Economic Growth Essay Examples
Economic growth is the increase in the ability of the economy to produce services and goods from one year to another (Barro, 2004). The economic growth can be measured using real terms or nominal terms. Nominal terms include inflation while real terms involve making adjustments for inflation. The economic growths of different countries are compared against each other using GDP (Riley, 2012). GDP is a method that takes into consideration the different populations of the countries being compared against each other. The economic growth of a country also influences the living standards of its population. The new growth theory has been introduced to show the need of humans to continue increasing their economic growth.
The new growth theory follows that humans have unlimited wants and that they desire to continue increasing economic growth and productivity. The unlimited wants provide grounds for the humans to desire a continuous increase in productivity. People have high desires to make profits, and they continue looking for new ways of achieving this goal (Cortright, 2001). The new growth theory follows that the GDP of each person continues to increase due to the efforts made by other people to increase profits. Competition presents a challenge to the increase of profits, but people look for better ways of doing things so that they can increase their profits (Field, 2011). People have become innovative so as to develop new techniques, new products, new services, and new processes that will enable them to have a competitive edge in the market. A competitive edge enables a company to increase its market share, and consequently, its profits.
The new growth theory focuses on new knowledge as the reason behind the continued increase of returns that enable economic growth. Knowledge is seen as a good that cannot be rivaled. That feature of non-rivalry makes knowledge a better tool for economic growth compared to the other goods. The new growth theory follows that the economy can grow without limitations through the increase of knowledge as opposed to the increase of capital and labor. However, there are challenges that face markets in their efforts to produce knowledge. One of the main challenges is the inability of the innovators to collect all the benefits derived from the creation of new knowledge (Cortright, 2001). Another challenge is the reusability property of knowledge. Knowledge can be reused at no cost at all making it possible for the companies that use knowledge to earn monopoly profits. All categories of knowledge contribute highly to the economic growth.
The new growth theory that uses knowledge to increase profits has major effects on the economic development policy. The theory defines the significance of making investments on new knowledge so as to sustain economic growth. The economic policy makers should pay attention to issues that generate incentives for the creation of knowledge. Such issues include the education system; diversification; research and development; open trade; macroeconomic expectations; and entrepreneurship. The new growth theory looks at the technological process as being a result of economic activity. Other theories had looked at technology as a product of forces that were not related to the market (Cortright, 2001). The new growth theory sees technology as a factor that contains the characteristic of increasing returns. The characteristic of increasing returns is known to growth the economy.
People are now able to see the sense of the shift from an economy that is resource-based to an economy that is knowledge based through the help of the new growth theory. The theory is based on drawing comparisons on the wealth of the world in the present and in the past. The world today is richer than it was 100 years ago (Cortright, 2001). Some of the nations have also experienced larger economic growth than other nations. Knowledge has been seen as the main driver of the economic growth. Knowledge can be accumulated without any limitations, and it has the ability to be reused or shared among many people. Ideas gained from knowledge have an advantage over the other economic goods because they are not subjected to the law of diminishing returns (EO, 2015). They benefit from increasing returns, and are effective in driving the economy towards growth.
The improvement in the standards of living of the people in a country is as a result of the proper utilization of the resources available in the world (Cortright, 2001). Knowledge has played a key role by enabling people to know how to use these resources so as to promote the economic growth. The world today is more focused on the internet and computer as major drivers towards the progression of the economy, but the truth is that it is knowledge that has enabled the generations of innovations and ideas that help in the sustenance of economic growth. A country like the US has experienced progressive economic growths because of encouraging people to be innovative. The US registers a large number of patents every year due to the innovative efforts of its citizens.
In conclusion, economic growth is the ability of the economy to increase its production of services and goods from one period to another. The society has always associated economic growth with the use of resources, but the new growth theory introduces aspects such as knowledge and technology as the drivers of economic growth. The theory argues that knowledge has been used to enable the development of innovations that increase the returns of the organizations. Knowledge possesses priceless features such as reusability, sharing, and absence of limitations. These features enable the sustainability of economic growth.
Cortright, Joseph. New Growth Theory, Technology and Learning. 2001. Web. 13 Feb. 2015. http://e-tcs.org/wp-content/uploads/2012/10/Cortright-nueva_teoria_del_crecimiento.pdf
Riley, Geoff. Economic Growth. 23 Sep. 2012. Web. 13 Feb. 2015. http://tutor2u.net/economics/revision-notes/as-macro-economic-growth.html
EO. New Growth Theory. 2015. Web. 13 Feb. 2015. http://www.economicsonline.co.uk/Global_economics/New_growth_theory.html
Barro, R. J. Economic Growth. 2nd Ed. New York: McGraw Hill. 2004. Print.
Field, Alexander. A Great Leap Forward: 1930s Depression and US Economic Growth. London: Yale University Press. 2011. Print.