Transcript 8-3why
Why Growth Rates Differ
Chapter 8-3
Why Growth Rate Differ?
A number of factors influence
differences among countries in
their growth rates.
Why Growth Rates Differ?
Policies and institutions that alter
Growth:
savings and investment spending
foreign investment
education
infrastructure
research and development
political stability
the protection of property rights
Saving and Investment
Spending
To increase Physical Capital an economy
must engage in Investment Spending
Sources for Investment Spending:
Household saving
Government saving
Foreign saving
This makes banking system important to the economy
Foreign Investment
Private Savings=Investment Spending
When: Private Savings < Investment Spending
Foreign investment covers the shortfall
Is Foreign Investment
good or bad?
Eventually foreigners have to be
repaid with Interest and/or Profit
Some Economist argue: Increase
in Real GDP generated by foreign
investment is greater than what is
paid out.
They bring new technology that
diffuses through the economy.
Education
This affects Human Capital
Statistical analysis comparing different
countries suggests that education has
more impact on growth than increase
in Physical Capital
Infrastructure
Roads, Power lines, Clean Water, Basic
Public Health and other underpinnings
for the economic activities
Research & Development
Spending to create and implement new
technologies
Political stability, Property
rights and Govt. Intervention
Political stability and protection of
property rights are crucial
ingredients in long-run economic
growth.
There’s not much point in investing in
a business if rioting mobs are likely
to destroy it or saving your money if
someone with political connections
can steal it.
Political stability, Property
rights and Govt. Intervention
Even when governments aren’t
corrupt, excessive government
intervention can be a brake on
economic growth.
If large parts of the economy are
supported by government subsidies,
protected from imports, or otherwise
insulated from competition,
productivity tends to suffer because
of a lack of incentives.
Poor Countries Regulate Business
the most…