Long Run Economic Growth

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In economics, economic growth is the annual percentage change in per capita real GDP.

Key Theorists

Adam Smith (1776)

  • Emphasize on the importance of markets (invisible hand), capital accumulation, and division of labour as the main determinants of long run growth

Thomas Malthus (1798)

  • Malthusian Trap
    • If population growth is not checked by the "positive and preventive checks" it will undermine output growth in the long run

Robert Solow (1957)

  • Argue that technological change is the most important determinant for economic growth

Determinants of Long Run Economic Growth

Classical Economist View

  1. Labour
  2. Land
  3. Capital
    • Human Capital
    • Physical Capital


Neoclassical Economist View

  1. Technological Change

Benefits

  1. May increase the average standard of living. This is under the condition that population is not growing faster than subsistence
  2. May assist in the elimination of global poverty
  3. May facilitate the opportunity to redistribute income

Costs

  1. The opportunity cost of growth is the diversion of resources from present consumption to future investment
  2. Personal hardship(non-pecuniary costs)to those who cannot adapt to change
  3. Produce externalities
    • Pollution
    • Global Warming
    • Financial Meltdown
    • Congestion
    • Stress
    • Disease
    • Expectations
    • Happiness

Journal Articles on Economic Growth and Development

Classical

Smith, Adam (1776) "An Inquiry into the Nature and Causes of the Wealth of Nations"


Malthus, Thomas (1798) "An Essay on the Principles of Population"


Marx, Karl (1867) "Capital, Volume I" and "The Manifesto of the Communist Party" (1848)


Modern or Neoclassical

Solow, Robert(1957) "Technical Change and the Aggregate Production Function"


Hall and Jones (1999) "Why Do Some Countries Produce So Much More Output Per Worker Than Others?"


Collier, Paul (2007) "The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It"


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