Theories Of Economic Growth And Development PdfBy Elisenda I. In and pdf 10.04.2021 at 19:22 9 min read
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After briefly illustrating some of the main traditional growth theories, this chapter will examine the new trajectories of development theories relevant to the analysis I have set forth.
- Development theory
- Theories of Economic Growth – Discussed!
- Explaining Economic Development: Old and New Theories
- Development economics
Development theory is a collection of theories about how desirable change in society is best achieved. Such theories draw on a variety of social science disciplines and approaches. In this article, multiple theories are discussed, as are recent developments with regard to these theories. Depending on which theory that is being looked at, there are different explanations to the process of development and their inequalities. Modernization theory is used to analyze the processes in which modernization in societies take place.
Under the theories of economic growth, economists have explained economic factors and their impact on economic growth. In his book, he emphasized a view that the growth of an economy depends on division of labor. After that, the view presented by Smith was further succeeded by classical economists, such as Ricardo, Malthus, and Mill.
The theory developed by these economists is known as classical theory of economic growth. Further, in late 19 th and 20 th centuries, Karl Marx presented a theory called theory of historical growth and Schumpeter developed a growth theory of technological innovations.
Finally, in late s, R. Harrod and E. Domar presented more relevant theory of economic growth popularly known as Harrod-Domar theory.
Later, neo-classical theory of economic growth was also introduced. Harrod-Domar theory and neo-classical theory explain modern growth behavior more clearly by analyzing different economic aspects. The Harrod-Domar growth model provides a long-term theory of output. The economists started paying their attention toward economic stability after the Great Depression of s and economic ruin caused by World War II. Harrod and Domar have provided a model that focuses on the requirements necessary for steady economic growth.
According to them, capital accumulation constitutes a major factor for the growth of an economy. They also emphasized that capital accumulation not only generates income, but also increases the production capacity of the economy. For instance, if a construction plant is established, it would generate income for suppliers of different materials, such as cement, bricks, steel, and machinery with simultaneous increase in capital and production capacity of the economy.
The newly generated income from capital accumulation produces demand for goods and services. According to Harrod-Domar theory, the most necessary condition for the growth of an economy is that the demand created due to newly generated income should be sufficient enough, so that the output produced by the new investment increase in capital should be fully absorbed.
If the output is not fully absorbed, there would be excess or idle production capacity. This condition should be satisfied consecutively to maintain full employment level and achieve steady economic growth in the long term. According to this assumption, the national output which is equal to national income is directly proportional to capital stock, which is expressed as follows:. Therefore the increase in the growth of national output per unit time is equal to the increase in the growth of capital stock per unit time.
After that, the extra capital required to produce the extra output can also be obtained. The capital stock and net investment I are equal to each other.
Therefore, saving is a function of income, and saving function can be written as follows:. On the basis of these assumptions, Harrod-Domar has determined the growth rate, which is as follows:. The equilibrium growth rate shows the capacity of utilizing capital stock. Warranted growth rate refers to the growth rate at which the amount of production is accurate neither too much nor too less. The increase in marginal propensity to save would result in the increase of saving, which further leads to an increase in investment.
Consequently, the income and production capacity of a nation also increase, which further increases the output of the nation. The increase in the production capacity in a particular period increases the income for coming years. The increase in income leads to increase in saving and investment, and higher incomes in succeeding years. According to the principle of acceleration, the investment increases at a faster rate.
In aforementioned discussion, we have explained the Harrod-Domar model of economic growth with respect to capital accumulation. However, another important aspect that has been discussed in the model is the employment of labor. The assumptions of the employment of labor aspect as per the Harrod-Domar model are as follows:.
This denotes that the potential labor supply restricts economic growth at full employment condition. Therefore, economic growth would occur when the increase in labor exceeds the full employment condition. In addition, the actual growth rate becomes equal to warranted growth rate only when the warranted growth rate becomes equal to growth rate of labor force. In case the increase in the growth rate of labor is slow, then the growth can only be normalized with the help of labor-saving technology.
This growth rate is termed as the natural growth rate G n that can be calculated with the help of the following formula:. However, the model is not free from limitations. Some of the shortcomings of the model are as follows:. Refer to one of the major shortcomings of the model. The Harrod-Domar model involves assumptions that cannot be applied in practical situations. According to the Harrod-Domar Model, savings becomes equal to investment when warranted and actual growth rate are equal to each other.
Assuming that there are no adjustment gaps between demand and supply as well as investment and saving. However, these conditions cannot always be fulfilled; therefore, the warranted growth may not be equal to actual growth rate always. This makes the model unrealistic. Refers to another name of the Harrod-Domar model. These factors are derived independently from the model. Therefore, the equilibrium growth rate concept according to this model cannot be confirmed in long-run.
Any deviation in these parameters can affect the equilibrium condition of an economy. Therefore, the model is sometimes referred as the razor-edge model. The collective work of economists Tobin, Swan, Solow, Meade, Phelps and Johnson is termed as neo-classical theory of economic growth. The assumptions adopted by these theorists in the neo-classical theory are based on the views and norms given by neo- classical economists, such as Alfred Marshall, Wicksell, and Pigou.
The assumptions of the neo-classical theory would be clearer by comparing them with the assumptions of the Harrod-Domar model, which is shown in Table According to the neo-classical theory, the economic growth is determined with the help of certain factors, such as stock of capital, supply of labor, and technological development over time.
When the equation of increase in national output is divided by Y, then we get the following equation:. The first term in the R. The K. MP k and L. Putting the value of K. In the preceding equation, the values of b and 1- b represents the elasticity of output with reference to the capital and labor respectively.
Therefore, according to the neo-classical theory, the economic growth rate is represented as follows:. However, in case of technological change, the change in national output can be represented as follows:. Therefore, in case of technological development, the economic growth rate can be represented as follows:. Regards technology as a constant factor, which is not true. This is due to the fact that a technology keeps advancing with time. Considers factor prices as the major factor for determining economic growth.
However, the adjustments of factor prices can be interrupted with a change in liquidity. Does not include the investment functions; therefore, the neo-classical theory has failed to describe the expectations of entrepreneurs and capital accumulation by them. Article Shared by Nitisha. Related Articles.
Theories of Economic Growth – Discussed!
With a total of more than 40 specially commissioned chapters, written by the foremost authorities in their respective fields, this volume represents a landmark in the field of economic development. It elucidates the richness of the alternative and sometimes misunderstood ideas which, in different historical contexts, have proved to be vital to the improvement of the human condition. Shivji Ch 13 Development as the struggle for liberation from hegemonic structures of domination and control , pp Yash Tandon Ch 14 The League of Nations and alternative economic perspectives , pp Carolyn N. Backhaus Ch 38 Deindustrialization and premature deindustrialization , pp Fiona Tregenna Ch 39 The post-Soviet industrial extinctions and the rise of jihadi terrorism in the North Caucasus , pp Georgi Derluguian Ch 40 Epilogue: the future of economic development between utopias and dystopias , pp Erik Reinert , Sylvi Endresen , Ioan Ianos and Andrea Saltelli Related works: This item may be available elsewhere in EconPapers: Search for items with the same title. Is your work missing from RePEc? Here is how to contribute.
Under the theories of economic growth, economists have explained economic factors and their impact on economic growth. In his book, he emphasized a view that the growth of an economy depends on division of labor. After that, the view presented by Smith was further succeeded by classical economists, such as Ricardo, Malthus, and Mill. The theory developed by these economists is known as classical theory of economic growth. Further, in late 19 th and 20 th centuries, Karl Marx presented a theory called theory of historical growth and Schumpeter developed a growth theory of technological innovations. Finally, in late s, R.
Growth Theory, Financial structure. INTRODUCTION. The growth and development theorists in both micro. and macro-economic are concerned.
Explaining Economic Development: Old and New Theories
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Economic growth can be defined as the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. Statisticians conventionally measure such growth as the percent rate of increase in real gross domestic product , or real GDP. Growth is usually calculated in real terms — i. Measurement of economic growth uses national income accounting.
Development economics is a branch of economics which deals with economic aspects of the development process in low income countries. Its focus is not only on methods of promoting economic development , economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education and workplace conditions, whether through public or private channels. Development economics involves the creation of theories and methods that aid in the determination of policies and practices and can be implemented at either the domestic or international level. Unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans.
Different models of economic growth stress alternative causes of economic growth. The principal theories of economic growth include:. Developed by Adam Smith in Wealth of Nations , Smith argued there are several factors which enable increased economic growth. Ricardo and Malthus developed the classical model. This model assumed technological change was constant and increasing inputs could lead to diminishing returns. Malthus under-predicted the capacity of technological improvements to increase food yields.
- Я до чертиков боюсь прокалывать уши. ГЛАВА 70 Дэвид Беккер почувствовал, что у него подкашиваются ноги. Он смотрел на девушку, понимая, что его поиски подошли к концу. Она вымыла голову и переоделась - быть может, считая, что так легче будет продать кольцо, - но в Нью-Йорк не улетела.
- Что случилось. ГЛАВА 93 Причастие. Халохот сразу же увидел Беккера: нельзя было не заметить пиджак защитного цвета да еще с кровавым пятном на боку. Светлый силуэт двигался по центральному проходу среди моря черных одежд. Он не должен знать, что я. - Халохот улыбнулся.
На ВР последняя стенка напоминала тонюсенькую пленку. Вокруг нее было черно от нитей, готовых ринуться внутрь. Справа бесконечной чередой мелькали кадры, запечатлевшие последние минуты Танкадо: выражение отчаяния на его лице, вытянутую руку, кольцо, поблескивающее на солнце. Сьюзан смотрела на эти кадры, то выходившие из фокуса, то вновь обретавшие четкость. Она вглядывалась в глаза Танкадо - и видела в них раскаяние. Он не хотел, чтобы это зашло так далеко, - говорила она. - Он хотел нас спасти.
Сьюзан снова завладели прежние сомнения: правильно ли они поступают, решив сохранить ключ и взломать Цифровую крепость. Ей было не по себе, хотя пока, можно сказать, им сопутствовала удача. Чудесным образом Северная Дакота обнаружился прямо под носом и теперь попал в западню. Правда, оставалась еще одна проблема - Дэвид до сих пор не нашел второй экземпляр ключа. Она молилась, чтобы его усилия увенчались успехом. Направляясь к центру Третьего узла, Сьюзан пыталась привести свои мысли в порядок. Странно, что она чувствует нервозность в такой знакомой ей обстановке.
- Сегодня здесь все идет кувырком. В чем. - Пусти меня, - сказала Сьюзан, стараясь говорить как можно спокойнее. Внезапно ее охватило ощущение опасности. - Ну, давай же, - настаивал Хейл. - Стратмор практически выгнал Чатрукьяна за то, что тот скрупулезно выполняет свои обязанности.
Он вошел. Сьюзан стояла перед ним, промокшая, взъерошенная, в его пиджаке, накинутом на плечи. Она выглядела как первокурсница, попавшая под дождь, а он был похож на студента последнего курса, одолжившего ей свою куртку.