Magnitude Of Earthquakes Essay

2615 words - 11 pages

Economic Growth is the increase per capita gross domestic product (GDP). There is a distinction between nominal and real economic growth, where the first is the growth rate including inflation, while the second is the nominal rate adjusted for inflation. Moreover economic theorists distinguish short-term economic stabilization and long-term economic growth. The topic of economic growth is mainly related to the long run. Short-run variation of economic growth is termed the business cycle. The long-run path of economic growth is one of the central questions of economics.
In 1377, the Arabian economic thinker Ibn Khaldun provided one of the earliest descriptions of economic growth in his ...view middle of the document...

Based on Harrod and Domar model (1946), Solow and Swan (1956) introduced a model that included the term productivity growth. Assuming technological progress exogenous the neo-classical growth model shows that in case of no technological progress, economic growth will at some point ceases due to the effect of diminishing returns. Solow’s model also includes a parameter that measures productivity, which describes the knowledge in the economy. The model implications where that in the short run policies are able to affect the steady state of the total production, but not the long run growth rate since growth is determined exogenous by the growth of labor force and technological progress.
Neo-Classical Growth Model: Y=AK^α L^(1-α)
Where Y represents the total production in an economy, A represents the productivity factor (often generalized as technology), K is he capital and L is the labor. Despite its simplicity and the model gave the first insights in the importance of technological progress in the process of economic growth through the productivity factor, since a technological improvement which would increase A would eventually lead the economy to a higher level of output.
Due to the disadvantages of Solow’s model and the need for a more {{{{effective}}}} theory explaining growth in the long run and technological progress, the endogenous growth theory were developed in the 1980s. Romer (1986) based on microeconomic assumptions, households maximizing utility and firms maximizing profits, built macroeconomic models introducing technological progress and human capital – the skills and knowledge that make the labor force productive – which contrary to physical capital has increased rates of return. This model gave to policy makers for the first time the theoretical framework in order to influence long run growth rates depending on the type of capital they wanted to invest in. Lucas (1988), Grossman and Helpman and Aghion and Howitt (1992) developed this idea further by including innovation and focusing mostly on research and development.
The first wave of traditional neoclassical growth models are efforts to explain differences in income per capita through different paths of factor accumulation, focusing on the benefits caused by capital accumulation, physical and human, and on the way that these benefits may encourage long run growth. The second wave of models – Romer (1990), Grossman and Helpman (1991) and Aghion and Howitt (1992) – endogenized technical progress, but they are not providing satisfactory explanation for income differences, in the contrary is similar to that of older models. North and Thomas (1973), cited in Acemoglu et al. (2005), mentioned that innovation, economies of scale, education and capital accumulation are not causes of growth; they are growth. All these factors are “proximate causes of growth”; the fundamental causes of growth differences are institutions, geography and culture. (Acemoglu et al., 2005)
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