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Economic Growth - Essay Example

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On the average, the long term growth rate of the United States real gross domestic product (GDP) for a hundred years from 1903 to 2003 was 2.2 per cent. This growth is considered one of the most exemplary in the world. Figure 1 shows the real GDP per person in for this period…
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Download file to see previous pages However, the United States still displays the highest growth rate in this period as shown in the left panel of Figure 2. The rest of the world also displayed increasing growth rate, but at a much slower pace than the seven biggest economies which resulted to a wider gap between the real GDP per person among these countries as shown in the right panel of Figure 2.
The rest of Asia, on the other hand, as represented by Hong Kong, Singapore, Taiwan South Korea, and China also showed tremendous gains in their economies as shown by their real GDP per person growth depicted in Figure 3. China, the world's newest economic superpower, showed an exponential growth in its real GDP.
A question, prompted by the above, is what are the underlying causes of economic growth' Furthermore, why is it that some countries grow faster than others' Is trade a major engine of economic growth' Or is it foreign direct investments' A major goal of this paper is to debate the effectiveness foreign direct investments and trade in fostering economic growth, and in the end answer the question on whether 'developing countries are right to increasingly shift resources towards attracting foreign direct investment rather than promoting trade in their objective to achieve economic growth''
Admittedly, these questions must be answered amidst ...
The shift in economic policies is often on the reallocation of economic resources to finance activities geared toward attracting foreign direct investments rather than the other needs of those nations.
Figure 3 Economic Growth in Asia

Source: See Figure 2
Economic theories postulate that, for economic growth to be persistent economies must pursue three activities - these activities generate ongoing economic growth: saving and investment in new capital, investment in human capital, and discovery of new technologies. From these three activities emerged different economic growth theories, however, these theories are not the topic of this reading, but rather foreign direct investments and trade.
International trade promotes the development of comparative advantage in the global economy, allows for the trade of similar goods - for example, United States imports automobiles and at the same time exports other types of automobiles, the diversity of taste of people is given an outlet, and economies of scale is enhanced. Trade has a very important role in promoting and sustaining long term economic growth that foreign direct investment doesn't (Kurgman and Obsfeld; Marrewijk, Ottens and Schueller).
Nonetheless, the role of foreign direct investment in the development process can not be underscored either. Hence, developing countries had shifted a considerable amount of their resources into attracting foreign direct investments or FDIs. For example, in the Sub-Saharan Africa, governments have shifted policies to attract FDIs. Fiscal holidays and tax holidays are awarded generously to investors. Moreover, investors often require that the country improve its property rights in favor of the FDI and improve ...Download file to see next pagesRead More
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