Entries Tagged 'growth' ↓
March 2nd, 2008 — growth
Readers Question: How an increase of economic growth would lead to an increase in exports? Also, does the increase only happen just in a fixed period of time, or increase in one period is likely to affect the future?
Economic growth doesn’t necessarily lead to an increase in exports, although it often does. I don’t fully understand the last question.
What determines export growth?
1. Demand from other Countries. Demand for UK exports, will depend on the rate of economic growth in other countries. The UK’s main export targets are EU countries. Therefore, if there was growth in the Eurozone we would expect an increased demand for UK exports. A recession would cause a fall in demand for UK exports.
- Note: UK exports do not depend on UK domestic demand.
2. UK Competitiveness. If the UK can boost general competitiveness and productivity then UK exports will become more competitive and should increase.
3. Exchange Rate. A depreciation in the Exchange rate should make UK exports more competitive and should increase demand. The exact effect of a depreciation depends on the elasticity of demand for exports.
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February 1st, 2008 — growth
Readers Question: How does the size of a country effect the economic growth rate?
The two largest countries, (in terms of population) are China and India.
By coincidence China and India have the two highest rates of economic growth in the world. (China about 10.9%, India 7.0%)
However, this does not prove that populous countries will always have the highest rate of growth. For example, if we went back to the 1960s, it was likely China had a negative growth rate during the disastrous ‘great leap forward’ of Mao where upto 20 million died of starvation. One reason why China and India have a fast growth rate is that there is a lot of ‘catching up’ to do. e.g China’s old state owned industries were very inefficient and at the moment there are many potential efficiency gains.
The number of people in a country is not important, the key issues is how the economy is organised and whether a countries natural resources are utilised.
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November 17th, 2007 — growth
Readers Question: undertake an evaluation of what governments can learn from economic theory about raising their economys long term growth rate
The long term growth rate depends upon the underlying trend rate of economic growth rate. This underlying trend rate of growth depends primarily on the growth of Aggregate Supply and productivity.
To increase the long term growth rate, Aggregate Demand plays a very limited role. In the Classical model of economic growth, an increase in AD would only cause inflation. However, you could argue that AD does have a role to play.
If an economy experiences a recession for a long time, the average long run growth rate will be lower. This is related to the theory of hysteresis. What has happened in the past is likely to happen in the future. Thus, if governments can manage aggregate demand, they can prevent recessions and help increase the average growth rate.
Theories of Growth
Neo Classical Theory.
The neo classical theory of economic growth suggests that increasing Capital leads to diminishing returns. Therefore, increasing capital has only a temporary and limited impact on increasing the economic growth. As capital increases the economy maintains its steady state rate of economic growth.
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