Sources+of+Economic+Growth

Sources of Economic Growth
 * Table of Contents ||
 * ** What is Economic Growth ** ||
 * ** How can the PPF (Production-Possibility Frontier) Curve Show //Economic Growth//? ** ||
 * ** Sources Leading to Economic Growth ** ||
 * ** Costs and Benefits of Economic Growth ** ||
 * ** Real Life Examples ** ||
 * ** Works Cited ** ||

What is Economic Growth? media type="youtube" key="PB_Qhfc9Fjk" height="312" width="384" align="right" **__Explanation__**:

Unlike economic development (a qualitative concept), economic growth is more of quantitative concept. In an economic sense of “growth”, for economic growth to occur there must be (through time) an increase in the real GDP—the total output. Thus, growth can be measured through annual percentage change in the country’s real GDP. So therefore, economic growth is a long-term sustained increase in the productive potential of the country’s economy. This means that in the long run there is room for growth to lead to real higher living standards and decreasing level of unemployment. As growth is a quantitative concept, when there is a phenomenon of an economic growth it does not directly implies an economic development. Thus, growth can occur without development. However, development is very likely to result in in economic growth.

**__Further Links to “What is Economic Growth”__:** **1)** [] **2)** []

How can the PPF (Production-Possibility Frontier) curve show //economic growth//?


 * __ Explanation __** : Potential growth occurs when there is an outward shift of the PPF curve, though the PPF curve does not give information about goods preferences or the actual choice of output.

**1)** ** Growth but not development ** :  When there is an outward shift of the PPF curve, but the shift is more for luxury goods, or in come cases where the merit goods does not shift at all. And as merit goods are directly associated with economic development, there will be economic growth as there is an increase in the long-run aggregate supply (since increase in the long run aggregate supply leads to an outward shift of the PPF curve) due to increase production possibility of luxury goods but not of merit goods. This scenario is illustrated in diagram A below.

**2)** ** Growth and development ** :  When there is an increase in the long-run aggregate supply, which contribute to the outward shift of the PPF curve. However, in order to have growth and development, the shift of production possibility of merit goods have to be more than the luxury goods. Therefore not only has the economy grow, it has developed due to the increase in capability to produce greater merit goods. This scenario is illustrated in diagram B below.

**__ Examples of different PPF curves showing economic growth __** : **1)** [] **2)** [] **3)** []
 * __ Further Links to “How can the PPF (Production-Possibility Frontier) curve show //economic growth//? __** :

SOURCES leading to economic growth:

**__Sources of long-run growth__** 1) Natural Resources

**a)** Increase of any natural resources that will increase the quantity and/or quality of the factor of production will allow an increase in potential growth to result.  **b)** **// Example //** : - In 1965 Singapore (after it gained independence) increases its land area from 581.5 to 697.2 km (which is approximately an increase of land area of 20 percent) - Malaysia also increase its land area from 329,847 to 129,962.7 km (increase of 0.03 percent)

media type="youtube" key="s5if20JWsMo" height="234" width="288" align="right" 2) Human Resources/Capital increase in the demand side of the market as well .  3) Physical Capital & Technological Fact ors **a)** ** Physical capitals ** are things such as: factories, machineries, shops, offices, and motor vehicles. While other examples such as roads, communications, and sanitation facilitate can lower the cost of economic activity. **b)** ** Quantity of physical capital ** is affected by domestic investment, savings, foreign investment, and also the government intervention. **c)** ** Quality of physical capital ** is improved by higher education, research and development and access to foreign technology and expertise. **d)** ** Physical capital also enables improved in the extraction of primary products **, which can help increase the quantity, this channels a way towards economic growth. **e)** Another most influential determinant of growth is ** technological progress ** . Since higher output levels can be achieved wit the same quantity of labor with the help of appropriate technology. **f)** ** Capital widening ** : extra capital used with an increased amount of labor; however, the ratio of capital per worker remains the same. Thus, the total production will increase, but productivity—which is output per worker—is likely to remain unchanged. **g)** ** Capital deepening ** : an increase in the amount of capital per worker. This usually is a result from improvements in technology; thus, it is common that capital deepening will make improvements in labor production as well as increases in total production.
 * a) ** Increase in human resources means more labor and to work and the larger population also means that there will be an
 * b) ** To invest in the human capital will also directly link to a positive effect on labor productivity. The investment includes things such as but not limited to: improving health services, improve skills and education.
 * c) ** The increase of human capital can also occur due to two scenarios: encourage population growth, orincrease the immigration level.



4) Institutional Factors: **a)** They are the set of rules, laws, norms, and convention that an economic activity is conducted. **b)** Examples of prerequisite institutional factors for meaningful economic growth: banking system, education system, infrastructure, political stability, structured legal system, and good international relationships. media type="youtube" key="ghVWrUDcM_4" height="312" width="384" **__Further Links to “Sources leading to economic growth”__:** **1)** [] **2)** []

COSTS and BENEFITS of economic growth: **1)** **Environmental Cost:** increased production is often accompanied by pollution and other negative externalities. The technologies employed, the inputs used and inadequate environment regulations are responsible for the environment problems that growth may lead to.
 * __ Cost __** :

media type="youtube" key="R7sCoq8QHXE" height="195" width="640" align="center"

media type="youtube" key="8y5jEFXU1pk" height="273" width="336"

**2)** **Rising income inequality**: Growth often leads to increased income inequality, which requires government intervention to mitigate as it may prove a barrier to the sustainability of the process. Those not directly or indirectly related to the growth-generating sector of the economy are often left behind. Rural populations, women, the old and the uneducated are the groups that typically suffer the most.

**__Examples of cost of economic growth__**__:__ **1)** Factories, power plants, and households all consume energy and to meet this demand, there have been huge increases in the burning of fossil fuels such as coal, oil, and natural gas. Along with rising pollution levels, the burning of fossil fuels results in huge emissions of carbon dioxide, the largest source of greenhouse gases and global warming. **2)** Although different models produce different results, the conclusion of the 2001 Intergovernmental Panel Climate Change was that the mean global temperature could increase by 1.4-5.8 degrees Celsius by 2100. Such warming signs of the negative consequences are frightening. Forest, coral reefs, and other ecological systems will be damaged as a result of their inability to adjust to changing temperature and precipitation patterns. The effects on humans will be severely felt in the developing countries. **3)** Road transport is responsible for 25% of UK CO2 emissions. **4)** As for the inequalities in income and wealth. Countries such as Japan, Denmark and Sweden typically have very low values for the Gini coefficients; whereas African and South American countries have an enormous gulf between the incomes of the richest and the poorest elements of the population.

**__ Further Links to “Cost of economic growth” __** : **1)** [] **2)** [] **3)** []

**1)** **Higher incomes:** higher levels of economic growth led to higher GDP per head f the population and this should, to some extent, improve the standard of living of the population. Of course, the end effect will depend upon how fairly the income is distributed. There is no doubt that higher GDP will benefit many, in terms of higher incomes, and so better living standards. However, it is possible that there will be a significant group that will see little, or even no, improvement. **2)** **Improved economic indicators of welfare**: Historically, it is clear that economic growth has led to higher averages in terms of economic indicators of welfare, such as average life expectancy, average years of schooling, an literacy rates. However, this will once again not necessarily be the case for all sections of the population. We can illustrate this point by looking at selected countries in terms of their HDI values from 1975 up to 2003. (HDI rank 2003) || GDP per capita Annual Growth rate % (1975-2003)  ||  HDI value 1975  ||  HDI value 2003  ||  HDI change (%)  || *Note: In all the cases, there has been an improvement in the HDI value that corresponds with positive economic growth over the period. Although here are other factors that contribute to an improvement in he HDI value, apart from GDP per capita, it is fair to suggest that there appears to be evidence to show that one consequence of economic growth may be an improvement in welfare, measured by the HDI. **3)** **Higher government revenues**: Even if the tax collection system is not very efficient, which is the case in many developing countries, increased GDP should see increased government revenues from taxation If this is the case then the government will be in a better situation when I comes to the provision of essential services such as education, health care, and infrastructure. **4)** **Creation of inequality:** Many economists argue that economic growth, especially growth achieved through market-based initiatives, leads to increases in GDP but also increases in inequality. Put simply: the rich get richer, and the poor get relatively poorer, Even if the poor get a little more money, the gap between the rich and the poor is said to grow, since the rich receive the majority of the gains. Over time this may be accentuated, and in developing countries the concept of a “trickle-down effect” where the rich spend more of this goes to the poor, does not seem to make much of a difference.
 * __ Benefits __**__ : __
 * Example: The human development Report in 2005 **
 * Country
 * Norway (1) || 2.8  ||  0.868  ||  0.963  ||  10.9  ||
 * Singapore (25) || 4.9  ||  0.725  ||  0.907  ||  25.1  ||
 * Bahamas (50) || 1.3  ||  0.809  ||  0.832  ||  2.8  ||
 * Thailand (73) || 5.1  ||  0.614  ||  0.778  ||  26.7  ||
 * El Salvador (104) || 0.2  ||  0.592  ||  0.722  ||  22.0  ||
 * India (127) || 3.3  ||  0.412  ||  0.602  ||  46.1  ||
 * Mauritania (152) || 0.4  ||  0.340  ||  0.477  ||  40.3  ||
 * Mozambique (168 ** ) ** || 2.3  ||  0.299  ||  0.379  ||  26.8  ||

**__ Examples of benefits of economic growth __**__ : __ **1)** As for the improvement in the standard of lining. According to a report published in August 2004 by the [|Asian Development Bank] (ADB), rapid growth in many of the countries in the Asian region has reduced the number of people living on less than $1 a day fell to 22% of the region's population in 2002. That compares with 34% in 1990 and shows "considerable progress in the fight against poverty." **2)** The sustained growth in the British economy since 1993 has helped to bring about a large rise in total employment, the number of people in work has risen from 2.53 million at the start of 1993 to nearly 29 million thirteen years later.

**__ Further Links to “Benefits of economic growth” __** : **1)** [] **2)** [] **3)** []

**__ Works Cited __**
 * Information ** :

Blink, Jocelyn, and Ian Dorton. //IB Diploma Programme// // Economics Course Companion //. 1st ed. China: Printplus, 2007. 321-325. Print.

Ziogas, Constantine. //IB Study Guides Economics for the IB// // Diploma //. 1st ed. China: Prosperous, 2008. 121-124.  Print.

"Houseboat Living - what laws, rules, or regulations affect house boats?." //Houseboat Living//. Web. 24 Feb 2011. .
 * Images ** :

"Lust… Money… Idol Worship… and More!." //esoriano//. Web. 24 Feb 2011. .

"Peak Oil is a Corrupt Globalist Scam." //Breaking News//. Web. 24 Feb 2011. .

"Can green economic growth fight financial and climate crisis?." //YouTube//. Web. 24 Feb 2011. .
 * Videos ** :

""Economic Growth" is the growth of DEPLETION (graph of general trends)." //YouTube//. Web. 24 Feb 2011. .

"GHRF2006: Human Capital and Economic Growth." // YouTube //. Web. 24 Feb 2011. .

"Kennedy on the Adult Education and Economic Growth Act." //YouTube//. Web. 24 Feb 2011. .

"Limits to economic growth? Sustainability?." //YouTube//. Web. 24 Feb 2011. .