This is popularly known as the business cycle model (Fig 1.2). High GDP figures aren’t all that. Economic growth is a good sign, but for an economy to thrive, it needs to develop as well. Economic development is the qualitative measure of the economy. This pays more attention to the qualitative side of things.
Shortages can deter the growth process because outputs cannot expand in the same speed as they would have if all the inputs were available in the required amount. But unbalanced growth theorists say that if there is a shortage of some product, the price and hence profitability of investment in that product will increase thereby attracting some entrepreneur to manufacture it. Surplus capacity generated in unbalanced growth is justified on the grounds that it provides incentives and helps in expansion of other economic activities. It also satisfies one of the postulates of balanced growth theory; adequate supply should be impending to match the demand to avoid shortages. If the supply of each product matches the demand for it within the unbalanced growth pattern, it will lead to fastest possible growth rate possible.
Economic growth is by far the most important issue in political economy. Economic growth in a nation is fundamentally determined by its ability to produce goods and services. It uses two important inputs: labour and capital and combines them to know-how to produce output; economists refer to the knowledge about putting inputs together as technology. Economic growth theory deals with the intention of enduring standards, a matter which is of the greatest significance to human welfare. It should be observed that economic growth, which is delineated in this work as growth in real per capita gross domestic product (GDP), is not the sole element which influences economic development; other important
In recent years, conditional convergence, a concept derived from these models is extensively used. This empirical property is based on the assumption of diminishing returns to capital, therefore economies with relatively low capital per worker rates tend to grow faster due to higher rates of return. As many authors had stipulated, the Solow model is a comprehensive theory of growth that provides the correct answers to the enquiries it is devised to discourse. But when it comes to understand the determinants of saving, population growth, and worldwide technological change, variables that are treated as exogenous in the Solow model, neoclassical growth models fail in giving an explanation on them (Mankiw et al, 1992; McCallum,
Liberals uphold the idea of free market or free trade and are of the conviction that if individuals can freely engage in production, exchange and consumption it will result in a mutual benefit for all and argues that the market lies at the center of economic life. They see transnational corporations (TNC’s) as a positive force and believes that TNC’s bring advantages to both home and host countries as it represents an optimal mix of technology, managerial skills and capital. Although the market relations are not always optimal, they tend to argue that intervention in the market is most likely to produce suboptimal outcomes (O’Brien & Williams, 2016). As stated by Adam Smith (1964) in his book “The Wealth of Nations” the wealth of a nation will better be served by policies of free trade. Thus, the nature of the international economic relations is harmonious and the well-being of the world economy could only be achieved through the adoption of liberal policies in which the international economic relations is a positive-sum game.
The Heckscher-Ohlin model (H-O Model) states that a country should specialize in production and export using the factors that are most abundant, and thus the cheapest or the country should export that product whose production required nation’s abundant factor intensively. Now, New Trade Theory (NTT) is the economic critique of international free trade from the perspective of increasing returns to scale and the network effect that leads to higher productivity and
This question has been examined widely and explicitly by many researchers around the world. Financial system development causes economic growth follows the supply–leading hypothesis. A country where financial institutions are not facilitating financial activities in the domestic and international economy may have to face many problems, and that ultimately affects the economic development of the country. Efficient financial system helps a country to achieve the following objectives: • Transfer of financial resources: Obtaining funds from the surplus holders such as household individuals, business firms, public/private sector, government etc. is an important role played by financial
Trade is an important stimulator, of economic growth. It enlarges an economy’s consumption capacity, raises the world output, and provides access to scarce world resources, and an access to worldwide markets for products, without which the poor countries would not be unable to grow. The whole basis of international trade, is based on the fact that countries, do differ in their resource endowments, their preferences and technologies, their scale of economies, their economic, political, and social institutions, and their capacities of growth and development. Exports, provide foreign exchange that is, used for importing the consumption goods, intermediate and the capital goods and further this imports of capital goods and intermediate goods can
The business sector has depended mainly on short-term financing such as overdrafts to finance even long-term capital. Based on the maturity matching concept, such financing is risky. All such firms need to raise an proper mix of short- and long-term capital (Demirguc-Kunt& Levine 1996). The Nigeria economy has been seriously affected with a lot of socio-economic and political dissatisfaction to economic growth. Capital market serves as veritable channels to mobilize both domestic and foreign savings for the developmental purpose.
INTRODUCTION Today one of the most controversial debates is that of development and growth. Growth is generally referred to as positive increase in the size or number. Economic growth means “the increase in the capacity of an economy to produce goods and services compared from one period of time to another”. It is a narrower concept than economic development. Economic development applies to “people’s sense of morality”.