The Growth of the Economy


I.    Understanding Economic Growth

Why do some countries grow more rapidly than others or why may a country grow more rapidly during one period of history than another?

Growth can best be described as a process of transformation. Whether one examines an economy that is already modern and industrialized or an economy at an earlier stage of development, one finds that the process of growth is uneven and unbalanced.

Economic growth is usually distinguished from economic development, the latter being restricted to underdeveloped economies or economies that are close to the subsistence level. Economic growth, on the other hand, applies to developed economies or those that have increased in wealth over an extended period.

II.    Theories That Explain Economic Growth

1.   Law of Nature Theory - Spingler (1932); A society or culture is like a living thing
that grows, lives, and dies and is a part of life thus, something is expected to

(Herbert Spencer); As society evolves and increases a complex economic development results when roles and functions are being specialized.

2.      The Invisible Hand Theory - Adam Smith (18th century); As individuals seek to work for their own welfare, they unknowingly promote what is best for the community and the society. As if they are being moved by an invisible hand to promote the development of all.

3.              Racial Heritage Theory - Adolf Hitler                                                                       | Stresses the belief that one race is superior than the other on the basis of color, built, and other genetic factors.                                                                            

4.      Climatic Condition Theory - Ellsworth Huntington (1915)

Climatic conditions determine the energy level of the people as well as the rate of development.

5.   The Challenge of the Natural Environment - A.J. Toyemrace (1947)

The combination of geographic phenomena and socio-psyetiological pressure ofI stimula is responsible for the rise of civilization.

6.      Laissez-Faire Theory - Non-interference of the government to economic activities and confining their efforts only to education, justice, and public works. It is a French word which means economic freedom.     

7.      Socio-psychological Theory - People engage themselves in some entrepreneurial activities because of self-interest.

8. Cultural Diffusion Theory - Anthropologist

The contact of a less developed society to a more developed one with the latter

influencing the other.

Keynesian Theory - John Maynard Keyness

The greater the population, the greater the demand, the most likely entrepreneurs

need to invest.

9. Economic Theory

People respond to opportunities definitely because they will gain from doing so.

10. Psychological Theory - David Mc Clelland (1961)

The more achievement-motivated a culture is, the more the society is to grow


11. Sociological Theory - Max Weber (1904)

Societies which put value on hard work are bound to be economically developed.

12. Kaldor Theory - Nicholas Kaldor

The application of modern technology in producing goods and services of highly

developed countries lessens the time, capital and effort in working.

13. Innovation Theory - Joseph Schumpeter

The determination of entrepreneurs to transform or exploit new sources of

materials to promote new goods and new methods of production.

14. Ricardian Theory - David Ricardo

Agriculture is the key factor in development because we believe that everything in this world comes from land.


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Comments 12 comments

Clara Ghomes profile image

Clara Ghomes 7 years ago

To know the growth of economy it is very important to know its origin. you have written a nice hub. informative as well.. thanks for sharing..

mark 7 years ago

can anyone help me find articles about the theories?

uzzlyn 6 years ago

those theories is so very important to those students that their teacher told them that they should give the meaning of thaose theories....

"MY GOD!"wOoOow....hay....hehehe...

thanks to the meaning!

kenneth 6 years ago

kanina pa akong hanap ng hanap dito lang pala

thenae 5 years ago

thank u for this page i enabled to answer my assignment..............yehey........

stephan 5 years ago

nice but can you explain it further?

tesa 5 years ago

thank u...for the info.


Mhae 5 years ago

Arigato, arigato.

This is Awesome.

great help!

zhel_24 5 years ago

tnx because

now i know aheheh

Gemma 5 years ago

wow, tnx, even on Wiki i didn't find these answers. but this page finally helped me, only can you explain each theory further? or is there a site that does? hopefully, it'll help me on my exams tomorrow. tnx again! =)

bim 4 years ago

tnx g0d ..,,,

hehe 4 years ago

tle III books?

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