output.
Bernard and Durlauf (1995), applying cross-section and time-series data set for different types of economies for the analysis of convergence hypothesis. Economic growth strongly predicted by Solow model using exogenous technological change, capital deepening and short-run concave production opportunities, provides evidence regarding behavior of economies over time. The analysis shows that how economies, in the long-run, converge to the balance growth, irrespective of the initial capital endowments. The new growth theory contradicts with the statement of above convergence, hence divergence occurred, but again both theorists try to stress the convergence hypothesis by applying the tests of convergence. The cross-section test shows negative correlation between initial per capita income and growth rate, implies convergence. Cross-section generally reject the no convergence null for advanced economies, instead time series accepted no convergence null for large range of data set. Hence, time series test is stricter notion of convergence than cross-section test, also in terms of making assumptions.
Infrastructure is important in the economic stability of any country and the comfort of its people. Mongolia is grappling with its economy because of poor development of logistical infrastructure. The reasons for this poor growth trace back to the history of the country, and its overreliance on the mining sector. The post-communist country depends too much on mining, which is clouded by corruption, thereby forestalling development of the transport system. The government and organizations in the country are also reliant on international support. Moreover, the recent privatization of institutions is not enough to address the development challenges in the country.
Economic growth focuses on encouraging firms to invest or encouraging people to save, which in turn creates funds for firms to invest. It runs hand-in-hand with the goal of high employment because in order for firms to be comfortable investing in assets such as plants and equipment, unemployment must be low. Hereby, the people and resources will be available to spur economic growth.
Compare and contrast the Solow Growth Model with one Endogenous Growth Model In order to compare two models of economic growth, I will look at the primary model of exogenous growth, the Solow model, and ArrowÂ’s endogenous growth theory, based on research and development generated within the system. I will define the models and identify their similarities and differences. The Solow model, or Neoclassical growth model as it is sometimes known, is an example of exogenous growth models. This is to say that the level of economic growth depends on externally determined rates of growth in certain variables.
There are at least four different research perspectives about the relationship between development and economic growth. Firstly, economic growth is the basis for social development. Secondly, economic growth and social development are not necessarily linked. Thirdly, both economic growth and social development are not basic causes by each other, but they depend on interaction. Fourthly, social development is the prerequisite for economic growth (Mazumdar. 1...
In order for any country to survive in comparison to another developed country they must be able to grow and sustain a healthy and flourishing economy. This paper is designed to give a detailed insight of economic growth and the sectors that influence economic growth. Economic growth in a country is essential to the reduction of poverty, without such reduction; poverty would continue to increase therefore economic growth is inevitable. Through economic growth, it is also an aid in the reduction of the unemployment rate and it also helps to reduce the budget deficit of the government. Economic growth can also encourage better living standards for all it is citizens because with economic growth there are improvements in the public sectors, educational and healthcare facilities. Through economic growth social spending can also be increased without an increase of taxes.
Theoretical model of modern economic growth shows that long-term economic growth and raise the level of per capita income depends on technological progress. This is because of without technological progress and with the increase of capital per capita, marginal returns of capital would diminish and output per capita growth would eventually stagnate (Solow, 1956; Swan, 1956). Studies have shown that “experience, skills and knowledge in the long-term economic growth is playing an increasingly important role” (World Bank, 1999). Despite how technological progress work on economic growth, and how there are different views on the role of in the end, but I am afraid no one would deny that technical progress in the important role of economic development. In this sense, for a country to achieve long-term economic growth, we must continue to promote technological progress. However, economic growth theory is analyzed in general, and usually under the assumption that in the closed economy, and technological progress in a country not normally have taken place in various departments at the same time, and now the economy are often increasingly open economy. In this way, the technological progress in different economic impact on a country may be quite different. In addition, we assume that technological progress is Hicks neutral, is to an industry in itself, but technological progress also reflects the establishment of new industries and development. The new industries and technology-intensive industries generally older than the high, the use of less labor. Even the old industries, the general trend of technological progress is labor-saving.
Rostow's five stages of economic growth begin with the traditional society. As described by Rostow, the underdevelopment is naturalised in this structure with the evidence of constrained production means such as technology. In this part, the society applies subsistence economy that technically results in small margins of productivity such as hunter-gatherer society (Sahlins 1972:1) Undesired to do nature exploitation, Rostow viewed society at this stage as restrained from progress. The second phase following the previous stage is preconditions of take-off. Economic growth starting to take place and is essential to justify the means within good definition. The society begins to implement the manufacturing of products while at the same time foreign intervention by advanced societies such as through colonialism is needed to bring about change in one's society. The next step towards moder...
Economic growth is one of the most important fields in economics. In current generation economic is developing well. Economic growth is really important to country and for the world as well. Economic are one of the identity for country because it shows a country development and attraction for other countries (F, Peter. 2014). For example well economic develop such as Singapore, Dubai, New York, and Japan. These countries are well develop and maintaining their economic growths. Economic growths are really important because higher average incomes enables consumers to enjoy more goods and services. Then, lower unemployment with higher output and positive economic growth firms tend to utilize more workers creating more employment. Enhanced public
It is natural to be misled by the idea that economic growth is the key
1. What impact do natural resources have on economic growth? Will it be possible for a country with few natural resources to grow rapidly? Why or why not.