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Long Run Economic Growth Free essay! Download now

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Long Run Economic Growth

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Description

Discuss how long run economic growth is explained

Preview

Long Run Economic Growth
Discuss how long run economic growth is explained?


Introduction
Increasing Growth Methods

Stylized Growth Trends

GDP per capita Growth Data

Solow Growth Model

Endogenous Growth Theory

Critique

Geographical and Institutional Effects

Conclusion

References














Introduction
Long run economic growth is one of the most, if not, the most, important macroeconomic topic. Long run economic growth comes from the increase in quantity and quality of factors of production in an economy. These include labour and capital. As we know, land is fixed within a country however; new innovation and technology can utilize this factor of production to the best of its ability. Growth is determined by the ability of an economy to increase its output.

Increasing Growth Methods
One method, a fast route to economic growth, is the exploitation of natural resources, such as oil and coal, which carry very high market value around the world. Middle-eastern countries such as Saudi Arabia exploit this method of harvesting natural resources. (Middle East, Economic Digest, 1977)

Increasing quality of labour is an important method of affecting an economies output. Education, training programs and experience all make workers more productive. By making better use of labour workers, an economy can become more productive and thus increase output. (Lim, 1996)

Investing in capital stocks can substantially increase labour potential. Workers with the use of better machines mean that they can become much more productive. Historically, Japan has experienced one of the highest growth rates after the 2nd World War due to also having the best capital investment records. (Quack, 2000). Another important point is to ensure that the investment in capital is aimed towards those industries with existing high demand. Investment in capital stocks aimed towards dying industries would be wasted as capital investment alone does not create growth, but facilitates it.

The aim of the government is to increase the economies productive potential to aid faster future economic growth I.e. to provide the framework for the economy to use effectively in the future by way of new technology and increasing labour supplies.

Stylized Growth Trends
In the last 200 years the difference between the richest and poorest countries has been growing, also the growth rates in per capita income between the richest and poorest countries are not converging. (Rios, 2001)
Stylized rates of growth show long run economics displaying a balanced positive growth path in terms of output and capital per worker. The rate of return of capital factors are constant, as they only possess a certain operational capacity however the real wages grow at a rate closely mirroring the same output per worker. I.e. you get what you work for!
Another stylized trend is that countries with low population growth are positively related to higher living standards. Also ...

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