causes of economic growth
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Causes of Economic Growth
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Causes of Economic Growth
• Economic Growth doesn’t have a set recipe.
• It is evident that different countries grow at different rates and for different reasons.
• Every country’s economy is built differently
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The Possible Causes
• Increase in Total Demand– Can come from a number of sources– However this is a short term cause as
once an economy is at full capacity no more can be produced
• Improvements to the Labour Force– Improvements to Quality and Quantity
will allow for long term economic growth through a rise in productivity
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The Possible Causes
• Progression in Technology– As technology gets better, it can lead to
an economy being more productive which will fuel economic growth
• Investment– This would fuel economic growth but the
actual source of the growth would be from new Capital Goods e.g. Machines
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Capital Widening and Deepening
• Capital Widening: when investment rises with the rise in the Labour Force
• Capital Deepening: when capital rises as the Labour Force stays the same.
• It is said that Capital Deepening is the most significant form of investment
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Economic Growth Around the World
• Different countries have different circumstances which can effect economic growth
• For example China and the UK have very different economies
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Difficult to Increase Growth
• Underdevelopment Trap– This means low outputs lead to low
wages meaning a lack of savings, resulting in firms find it difficult to invest so output stays low
• High Birth Rate– Although the quantity of labour has now
increased the factors of production are geared towards public services e.g. Education & Health
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Difficult to Increase Growth
• Debts–Many poor countries have borrowed
heavily to finance output raising measures so are constantly paying the Richer Nations
• Low income elasticity– As products are mainly agricultural they
do not benefit from rising incomes in MEDCs