Determinants of Growth

7 Key excerpts on "Determinants of Growth"

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  eBook - ePub

  Development Economics: A Policy Analysis Approach

  • Eckhard Siggel(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Chapter 2 Economic Growth and its Determinants      

  The analysis of economic growth has three purposes: (a) the measurement of the growth of various aggregates of the economy; (b) the identification and measurement of its determinants or sources; and (c) the prediction of future growth by help of growth models. We are interested in answering questions such as: What determines economic growth? Which factors make the most important contributions to growth, the factors of production or technical change? How can we predict economic growth? We have already seen in Chapter 1 how growth is measured, and will turn our attention now to models of growth. At first we discuss simple production function models, which allow us to analyze growth in terms of factor contributions and technical change under the name of growth accounting. In the next section we examine full-fledged macro models, which endogenize the accumulation of capital. Two members of this family are introduced, the Harrod-Domar model with fixed coefficients and the neoclassical (Solow) model, which allows for substitution between capital and labour. A short review of modem growth theory, often referred to as endogenous growth, concludes the theory, which is being applied in the last section to examine whether the international long-run experience with economic growth supports the hypothesis of convergence of income levels.

  2.1 Production Function Models

  The question of what determines economic growth can be approached in various ways. In the production function approach we envisage the growth process entirely from the supply side. The growth of production is then described in the same way as the level of production, that is, by the combination of factors of production and their increase. In a general form we write a production function as a relationship between the quantity of output (Q) and the quantity of factor inputs, such as labour (L) capital (K) and technology (T).

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  Development Economics

  Theory, Empirical Research, and Policy Analysis

  • Julie Schaffner(Author)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  The developed countries’ higher levels of physical and human capital per person, and of TFP, offer hope that improvement is possible in the developing countries. Unfortunately, it does not prove that improvement will be easy, nor does it prove that gains in any one of these areas will necessarily lead to rapid growth. 3.4 The Determinants of Growth Identifying the proximate sources of growth alerts us to the kinds of improving change that deliver economic growth. But it does not answer the deeper, more policy-relevant questions: What causes economic growth to proceed more rapidly in some countries than others? And what 48 Economic Growth could development actors do (or refrain from doing) to raise a country’s rate of economic growth? These questions call us to identify the Determinants of Growth. In what follows, we first describe an approach that many macroeconomists have taken to identifying growth determinants at the aggregate level. Unfortunately, we find that this literature has produced few practical and well justified policy conclusions. We then consider the micro- level underpinnings of successful growth and argue the need to search in a much more dis- aggregated and context-specific way for policies capable of speeding economic growth. 3.4A Cross-country growth regression studies When comparable measures of economic growth rates became available for many countries in the late 1980s (Heston, 1991), macroeconomists began to search for empirically important growth determinants at the macro level by running cross-country growth regressions. (For an introduction to regression analysis, see Appendix A.) In the econometric models they estimate, the dependent variable is the rate of economic growth over a 10-, 20-, or 40-year interval. The regressors are measures of possible growth determinants measured at the country level.

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  Austerities and Aspirations

  A Comparative History of Growth, Consumption, and Quality of Life in East Central Europe since 1945

  • Béla Tomka(Author)
  • 2020(Publication Date)
  • Central European University Press

    (Publisher)

  5 Determinants of Change: Accounting for Growth and Beyond O ver the course of the preceding chapters, in describing the trends of eco-nomic growth and well-being in the twentieth century, a number of impor-tant determinants of these processes have been discussed. This chapter will move beyond the primarily short-term factors that have been dealt with and provide a more detailed and systematic study of trends prevailing in the long run. This exercise will allow an assessment of the determinants of East Central European economic and social change in the period following World War II, and particularly the causes of convergences and divergences. 1 5.1 Factors of Economic Growth Technological development Economists and economic historians have traditionally treated technologi-cal change as the driving force of economic growth. 2 A host of inventions could be cited as proof of the acceleration of technical progress since the late nineteenth century and the possibilities such advances have created for ever more productive uses of labor. 3 Technological change has passed through a number of phases in which various economic sectors were con-sidered leaders, but in the latter half of the twentieth century, the vanguard unquestionably included transportation and communication. The twentieth century did not simply give rise to large numbers of new inventions; the institutionalization of technical progress also took 228 AUSTERITIES AND ASPIRATIONS place. In the classical period of the industrial revolution, the most impor-tant inventions generally originated in practice; that is, skilled and inven-tive artisans and entrepreneurs worked to improve their instruments and machines until they achieved the results they desired.

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  Explaining Growth

  A Global Research Project

  • G. McMahon, L. Squire, G. McMahon, L. Squire(Authors)
  • 2003(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  3 Microeconomic Determinants of Growth Around the World Sergei Guriev and Djavad Salehi-Isfahani 1 Introduction This chapter aims at summarizing the findings of the Global Research Project (GRP) on the microeconomic Determinants of Growth in non- OECD countries in 1950–2000. 1 We study the behaviour of the main microeconomic agents, namely firms and households, the decisions they make, and the constraints they face with a particular emphasis on the implications for growth. The paper is mainly (but not exclu- sively) a survey of regional papers on microeconomics of growth, and therefore complements the effort made within the GRP to explain huge variations in growth rates around the world. Unlike other studies, this project does not exclusively rely upon cross-country regressions that include institutional variables; the idea is rather to understand what is behind the institutional and structural variables, what determines the productivity growth and factor accumulation at the microeconomic level. Regressions generally explain the variation in growth rates across countries by the large variations in the accumu- lation of physical and human capital, they do not explain how these variations arise in the first place. The GRP attempts to go beyond just the variation in inputs. Many important decisions that affect growth, such as to save, invest, innovate and accumulate human capital, are the results of decisions taken by microeconomic agents. Therefore, any understanding of the mechanics of growth must begin with the behaviour of micro agents. We assume that firms and households across the globe are rational but make different decisions because they operate under different con- straints. The regions under the GRP study have vastly different growth experiences in the twentieth century. To what extent has this been the 77

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  Economic Growth in Developing Countries

  Structural Transformation, Manufacturing and Transport Infrastructure

  • M.L. Lakhera(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Doing Business). In India, consumers have benefited from competition in sectors where there is intense competition, viz., telecommunication, automobiles, consumer electronics, cement, paper to name just a few. Empirical studies of cross-country literature suggest a positive association between higher growth and degree of competition (see Voigt, 2009; Bayoumi et al. 2004; Aghion et al. 2001; Dutz and Hayri 1999). A negative relationship between regulation and economic performance in 11 European countries was found by Koedijk and Kremers (1996). It has been estimated that the differences in levels of competition can account for over half of the current gap in GDP per capita between the Euro area and the United States. Intense product market competition has helped in achieving higher growth and increasing the employment rate. Experiences in the retailing sector have also reinforced this – employment in the Netherlands and Germany had increased as a result of competition (Pilat 1997; OECD 1997). The positive impact of competition-enhancing policies should not be seen merely through static efficiency gains in the short run, but through its pervasive and long-lasting effects on economic performance by affecting economic actors’ incentive structure, by encouraging their activities, and by selecting more efficient ones.

  2.4   Identification of potential economic determinants

  The development of endogenous growth theory, literature survey, and the experience of successful countries provide credible evidence in identifying the potential growth ingredients for domestic policy action which generate important cross-country differences in per capita income, namely: capital, technology, innovation and absorption, development of the human capital intensity and sustainable infrastructure. These forces provide the opportunities and incentives to create technological knowledge which are also internal to the system. (see Romer, 1994, 1986, 1990a; Lucas 1988; Grossman and Helpman 1991; Mankiw et al. 1992; Aghion and Howitt 1995, 1998).

  The empirical literature on economic growth has moved from proximate determinants to the deeper ones. Helpman in his book, The Mystery of Economic Growth

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  Macroeconomics

  • William Boyes, Michael Melvin(Authors)
  • 2015(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  By the same token, a country could have no economic growth, yet reduce the hours worked each week. More leisure time could make workers feel better off, even though per capita GDP has not changed. Once again, be careful in interpreting per capita GDP. Do not allow it to represent more than it does. Per capita GDP is simply a measure of the output produced divided by the pop-ulation. It is a useful measure of economic activity in a country, but it is a questionable measure of the typical citizen’s standard of living or quality of life. 16-2 The Determinants of Growth The long-run aggregate supply curve is a vertical line at the potential level of real GDP ( Y p1 ). As the economy grows, the potential output of the economy rises. Figure 3 shows the increase in potential output as a rightward shift in the long-run aggregate supply curve. The higher the rate of growth, the farther the aggregate supply curve moves to the right. To illus-trate several years’ growth, we would show several curves shifting to the right. To find the determinants of economic growth, we must turn to the determinants of ag-gregate supply. In the chapter titled “Macroeconomic Equilibrium: Aggregate Demand and Supply,” we identified three determinants of aggregate supply: resource prices, technology, and expectations. Changes in expectations can shift the aggregate supply curve, but changing expectations are not a basis for long-run growth in the sense of continuous rightward move-ments in aggregate supply. The long-run growth of the economy rests on growth in produc-tive resources (labor, capital, and land) and technological advances. R E C A P 1. Economic growth is an increase in real GDP. 2. Because growth is compounded over time, small differences in rates of growth are magnified over time. 3. For any constant rate of growth, the time required for real GDP to double is 72 divided by the annual growth rate. 4. Per capita real GDP is real GDP divided by the population.

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  Economic Development in Ghana and Malaysia

  A Comparative Analysis

  • Samuel K. Andoh, Bernice J. deGannes Scott, Grace Ofori-Abebrese(Authors)
  • 2020(Publication Date)
  • Taylor & Francis

    (Publisher)

  4Determinants of economic growth in Ghana Survey of the literature

  Introduction

  In Chapter 3 , we reviewed some of the basic theories of economic growth. In this chapter, we survey the literature on the determinants of economic growth in Ghana with a view to identifying the specific ones that may have enhanced or inhibited growth. There are several academic works that have focused on the determinants of economic growth in Ghana. In this chapter we review a few of the studies.

  Growth strategy

  From independence, it was the plan of the new government to industrialize as quickly as possible and to do so using Ghanaian resources, both human and natural; it had plenty of the latter but not the former. The first attempts at industrialization involved the familiar import substitution industrialization (ISI). Between 1965 and 1983, several factories were established to produce consumer goods in order to reduce imports and to develop the base for manufacturing. To ensure that the factories succeeded, import restrictions were introduced and foreign exchange controls imposed. While the factories were set up to use local inputs, the supply chain had not been properly developed; it was not dependable and many of the factories found themselves with excess capacity. Most of the factories were set up to process agricultural products such as rice, copra, tomatoes and beef. This made a lot of sense, since Ghana was primarily an agricultural country. Unfortunately, the local supply of the raw materials proved to be unpredictable and together with the difficulty of obtaining foreign currency to import the raw materials, for the most part, the factories could not produce enough to meet local demand. In any event, the next stage of industrialization, exports of industrial goods, never materialized. By the time the economy became liberalized in in the 1980s, many of the factories were obsolete and the state enterprises that still remained were operating at losses. This was a clear case of the government choosing winners and losing. The industrial policy (ISI) itself was not the problem; it was the implementation. In many countries where ISI has been implemented successfully, the government has not done it alone. Instead, the government cajoled the private sector, created conditions for foreign direct investment (e.g. developing infrastructure, providing good quality education make skilled workers available), and provided efficient institutions. Inability to do these resulted in Ghana losing the advantage it had at independence, when it was touted as having the best infrastructure in the region and the best chance to become developed.

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