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.