That is, the gross domestic product increases as a result of an increase in per capita income as the country experiences a technological progress which increases its productive efficiency. This is because such increase in productive efficiency increases capital and labor consumption. The second assumption is that the government does not engage in any trade as this will influence policy and change it into endogenous trade rather than exogenous trade. In addition, there should be no international trade (Agénor, 2004; Barro & Sala-i-Martin, 2004; Barro,
Those factors would affected production process to increase more output and economic growth rate also increase. However, keep increasing investment would exceed the marginal product point, the point of the depreciation of growth. Due a country has the limit of factors such as limited land, limited resources and materials, lack of skilled labor, etc. Saving is the main factor for the accumulation of capital and for investment as well in neoclassical production function. Its theory considers saving as a constant fraction of income: S=sY (5) Where S=saving; Y as income and s is saving
They say it would first increase the labour demand and raise wages, which intern hurts profitability. Secondly, a government deficit, according to them, increases the stock of government bonds and that will have effect of reducing market price and encouraging higher interest rates as well. This will hence make it more expensive for business to keep financing fixed investment. Thus, efforts applied to stimulate the economy would be finally of a self-defeating outcome. Harrod and Domar are the first to develop the first macroeconomic model, formally analyze the problem of growth.
Capital flight erodes the legitimacy of mixed economic systems Importance of capital flight 1. it can have significant social costs; 2. it can be a barometer of the sovereignty of government policy versus that of class privilege; 3. it relates to the impacts of important economic policies such as financial liberalization. Social cost The loss of scarce capital and foreign exchange potentially leads to a loss of investment in countries that are in great need of more infrastructure, plant and equipment, and human capital. Since capital is likely to be more scarce in developing countries than in developed ones, social returns to investment in many developing countries are likely to be higher at home than abroad. Relation with international
This type of economy will appeal all types of investments. It also gives incentives for the development of more innovative technology and for workers to acquire marketable talents. Therefore, this allows the economy to exponentially grow. The protection of private property rights and the little government intervention in economic affairs gives workers the incentive to grow their businesses. As believed in the invisible hand theory, when an individual grows their business, they unknowingly benefit everyone else around them, thus increasing the overall economic growth in a nation.
All underdeveloped countries possess inadequate resources in nature. So simultaneous investment in all sectors becomes impossible. So investments in selected sector alone will induce the economic development. Thus the particular economy is more from unbalanced to balanced growth level. Hirschman propounded the unbalanced growth theory in a systematic manner.
Immigration contributes critically to the economy of the host country, either positively or negatively. This paper has argued that immigration should be encouraged in order to improve the host country’s economy because there are obvious benefits to the economy of the host country in terms of state revenue, the labor market, and country development. Although, some might argue that immigration leads to mass deportation, and an increase on border-patrol budget as well as a decrease in the wages of native-born, high-skilled workers. As discussed before, immigration increases gross domestic product and provide cheap services, enabling high-skilled, indigenous workers to focus on their work more, rather than doing domestic jobs, such as house cleaning. Moreover, immigrants create innovations, such as Google, and they increase the number of scientist in the U.S. As a suggestion, the host country should inspire companies to employ workers depending on their experience, so immigrants have a great opportunity to compete with the natives.
It was meant to help a country enhance its economic growth. It was also meant to place limited control to the government and help the country gain more personal freedom and be more democratic. Achieving all three of this apparently occurs only in theory. The Cases of China and UAE are good examples of this. While capitalism has certainly assisted their respective countries achieve impressive economic development, the opposite effect of the second and third benefits have, though, occurred instead.
On the other hand, those people from rural area will move to the urban area to look for better paying job. However, only those investors or businesses profit while the labor’s wage does not increase due to the existence of surplus labor. Thus, the income gap between the rich/investors and the working class increases and escalates economic inequality. According to Kuznet’s hypothesis, in the long run, when a certain level of average income is reached and the process associated with industrialization such as democratization and development of welfare state, economic inequality decreases (Galbraith 2007). When this happens, the economic benefits will be experience by all social classes and income per capita will further
So, in this case, both capital per worker and output per worker should be the same. Capital Accumulation The basic idea about capital accumulation is that- - The investment makes the capital stock bigger. - Depreciation makes it smaller. So, Change in Capital Stock = investment – depreciation ∆K = i - δk Since, i = sF(k) This becomes ∆k = sF(k)- Δk How Model predicts that poor countries will eventually converge with rich