...Explain and evaluate the neo-classical theory of long-run economic growth. In light of this theory what useful insights can be gained concerning the economic growth process of the UK economy over the past few decades? In recent year’s macroeconomists have become increasingly dissatisfied with Solow’s neoclassical theory of long run economic growth, through scrutiny of its application to the real world. (Gordon, 2006). In this essay these criticisms are going to be addressed first by explaining the theory, then considering the effect of changing different variables such as the savings rate, population growth and technical progress. The theory will then be applied to the UK economy over the past few decades discussing its relation to slow and rapid growth in certain periods. To conclude, criticisms will then be discussed to value the theory against reality. The neoclassical theory of long term economic growth is determined by marrying the production function and the savings investment line (Gordon, 2006). The production function studies the relationship between real GDP (Y) and the ‘autonomous’ growth factor (A) along with capital (K) and labour (N). This is shown by the equation Y=AF (K, N) (Gordon, 2006). The function tells us that sources causing an increased standard of living derive from the autonomous factor and the capital intensity. The per person production function shows how much output can be produced by a given quantity of factor input and is illustrated...
Words: 3044 - Pages: 13
...E C O N O M I C I S S U E S 1 Growth in East Asia What We Can and What We Cannot Infer Michael Sarel I N T E R N A T I O N A L M O N E T A R Y F U N D E C O N O M I C I S S U E S 1 Growth in East Asia What We Can and What We Cannot Infer Michael Sarel I N T E R N AT I O N A L M O N E TA RY F U N D WASHINGTON, D.C. ©1996 International Monetary Fund ISBN: 1-55775-607-4 Published September 1996 Reprinted November 1996 To order IMF publications, please contact: International Monetary Fund, Publication Services 700 19th Street, N.W., Washington, D.C. 20431, U.S.A. Tel.: (202) 623-7430 Telefax: (202) 623-7201 Internet: publications@imf.org Preface The Economic Issues series was inaugurated in September 1996. Its aim is to make accessible to a broad readership of nonspecialists some of the economic research being produced in the International Monetary Fund on topical issues. The raw material of the series is drawn mainly from IMF Working Papers, technical papers produced by Fund staff members and visiting scholars, as well as from policy-related research papers. This material is refined for the general readership by editing and partial redrafting. The following paper draws on material originally contained in IMF Working Paper 95/98, “Growth in East Asia: What We Can and What We Cannot Infer From It,” by Michael Sarel, an Economist in the Fund’s Southeast Asia and Pacific Department. It has been prepared by David D. Driscoll of...
Words: 7223 - Pages: 29
...Question Innovation is an important component of economic policy. Discuss Answer 1.0 Introduction “Today, more than ever, INNOVATION is central of survival” (Peter Drucker). Innovation has been an important component for economic growth, national economic competitiveness and economic policy for many country. It can occur in any sector of the economy, including government services such as health or education. Supporting nowadays with the rapid growth of technology industries, many policymakers in many nations have increasingly come to see technological innovations as a key driver of economic growth. This is why so many nations have made the promotion of innovation and new technologies a central part of their economic policy. Before discussing further about innovation and see why innovation play an important role for economic policies, it is important first to define innovations and its policies. Some people don’t really know what’s exactly an innovation. They are confused between invention, progress, innovation and updates. So it’s relevant to point out wrong ideas that peoples usually have over it and its creation to be able to erase it. Many people think of innovations as only technological in nature, resulting in shiny new products like Samsung’s Smartphones, Apple’s iPad, Sony’s PlayStation or in enhance machines or devices, such as lasers, autonomous robotics machines etc. Others might be thinking that innovation pertains only to research and development (R&D) activity...
Words: 1606 - Pages: 7
...Journal of Economic Perspectives- Volume Number1- Winter1994-pages 23-44 8, Endogenous Innovation in the Theory of Growth Gene M. Grossman and Elhanan Helpman C an economic growth be sustained in the long run? If so, what deter- mines the long-run rate of growth? Which economies will grow the fastest? And what kinds of policies can governments use to accelerate advances in living standards? These questions were central for those who studied growth in the 1950s and 1960s, and remain so in the recent revival of interest in long-run economic performance. Two observations have motivated many of the recent contributors to growth theory. First, output expansion has outpaced population growth in the 200 years since the industrial revolution. Second, different countries have remained on seemingly disparate growth paths for relatively long periods of time. Related to this second observation is another: in cross-section and timeseries data, we find national and regional growth rates correlated with a variety of economic, social, and political variables, including many that are affected by government policies. These observations have led the current generation of growth theorists to formulate models in which per capita income grows indefinitely and long-run performance reflects structural and policy parameters of the local and global economy. With this apparent similarity of intentions, recent research efforts have headed in several different directions. One strand of theory...
Words: 10469 - Pages: 42
...Endogenous growth theory addressed limitation associated with the neo classical growth model. To what extent is this assertion valid? Introduction Neo classical growth model is an approach in economics focusing on the determination of price, output and income distributions in markets through supply and demand. These is done through a hypothesized maximization of income- constrained utility by individuals and of cost constrained profits of firms employing available information and factors of production. This economic model was developed from the classical school of economics, which was dominant in the eighteenth and nineteenth centuries. It can be traced to the marginal revolution of the 1860’s, which came up with the concept of utility as a key factor in deterging value in contrast to the classical views that the costs involved in production were value’s determinant. The Neo classical approach became increasing mathematical, focusing on the perfect competition and equilibrium. Neo classical growth model considered two factors production function with capital and labour as determinants of output. Besides, it added exogenously determined factor, technology, to the production function. Neo classical growth model uses this production function: Y=AF (K, L)……….(1) Y= Gross Domestic Production (GDP) K= Stock of Capital L= Amount of unskilled labour A= Exogenously determined level of technology. *Note a change in this exogenously variable and technology...
Words: 2574 - Pages: 11
...are three main factors that influence economic growth——capital investment, labor and total factor productivity (TFP). Although China has gradually liberalized the one-child policy, but in the short term, China's population growth rate will not increase greatly, while with the increase of China's population aging trend, China's labor population ratio will continue to decline. Therefore, China‘s long-term growth of the economy cannot rely on the increase of labor force. On the other hand, China's investment ratio (the proportion of total investment GDP) has ranked high in the world. The rapid growth of local government debt in China has become one of the factors which restrict economic development. Therefore relying on the increase of capital investment cannot promote the healthy development of economy. In this context, improving the production efficiency which is measured by TFP is particularly important. There are numerous researches about TFP of China, while researches on TFP of a certain city are relatively few. Therefore, I choose to study TFP of Beijing which as capital of China is representative. 2.Definition and Model To study the TFP and economy development in Beijing, I mainly use Solow residual method and Cobb-Douglas production function. 2.1 Solow residual method Robert Solow defined rising productivity as rising output with constant capital and labor input. It is a "residual" because it is the part of growth that cannot be explained through capital ...
Words: 2033 - Pages: 9
...scale industries .In 1947 suggested that for growth and development of country there were need to establish new industries for that purpose Govt. establish industrial finance corporation& industrial credit corporation in1948 at that time investor invest in these industries which show the highest profit. The contribution in GDP 6.9% ⦁ 1950s ⦁ In1960s there were shifted consumer goods industries to heavy machines such as steel, petro chemical steel. The industrial performance in...
Words: 1478 - Pages: 6
...MANAGEMENT AND SOCIAL SCIENCES DEPARTMENT OF ECONOMICS DISCUSS THE VARIOUS ECONOMIC GROWTH THEORIES AND DEVELOPMENT THEORIES HOW CAN SUCH THEORIES BE USED IN ECONOMIC DEVELOPMENT IN NIGERIA. COURSE TITLE THEORY OF ECONOMIC DEVELOPMENT COURSE CODE;ECO 2911 INTRODUCTION According to Dennis Goulet in The Cruel Choice, “it matters little how much information we possess about development if we have not grasped its inner meaning”. Development is not purely an economic phenomenon. In an ultimate sense, it must encompass more than the material and financial sides of people’s lives, to expand human freedom. Every nation strives after development. Development and growth should therefore be perceived as a multidimensional process involving the reorganization and reorientation of the entire economic and social systems. The sources of economic progress can be traced to a variety of factors, but by and large, investments that improve the quality of existing physical and human resources, increase the quantity of these same productive resources, and raise the productivity of all or specific resources through invention , innovation and technological progress have been and will continue to be primary factors in stimulating economic growth in any society. ECONOMIC DEVELOPMENT THEORIES Definition of economic development It can be defined as the increase in the standard of living of a nation's population with sustained growth from a simple, low-income economy to a modern...
Words: 6595 - Pages: 27
...Preliminary draft. Please do not quote nor cite. Comments welcome. The Role of Agriculture in Nigeria’s Economic Growth: A General Equilibrium Analysis Simeon Ehui Sector Leader, Sustainable Development Network World Bank Country Office, Nigeria (contact: sehui@worldbank.org) Marinos Tsigas U.S. International Trade Commission, Washington, DC June 28, 2009 Abstract Blessed with abundant land and water resources, Nigeria’s agricultural sector has a high potential for growth, but this potential is not being realized. Productivity is low and basically stagnant. Farming systems, which are mostly small in scale, are still predominantly subsistence-based and for the most part depend on the vagaries of the weather. Many agricultural policies have also been ineffective, either because they have been misguided, or because their impacts have been swamped by macro policies affecting inflation, exchange rates, and the cost of capital. Recognizing these challenges, the Federal Government of Nigeria has identified the modernization of the agricultural sector as a major priority. In this paper we have applied the Global Trade Analysis Project (GTAP) framework to estimate the growth potential of agriculture in Nigeria. Our results show that although a 1% percent technological progress in the oil sector gives the largest welfare benefits in dollar terms ($142.72 million), when we abstract for size several food and agricultural sectors have a value that is higher than that for the oil sector...
Words: 3958 - Pages: 16
...inclusive Wealth report 2012 measuring progress toward sustainability Summary for DeciSion-makerS unu-iHDP Secretariat of the International Human Dimensions Programme on Global Environmental Change conTriBuTorS Science Advisor Partha Dasgupta – university of cambridge Report Director anantha Duraiappah – iHDP executive Director Science Director Pablo muñoz – iHDP academic officer Report Authors matthew agarwala – London School of economics and Political Science Giles atkinson – London School of economics and Political Science/centre for climate change economics and Policy edward B. Barbier – university of Wyoming elorm Darkey – university of Bonn Partha Dasgupta – university of cambridge anantha Duraiappah – iHDP Secretariat Paul ekins – university college London Pablo fuentenebro – iHDP Secretariat Juan Sebastian Lozano – The nature conservancy (colombia) kevin mumford – Purdue university Pablo muñoz – iHDP Secretariat kirsten oleson – university of Hawaii Leonie Pearson – university of melbourne charles Perrings – arizona State university chris Perry – un-Water Decade Programme on capacity Development (unW-DPc) Steve Polasky – university of minnesota Heather Tallis – Stanford university Stacie Wolny – Stanford university Report Review Board John agnew – university of california, Los angeles Peter Bartelmus – Bergische universitaet Wuppertal/columbia university Julia Bucknall – World Bank Dabo Guan – university of Leeds michael Harris – university of Sydney...
Words: 8722 - Pages: 35
...Course Title: Economics of Developing Countries II. Course Code: 153400109/1. Marker’s Name: Dr. Sahar Taghdisi Rad. Degree: BSc Economics (Year 3). Essay Question: Is the rapid growth of manufacturing a necessary condition for successful economic development? Assignment: 2. Word Count: 2486. Introduction The consensus view amongst most economists is regarding the vitality of the manufacturing sector; with Nicholas Kaldor arguing that it is the ‘engine of growth’ for an economy. Kaldor discussed that in a poor country’s initial developmental stage, the agricultural sector will play a crucial role, mainly in providing a surplus for growth. But for the country to become developed and rich, there will be no substitution to the development of the manufacturing sector (Kaldor, 1967). “Since the industrial revolution in the eighteenth century manufacturing has been considered to be the main engine of economic growth and development. In development theory, structural change was associated specifically with a shift of resources from the primary sector to the manufacturing sector” (Szirmai, 2011; 5). Kaldor referred to this structural change in a similar way as a “characteristic of the transition from immaturity to maturity” (Kaldor, 1967; 7). Why is manufacturing considered to be so important for development? Why might a poor country want a large manufacturing sector? Majority of this essay will attempt to answer these questions using ‘Kaldor’s Growth Laws’ and...
Words: 3085 - Pages: 13
...consequences that will arise should you submit plagiarised work. Critically evaluate the role innovation plays in the emergence and development of international business. Introduction Innovation has been playing a significant role in the history of business and trading since the ancient time. Generally speaking, the innovations that have effected international business can be classified into technological innovation, theoretical innovation and institutional innovation (Daniel, 1983). Among the three kinds of innovations, technological innovation is probably the most obvious one as the technology along with its influence is directly visible. In general, technological Innovation has four main effects in the emergence and development of international business: Creating the motivation and driver of international business, enabling the transportation of large quantities of merchandise over long distance, improving the efficiency of communication and improving the efficiency of production. This essay is focused on evaluating technological innovations’...
Words: 2307 - Pages: 10
...Secondly, it can be seen as a key component to the economy who discovers problem areas and sees them as creative opportunities to innovate. A successful innovative entrepreneur should be motivated by nature to produce the right product, in the right market, at the right time and of course aim the right consumers. Richard Cantillon was an economist who believed that entrepreneurs bring equilibrium to the market by balancing the market forces of supply and demand. He proposed that risk taking is a common characteristic of a competent and self confident entrepreneur because he places the survival of the organization first but his career last by going over the edge with no fear. He may even be able to go beyond his own capabilities and progress further on if he believes in himself. Acceptance of past mistakes means that they are not seen as a failure but as a lesson of trial and error to avoid future repetition under the same circumstances. Although, careful planning and consideration are some of the main characteristics of an entrepreneur, uncertainty comes along since he cannot be absolutely sure he is going to succeed 100% or whether he made the right decision. The difference between risk and uncertainty is that the first one is based on what is already known but the second one on unpredicted events. In the case of a farmer for instance, as an entrepreneur he definitely knows how much his costs of production will cost but the income he will receive is uncertain as he does...
Words: 1998 - Pages: 8
...discussed for decades and continues to be the most talked about management issue these days. Today, knowledge in all its forms plays a crucial role in economic processes. Organizations with more knowledge systematically outperform those with less. Within the knowledge-based economy, innovation is seen to play a central role. It was believed that an enterprise can maintain competitive advantage through quality and price. However, the research at the Ernst Young Centre for Business Innovation (CBI) has revealed that innovation isone of the most valuable differentiator for sustainable competitive advantage. Firms innovate to defend their competitive position as well as to seek competitive advantage. Innovation is at the heart of economic change. In Schumpeter’s words, “radical” innovations shape big changes in the world, whereas “incremental” innovations fill in the process of change continuously. Innovation is the motor of the modern economy, turning ideas and knowledge into products and services. 1 Apple, Google, 3M, Toyota, Microsoft, GE, and P&G were the most innovative companies in the year 2006 as per the annual list of the world’s 25 innovative firms. Innovation has been mostly discussed related to technology, product and processes. It has been argued that product and process innovation are not the main bottleneck to progress. The bottleneck is management innovation. But what is management innovation? Why is it so important? And how can companies learn to become management...
Words: 711 - Pages: 3
...Linear Stages of Growth/Harrod-Domar Model This model proposes that a balanced growth in the economy has no natural reason. It includes three concepts of growth which mainly are warranted growth, natural growth and actual growth. Warranted growth is the rate that firms believe that growth will be achieved without additional investment. Natural growth is the increase of labor force which keeps unemployment at a constant level. Lastly, actual growth is the final actual result that you obtain by using the Harrod-Domar model. The model implies that the amount of labor and capital are dependent factors of growth because it leads to more investments that accumulate more capital and economic growth. The growth of the economy underlies with the policies to increase investment, by increasing the amount of saving, and using investment more productively through technology. For less economically developed countries, labor has a higher amount compared to the physical which means that there is no balance. This distortion results to insufficient income and low rate of saving. The limitation of this model is that it sees economic growth and development as the same. Economic growth, in reality, is just a division of development. It also involves that less developed countries should get money to finance the investments being made to result in economic growth. However, this implication often leads to the increase of debt rate due to repayment problems. Structural Change Model/Lewis Theory...
Words: 832 - Pages: 4
