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Shvoong Home>Social Sciences>Economics>The Concept of Economic Growth and Economic Development Summary

The Concept of Economic Growth and Economic Development

Article Summary   by:oxlay    
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Economic development refers to the problem of underdeveloped countries, while growth refers to the problem of developed countries. According to Schumpeter, the development is the change in spontaneous and discontinuous in the stationary states are constantly changing, and changing the balance of the existing situation before. While growth is a long-term changes slowly and steadily going through higher savings and population.

The difference of growth with development is that growth is more to see the target, being the construction of seeing the process. However, the term economic development are used interchangeably with the term economic growth, economic welfare, economic progress and long-term change.

FACTORS THAT DETERMINE THE ECONOMIC GROWTH

The process of economic growth is influenced by two kinds of factors:

1. Economic factors

• Natural resources or land. Which include: soil fertility, the location and structure, forest wealth, minerals, climate, water resources, ocean resources, etc.. Lewis: "By the same things, people can use its natural wealth better than if they do not have it."

• Accumulation of Capital. Capital means the supply of production factors that can physically reproduced. If the capital stock rises within a certain time limit so-called accumulation of capital or capital formation.

Nurskse: "The meaning of public capital formation is not doing a whole activity is currently used to meet consumption needs and desires of urgency, but the directing part thereof for the manufacture of capital goods, tools and fixtures, machinery and transport facilities, plant and equipment."

Kuznets: "marginal output capital ratio or ICOR (incremental capital-output ratio; incremental = marginal) plays an important role in modern economic growth".
• Organizations. Organizations associated with the use of production factors in economic activity. Organizations complement (complement) of capital, labor, and help increase productivity.

In modern economic growth, entrepreneurs come across as risk takers among the organizers and uncertainties. Schumpeter: "entrepreneurs do not need to be a capitalist, but it serves to do the update (innovation)." Examples of the industrial revolution in England.

• Advances in technology. Technological change is considered as the most important factor in the process of economic growth. The changes are related to changes in production methods as a result of updates or new research techniques. These changes raise the productivity of labor, capital and other production factors.

Kuznets: five important patterns of technological growth in modern economic growth, namely
(1) scientific discoveries,
(2) the invention,
(3) innovation or reform,
(4) improvements,
(5) dissemination of findings.

• Division of labor and production scale. Specialization and division of labor lead to increased productivity. Adam Smith emphasized the importance of division of labor for economic development. Division of labor unions production capability improvements à à à more efficient workers save time being able to find a new machine à à increased production.

2. Non-economic factors

• Institutions or social and cultural factors. Education and culture in the West brings to the direction of reasoning (reasoning) and skepticism à instill a new spirit and bring up a new merchant class à produce changes in the views, expectations, structure and social values à familiarized people save and invest and enjoy the risks to earn profits. Lewis: "the desire to downsize", maximizing output for given inputs.

• Human resources. Development of human factors related to efficiency and productivity, which economists call human capital formation, ie the process of improving knowledge, skills and abilities throughout the population of the country concerned.

The population quickly soared Y is an impediment to development in developing countries.

• political and administrative factors. Political stability and a solid administrative help of modern economic growth. Administration of a strong, efficient and not corrupt very important for economic development. Likewise, order, stability and protection of the law encourage entrepreneurship.

Political and administrative structures are weak is a major obstacle for economic development of underdeveloped countries.

Published: October 16, 2011   
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