Causes of Economic Growth

Causes of Economic Growth

• 1.
  Causes of EconomicGrowth
• 2.
  Causes of EconomicGrowth • Economic Growth doesn’t have a set recipe. • It is evident that different countries grow at different rates and for different reasons. • Every country’s economy is built differently
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  The Possible Causes •Increase in Total Demand – Can come from a number of sources – However this is a short term cause as once an economy is at full capacity no more can be produced • Improvements to the Labour Force – Improvements to Quality and Quantity will allow for long term economic growth through a rise in productivity
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  The Possible Causes •Progression in Technology – As technology gets better, it can lead to an economy being more productive which will fuel economic growth • Investment – This would fuel economic growth but the actual source of the growth would be from new Capital Goods e.g. Machines
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  Capital Widening andDeepening • Capital Widening: when investment rises with the rise in the Labour Force • Capital Deepening: when capital rises as the Labour Force stays the same. • It is said that Capital Deepening is the most significant form of investment
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  Economic Growth Aroundthe World • Different countries have different circumstances which can effect economic growth • For example China and the UK have very different economies
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  Difficult to IncreaseGrowth • Underdevelopment Trap – This means low outputs lead to low wages meaning a lack of savings, resulting in firms find it difficult to invest so output stays low • High Birth Rate – Although the quantity of labour has now increased the factors of production are geared towards public services e.g. Education & Health
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  Difficult to IncreaseGrowth • Debts – Many poor countries have borrowed heavily to finance output raising measures so are constantly paying the Richer Nations • Low income elasticity – As products are mainly agricultural they do not benefit from rising incomes in MEDCs