3. Figure 6.1 shows what economists have called the great divergence in income levels around the world as a result of different rates of, and starting dates for, modern economic growth. D. Catching Up is Possible 1. Countries that began modern economic growth more recently are not doomed to be permanently poorer than the countries that began modern economic growth at an earlier date.
2. The poorer ‘follower countries’ can grow much faster because they can simply adopt existing technologies from rich ‘leader countries’. 3. Table 6.2 shows both how the growth rates of leader countries are constrained by the rate technological progress as well as how certain follower countries have been able to catch up by adopting more advanced technologies and growing rapidly. 4. CONSIDER THIS … Economic Growth Rates Matter IV. Institutional Structures That Promote Growth A. Table 6.2 demonstrates that poorer follower countries can catch up. But how does a country start that process. B. Economic historians have identified several institutional features that promote and sustain modern economic growth. 1. Strong Property Rights 2. Patents and copyrights (see the CONSIDER THIS … Patents and Innovation ) 3. Efficient financial institutions 4. Literacy and widespread education 5. Free trade 6. A competitive market system V. Determinants of Growth A. Four supply factors relate to the ability to grow. 1. The quantity and quality of natural resources, 2. The quantity and quality of human resources, 3. The supply or stock of capital goods, and 4. Technology. B. Two demand and efficiency factors are also related to growth. 1. Aggregate demand must increase for production to expand. 2. Full employment of resources and both productive and allocative efficiency are necessary to get the maximum amount of production possible. VI. Production Possibilities Analysis (Figure 6.2) A. Growth can be illustrated with a production possibilities curve (Figure 6-2), where growth is indicated as an outward shift of the curve from AB to CD. 1. Aggregate demand must increase to sustain full employment at each new level of production possible. 2. Additional resources that shift the curve outward must be employed efficiently to make the maximum possible contribution to domestic output. 3. And for economy to achieve the maximum increase in monetary value, the optimal combination of goods must be achieved (allocative efficiency). VII. Accounting for growth is an attempt to quantify factors contributing to economic growth. A. More labour input is one source of growth. Labor force has grown by and accounts for about one-third of total economic growth.
B. The growth of labor productivity contributed only about half of the growth from in the past , but was responsible for more than half in the last decade C. Technological advance, the most important factor in productivity growth, accounts for 40 percent of productivity growth.
- Winter '08
- Inflation, Gdp, gross domestic product, Canada.