Main Causes of Economic Growth - Coursework Example

? Main Causes Of Economic Growth Economic growth refers to an increase in s productivity and prolific capacity that is determined by the comparison of gross national product (GNP) in a particular year with the GNP in the previous or the preceding year (Friedman, 2005). Hoist in the advances in technology, capital stock, and progression in the quality and point of literacy are always viewed as the main causes of economic growth. Other factors that have been associated with economic growth include quality and quantity of labor, access to resources, such as land, increased investments, consumers and business confidence. In the recent past years, the initiative of sustainable development intensification has led to development of additional factors such as environmentally sound process, which ought to be considered in the growth of an economy (Erikson & Stimson, 2002. p. 56). A factor that leads to an increase in total demand is one of the key causes of economic growth in any country. This can occur due various sources. However, an increase in total demand is a short-term cause. This is because whenever an economy of any country is at its full capacity, that country cannot produce any additional products or services to improve her economy. However, improvements or advancements in the labor forces, and quantity and quality of products and services will give room for the long-term economic growth through a heightening in productivity (Nordhaus, 2001, p. 23). Progression or advancement in technology has been one of indicators of economic growth in various states. Technological advancements in any country lead to a high and more productive economy of that given country, and this will accelerate economic growth. Every developing country and developed states have invested heavily in the technology industry in order to see their country economy grows quickly. According to Erikson and Stimson, advanced technology has improved service delivery and encouraged both local and foreign investments (Erikson & Stimson, 2002, P.56). There are few cases of unemployment in all countries with improved technology. This is because technological improvements have led to creation of job opportunities that see their citizens securing jobs and improving their living standards. Consequently, these local and foreign investments will accelerate economic growth despite the fact that the fresh capital goods or assets for example, machines, will be the exact source of the growth (Friedman, 2005). Deepening and widening capital is one of the causes of economic growth of a country. Capital widening takes place when investment rises and increases with the strengthening of the labor force. On the other hand, Capital Deepening takes place when capital increases while the labor force remains constant. Economists usually say that capital deepening is one of the most significant and necessary forms of investment (Nordhaus, 2001, p.23). Uses of land and mineral resources are the major causes of economic growth in both developed and developing countries. Proper utilization of mineral resources of a country depends heavily on government policies and regulations. Most of citizens in countries that have implemented strict policies have utilized their resources well, including land. Countries with double-digit economic growth have recorded proper utilization of their resources. In the economic growth globally, various countries have different situation and circumstances that are facilitating economic growth. For instance, the UK has a robust economy (Nordhaus, 2001, p.23). In the end, economic growth can take place due to increased capital, raised investment in new infrastructure, factories, increased labor productivity, and augment the working population or the discovery of fresh raw materials. Technological improvements can also facilitate or hinder economic growth (Friedman, 2005). Economic growth relies on investment and productivity, using available resources more efficiently and investing in fresh resources. Successful economic growth will generate elevated incomes that will in return accelerate demands and motivates more economic growth. However, the cycle can work in the opposite or reverse direction, thus, reduced demand may translate to under-utilization of resources and investments cutbacks. When a business entity is setting strategy and objectives for its future, economic growth is a significant factor to consider. Firms and businesses with essential products do not feel the effect of downturns and upturn of an economic growth. Stores make a good instance, but they expand and reduce their values and up-market brands in relation to economic conditions. Changes in economic development influence firms that sell luxuries more significantly. Restaurants, home furnishings, cars and holidays are all various types of products that rely heavily on economic advancement when establishing a business plans (“The Economist guide to economic indicators: making sense of economics”, 1997, p. 34). The trepidation about economic growth usually centers on the interest to improve living conditions in a country in addition to the degree of services and goods, which on average, individual gain to access or purchase. If a populace rises along with the economic production, increases or raise in gross domestic product do not essentially result in advancement in the level of living standards. Economic development is expressed in terms of per capita basis when one focuses on living standards or living conditions (Erikson & Stimson, 2002. p. 56). A high and increased savings rate is associated with standard of living of a population or of an individual. High saving will in a long run translate to a permanently or enduringly income (higher output) per capita as capital buildup per individual also raises (MacDonald, 2012, p. 67). GNP and GDP are the percentage terms used to measure economic growth. These two principles are calculated and determined slightly in different ways using total amounts compensated for products and services produced by a particular country. For instance, when measuring economic growth, a state that generated $9 trillion in services and goods in 2011 and then later generated $9.09 trillion in the year 2012, had an ostensible economic development rate of about 1% for the year 2012 (MacDonald, 2007, p. 67). In order to contrast per capita economic growth among states, the sum of sales of the given states can be cited in a single currency. These require exchanging the value of currencies of different countries into the selected currency, for instance the U.S. dollars. Depending on the exchange rates among various currencies is one way to do these conversions. Another approach is the utilization of the purchasing power parity methods. These methods are based on how a great deal consumers pay for the similar baskets of goods in each state (Holden, 2003, p. 27). Deflation or Inflation can make it difficult to measure economic growth of a particular state. For instance, if GDP goes up in a state by 1% in one year, it will be due to the rising prices or inflation, or because additional goods and services were manufactured and then saved. In order to express the real growth and not changes in cost for the same goods, the statistics on economic advancement are usually attuned for the inflation or the deflation (MacDonald, 2012, p. 67). In relation to the United Kingdom, South Korea, Qatar and Equatorial Guinea, the Gross domestic product is effective in determining the state’s economic advancement or economic growth, hence, essential in determining the individual living standard. According to the figures, the nominal gross domestic product per capita ranking of the United Kingdom by United Nations is 27, and the international monetary fund ranked it 24 in the year 2011. IMF ranked human development at 28 hence; there is no much variation in the ranking of the country’s gross domestic product. According to the figures in the ranking by the United Nation and International Monetary Fund, the GDP indicated the living standards of its citizens. In relation to the ranking of the GDP, the country is ranked 36 and 27, while the human development index reflected to be 28. These show that there is no much variation hence effective in the determination of the living conditions or standards. For Qatar, the gross domestic product (GDP) does not show or measure the living standards and living condition of individuals in the state. According to United Nations’ rankings, Qatar was ranked number five while the International Monetary Fund (IMF) ranked her to be number one. Contrary to the GDP ranking, the Qatar’s human development index ranked her to be 37. This is a wide or huge variation between the GDP and the human development ranking. Therefore, this translates that this measure is not applicable in cannot be used to determination of the country’s living standard or living condition. Just like Qatar, Equatorial Guinea cannot utilize gross domestic production (GDP) to determine the country’s living standard. According to the statistics, the country was ranked 45 with the United Nation and 21 with International Monetary Fund in the year 2011. In the human development index, the country was ranked 136. There is a huge margin between the human development index and the gross domestic product hence, GDP is not applicable in an evaluation of a country’s living standard (MacDonald, 2012, p. 67). On other measures in determining living standards; according to the modern economists, they are not content with GNP, per capita and national income as the primary measures of the economic growth and living standards. According to the economists, the question is not only about growth but also what kind of development. They therefore formulated Human Development Index (HDI) as a tool of measure. There were various measures that were incorporated in this index, conversely, to keep the HDI undemanding and convenient; the subsequent focal variables were integrated in it. Life expectancy was selected as a determinant of long life, Literacy as the index of acquaintance and Real GDP per person or per individual (Holden, 2003, p. 27). There are other types of measures, which are applicable in determination of living standards or living conditions. These include faster increase in the overall wellbeing of people, increase in real per capita income, human development and basic needs approach. Rise in overall wellbeing of the citizens is the third traditional and customary measure of economic growth, and living standard was an increase in economic well-being of the populace. According to this measure, if the people of a certain country are capable of obtaining and consuming more and extra goods and services than previous amounts and quantities, then citizens will be measured as having better living standards. Therefore, economic expansion is a continuous and secular enhancement in the material welfare reflected in an increase in goods and services. This measure is more accurate compared to the gross domestic product, as it does not reflect citizen’s ability to buy extra or more goods and services (Holden, 2003, p. 27). Basic Needs Approach is also referred to as Physical Quality of Life. This approach employs three indicators to determine economic development and living standards of people in a country. These indicators include life expectancy and age, literacy and Infant mortality. The basic need approach is measured higher as it spells out the detail person needs in stipulations of health, nutrition or sustenance, shelter/cover and education. In addition, it covers the fault which existed the in per capita, GNP determinant or measure. Conversely, the approach is carped on the ground that it does not comprise security, integrity and constitutional rights, which are the central determinants of quality of life (“The Economist guide to economic indicators: making sense of economics”, 1997, p. 34). Other indicators or measures of living standard of a state include the proportion of income created from agriculture in Gross Domestic Product. The superior the income instigated from agriculture, the little development in the country’s economy. In addition, per Capita utilization of energy can be used to determine living standards of a country. Highly developed and urbanized industry, economy of a given country and living standards of its citizens is facilitated by strong per capita utilization of energy. Various factors lead to economic development of a country. Some of these factors include hoist in the advances in technology, capital stock, advancement in the quality and point of literacy, quality and quantity of labor, access to resource such as land, increased investments and consumers and business confidence. Therefore, various countries have tried to improve these factors in an effort to accelerate development of their economies. Since time immemorial, gross domestic product was used to determine the economic growth and living standard of citizens. However, the measure is not effective in some countries and therefore, calls for application of other methods. Other methods used to determine living standard include increase in the overall wellbeing of people, increase in real per capita income, human development and basic needs approach. This is because these methods reflect the exact living standards and living conditions of citizens in a particular state. Bibliography Erikson, R. S., MacKuen, M., & Stimson, J. A. (2002). The macro polity. New York: Cambridge University Press. Friedman, B. M. (2005). The moral consequences of economic growth. New York: Knopf. Holden, M. (2003). Per capita Gross Domestic Product: an appropriate measure of living standards?: the case of Newfoundland and Labrador. Ottawa: Parliamentary Research Branch. MacDonald, R. (2012). Real GDP and the purchasing power of provincial output. Ottawa: Statistics Canada. Nordhaus, W. D. (2001). Alternative methods for measuring productivity growth. Cambridge, MA.: National Bureau of Economic Research. “The Economist guide to economic indicators: making sense of economics.” (1997). New York: Wiley. Read More