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Economic Growth

Introduction in Economy and Economic Growth
by

Andra Ghimisi

on 16 October 2012

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Transcript of Economic Growth

Economic Growth Basic Information What Economic Growth means Historical sources of Economic Growth Theories of Economic Growth Quality of Life Negative effects of Economic Growth Institutions and growth Environmental impact Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output. Economic growth has traditionally been attributed to increases in population, accumulation of capital, and increased productivity.
Opening up new territories was considered a growth factor in the past, not being important since the late 19th century, except in a few areas areas such as Latin America, where forests were cleared in the 20th century for agriculture and in sub-Saharan Africa. There are several theories of Economic Growth
which developed in time:
-Classical growth theory
-The neoclassical growth model
-Salter cycle
-Endogenous growth theory
-Energy and energy efficiency theories
-Theory of cognitive wealth (cognitive capitalism)
-Unified growth theory
-The big push
-Schumpeterian Growth According to Acemoğlu, Simon Johnson and James Robinson, the positive correlation between high income and cold climate is a by-product of history. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates, they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently, they established institutions with this objective in mind and modeled them after those in their European homelands. In these 'neo-Europes' better institutions in turn produced better development outcomes.These authors look at the environmental conditions in the colonies to explain institutions. Happiness has been shown to increase with a higher GDP per capita, at least up to a level of $15,000 per person.
Economic growth has the indirect potential to alleviate poverty, as a result of a simultaneous increase in employment opportunities and increase labour productivity.A study by researchers at the Overseas Development Institute (ODI) of 24 countries that experienced growth found that in 18 cases, poverty was alleviated.However, employment is no guarantee of escaping poverty, the International Labour Organisation (ILO) estimates that as many as 40% of workers as poor, not earning enough to keep their families above the $2 a day poverty line. A number of critical arguments have been raised against economic growth.
It may be that economic growth improves the quality of life up to a point, after which it doesn't improve the quality of life, but rather obstructs sustainable living. Historically, sustained growth has reached its limits (and turned to catastrophic decline) when perturbations to the environmental system last long enough to destabilise the bases of a culture. Some critics argue that a narrow view of economic growth, combined with globalization, is creating a scenario where we could see a systemic collapse of our planet's natural resources. Concerns about possible negative effects of growth on the environment and society led some to advocate lower levels of growth, from which comes the ideas of uneconomic growth and de-growth, and Green parties which argue that economies are part of a global society and a global ecology and cannot outstrip their natural growth without damaging them.
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