2.1.6. Neo-Keynesian The Neo-Keynesian theory is developed by the followers of Keynesian thoughts to overcome the theory crisis faced by Keynesian in 1970. Throughout this Neo-Keynesian period, the concept of potential output and its related unemployment rate was brought out. The potential GDP is the output level which is reached when economy is at high level of production by utilizing all available resources. The theory argues that Potential GDP is corresponded to the full employment or unemployment rate, at this level inflation is maintained at constant state (no increase or fall), this inflation state in economy is called the Non-Accelerating Inflation Rate of Unemployment (NAIRU) or the natural rate of
Economic growth refers to the increase in the amount of the goods and services produced by an economy over time (Jones, 1996); an increase in the total output of a country. Economist measure growth by real GDP and per capita real GDP to compare how economies grow over time. A rise in real GDP signals growth in the economy and tends to translate as an increase in productivity. If the economy’s growth is an increase in the total output of a country then the total input plays a key role (total output = total input) In this study I will briefly describe five sources/ determinants of growth and explain which one I believe is most important when assessing economic growth. Economists have identified five important sources of growth; Productive resources (land, labour, capital and entrepreneurship) and Technological advances.
Solow Swan Growth Model Solow-Swan Growth Model is an economic model created by Robert Solow and Trevor Swan. This model is similar to Harrod-Domar model which includes other factors such as changes in labor, population and technological progress. According to this model, in order to increase economic growth rate, there must be an increase in capital and labor. However, this is only temporary since there’s a diminishing returns to labor and capital. When the capital per worker and output per worker no longer change, Steady State is reached.
One of the assumptions of the Solow-Swan economic growth model is a steady growth in the per capita income of the country. The World Development Data Index (WDI) shows that most, if not all; the countries sampled had a steady, gradual and continuous growth of their per capita income. The same also applies to those countries such as Japan which recorded a decline in their per capita income. The gradual growth of per capita income is an indication of a gradual accumulation of capital. As the labor output and input in these countries increases, their income and savings increase too as the fraction of their income they save increases.
This is reflected in the differential economic growth achievements of different states of the country. Several socio-economic factors are involved in this process. One major growth driver which has attracted the attention of researchers in recent years is the quality of governance obtained in different states and its impact on economic growth outcomes. It will be of interest to know that extent to which differences in the quality of governance influence the regional employment outcomes. The correlation coefficient between index of quality of governance and state GDP is 0.413 and between index of quality of governance and employment growth is 0.525, which are moderately positive.
Dynamic effect refers to anything that can affect a country’s rate of growth over a period of time, albeit, it can slightly differ from study to study. Balassa (1961) came up with a list of dynamic effects of economic integration that have to be considered when analyzing welfare effects of integration. When countries enter into a certain kind of integration, there will be economies of scale and technological changes. This in turn widens the investment opportunity and reduces risk and uncertainty. Furthermore, integration alters the market structure of member countries and makes it more competitive, this further leads to productivity growth.
For example, if you increase C (consumption) you are increasing GDP. This is one of the ways Indonesia sparked their economic growth. In 2011 Indonesia’s consumption accounted for about 56 percent of the country’s economic activity. Domestic consumption has also played a huge role in the growth of the economy. “Abundant and diverse natural resources; young, large and burgeoning population; political stability, prudent fiscal management since the 1990s; strategic location in relation to the giant economies of China and India and low labor costs,” (Indonesia Investments.
Since the dividend payout ratio in Nestlé Company is over 100 percent, it can be said that Nestlé Company pay more money to its shareholders rather than keep the earnings for other financing purpose. It will be good to the investors but it is important for the company to consider its future earnings expectation.to their shareholders is higher, it means the company may require strong cash flow and good retained earnings to maintain the increase of dividend paid. Dividend yield represents the dividend in form of percentage of the current market price. The formula in calculating dividend yield is dividend per share dividend by current market price. In other word, dividend yield can be a measure in the productivity of an investment.
CHAPTER 1: INTRODUCTION 1.0 Background of the Study Research on Foreign Direct Investment (FDI) has been one of the most intensive areas of international economics in the last decade (Pan, 2002). The Economy Watch (2010) defines FDI as a type of investment involving the injection of foreign funds into an enterprise that operates in a different country of origin from the investor. More specifically, FDI refers to the investment of foreign asset into domestic goods and services and this does not include the foreign investments in stock markets (Ong, P’ng, Poon, Tan and Yong, 2012). Over the past decade, FDI has increased sharply as a major form of international capital transfer. Economic phenomena such as globalization, liberalization and economic
CHAPTER 1: INTRODUCTION 1.0 Introduction This study conducted to investigate the impact of foreign direct investment (FDI) on economic growth in Malaysia for the period 1980 – 2011 using the annual time series data. Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) are the main determinant of economic growth on any country (Pradeep, 2011). FDI can be defined as a cross border corporate governance mechanism through which company obtains productive assets in another country and prolonged to include the investment which made to attain lasting interest in enterprises operating outside of the economy of the investor (Gopal, 2012). According to World Bank, GDP refer to the value of final goods and services that produce in a country