Causes of Economic Growth

Causes of Economic GrowthCauses of Economic GrowthEconomic Growth doesnt have a set recipe.It is evident that different countries grow at different rates and for different reasons.Every countrys economy is built differentlyThe Possible CausesIncrease in Total DemandCan come from a number of sourcesHowever this is a short term cause as once an economy is at full capacity no more can be producedImprovements to the Labour ForceImprovements to Quality and Quantity will allow for long term economic growth through a rise in productivityThe Possible CausesProgression in TechnologyAs technology gets better, it can lead to an economy being more productive which will fuel economic growthInvestmentThis would fuel economic growth but the actual source of the growth would be from new Capital Goods e.g. MachinesCapital Widening and DeepeningCapital Widening: when investment rises with the rise in the Labour ForceCapital Deepening: when capital rises as the Labour Force stays the same.

It is said that Capital Deepening is the most significant form of investmentEconomic Growth Around the WorldDifferent countries have different circumstances which can effect economic growthFor example China and the UK have very different economies

Difficult to Increase GrowthUnderdevelopment TrapThis means low outputs lead to low wages meaning a lack of savings, resulting in firms find it difficult to invest so output stays lowHigh Birth RateAlthough the quantity of labour has now increased the factors of production are geared towards public services e.g. Education & Health Difficult to Increase GrowthDebtsMany poor countries have borrowed heavily to finance output raising measures so are constantly paying the Richer NationsLow income elasticityAs products are mainly agricultural they do not benefit from rising incomes in MEDCs