Chapter_8__Long_Run_Economic_Growth_and_Development.pdf -...

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120 David J. St. Clair Econ 1A: Macroeconomics Chapter 8 Long Run Economic Growth and Development For most of human history, survival and stability were about all that most people could hope for. In the modern world, we have come to expect growth, and are disappointed when it does not come fast enough. In underdeveloped countries, the failure to grow is a serious problem that causes them to fall further and further behind the developed world. In economics, growth over long periods is referred to as secular or long run growth and development. Sustained (and often robust) secular growth is the defining feature of developed economies. By the same token, a lack of secular growth is the hallmark feature of underdeveloped economies. In this chapter, we will enumerate the factors that usually promote growth and development. How to promote growth and development is one of the oldest questions in economics and volumes have been written on the subject. We cannot hope to do this body of literature and knowledge justice in these few pages, but understanding the factors most associated with growth and development is vital. Growth versus Development While most people casually use the terms growth and development interchangeably, there is good reason to distinguish between the two up front. Growth is producing more goods and services; development is producing more, and different , goods and services. Growth is a quantitative change; development entails a qualitative as well as quantitative change. At the same time, development necessarily requires that what we do at work change as well in order to match the change in goods and services produced. Mere growth does not require this. For example, the 90-10 Rule was discussed in Chapter 2. We have developed from the traditional economy that the 90-10 Rule described, to an economy that produces much more agricultural products, but also produces products that were undreamed of in traditional economies. At the same time, less than 2% of the workforce now has any connection with
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121 agriculture at all. We developed. If we had only grown, we would have produced more agricultural products, but little else, and 90 percent of us would still be in the fields. Growth may be good, but development is what really matters - more of the same simply will not do. Developing versus Underdeveloped Economies It may also be useful to distinguish between “developing” countries like China and other East Asia countries, versus other underdeveloped countries that are not developing. The latter not only have less economic activity and a lower level of development, but they are also not on the development path. They are not undergoing the structural changes that are a part of creative destruction. China is growing and developing through creative destruction; watch the Chinese village economy to track the destructive phase. As is always the case, not everyone is happy with the changes that are taking place in the Chinese economy and in Chinese society. Development brings changes that are not universally welcomed. However, one should think twice before
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