|
Article Excerpt
I. INTRODUCTION
In the preface to New Economic Growth." New Factors and New Perspectives, the editors, Bahmani-Oskooee and Galindo Martin (2006), say that in recent decades economists have provided newer views of a better economic future where economic growth takes center stage. When economic growth is high, more jobs and greater income are available for distribution, paving the way for prosperity. They observe that the importance of growth is not new in economic discourse. Adam Smith (1776), Ricardo (1817) and Malthus (1820) had in mind economic growth to achieve economic progress, though they differed in the suggested tools. Added to these are newer theoretical versions which suggest science and technology as instruments for growth (endogenous technical progress). These ideas are lumped under the economic theoretical name classical, which was followed by the neoclassical exogenous economic growth, Post-Keynesian and endogenous growth models.
This paper provides (1) a review of literature dealing with the theories described above concerning economic growth and development, (2) an aim and methodology section which includes statistical tools for analysis, (3) a section providing results, followed by a concluding remarks section (4).
II. REVIEW OF LITERATURE
In a comprehensive look at classical economics, Reid (1989) sought to contrast two important growth themes presented by Adam Smith. The first was classical sectoral analysis and the second was classical aggregate growth. The sectoral takes a detailed look at the evolution of individual industries and, even perhaps, individual firms, which may give an account of the cumulative growth process. The aggregate growth model provides explicitly the growth path subject to technical change due to division of labor. The effect of division of labor transcends from firms to industries to countries, which is the basis of endogenous technological change.
Endogenous technological change, according to Salvatore (2007), arose from the new endogenous growth theory introduced by Romer (1986) and Lucas (1988). The theory postulates that lowering trade barriers makes it possible for economic growth to be speeded up in the long run. Mechanisms for expediting growth include the transfer of technology from developed to developing countries and the promotion of larger economies of scale in production. The new endogenous growth theory can explain how endogenous technological change can create externalities that can offset diminishing returns to capital as envisioned by the neoclassical growth theory. The neoclassical growth theory postulates that when more units of an input are used with fixed amounts of other inputs, the returns diminish.
Endogenous technological change, in turn, depends on the extent of markets which generally, but not always, leads to increasing returns by offsetting diminishing returns as explained earlier, an effect that is the basis of cumulative growth in an economy. The division of labor permits the emergence of scientific, technical and commercial specialization.
The consequence, in post-industrial society, is the emergence of specialist skills in such fields as communication, information handling and coordination, which facilitate the role of the entrepreneur. The entrepreneur discovers new ways of doing things and new things to do cheaply. A market is therefore formed and evolved with a consequence of market success or failure. Market failure necessitates the evolution of laws and institutions that govern market conduct where government plays an important role. In parallel to market failure is the government failure. Achieving improvements in both market and government is dealt with by comparative institutional analysis.
Chaudhuri (1989) defines economic growth as the increase in output of goods and services, total or per capita, measured in terms of value added on a continuous basis. An increase in total output is called "extensive," while an increase in per capita is "intensive," where the concern is the standard of living or the welfare of the population. Therefore, in measuring the growth of output, it is necessary to measure the qualitative phenomenon. The qualitative aspect of welfare is concerned with creating a better educated and healthier population. Chaudhuri suggests three reasons for the study of growth. The first is the understanding of historical processes which can explain why economic growth is confined to a small proportion of world population. The second reason concerns the increasing total availability of goods and services. Increasing the capacity to reach higher levels of material welfare, especially under conditions of population growth, increases consumption and makes some exhaustible resources scarce, creating a distribution problem. The third reason to study growth is for the formation of economic policy in the short and long runs. Monetary and fiscal policies could impact consumption and investment. Recognizing that economic surplus is a consequence of economic growth, the surplus, which is the difference between the value of output and cost production, can be used in alternative ways-increase in consumption or increase in investment.
Rich (1994) notes that emerging and underdeveloped countries must rely on international macroeconomics for aid and trade. What differentiates the two is that an emerging economy seeks a diversified export-market to obtain foreign currencies on its merits as a producer. Underdeveloped countries are characterized by stagnation and remain dependent on aid. Rich adds that post-industrial economies are beset with international competition manifested by industrialization with its consequences on employment. When industries become highly technical, it forces more competition at home and abroad, resulting in lower revenues and profits. When revenues and profits decline, the labor force in the affected industries also declines, with a ripple effect to auxiliary industries. The spread of unemployment in one post-industrial country generates negative effects on employment in all post-industrial societies, with a consequence of declining consumption and further unemployment. By Merritt's (1982) assessment, squabbling over markets for sales that make a difference between acceptable and mass unemployment that may threaten political instability could lead to wars.
Hunt (1989) summarizes the classical view of growth to constitute expansion of market, saving and investment out of profits, and the determination of the capitalist to increase personal wealth. In contrast, Schumpeter (1976) breaks with the growth...
|
