Economic growth theories

ENDOGENOUS GROWTH THEORY

1 . There is a theoretical limit to the output levels that can be achieved by employing additional units of capital to produce a certain commodity . When the optimum level has been reached , there are diminishing returns to scale with each extra unit of input . As a consequence production falls and costs associated rise making the process unprofitable . Applying the theory to the production processes in the developed world , it is possible that production will become less efficient once the optimal levels have been reached . This theory assumes that

the factors of production are fixed while practically developed nations like Japan have been able to reclaim land from the sea and put it to productive use . Advancements in the fields of engineering and space technology have opened the possibility of increasing the available resources of land from outer space and resource extraction from non-traditional resources . A good example of this is the production of ethanol from corn

Foreign direct investment (FDI ) locates to those nations with a comparative advantage in the necessary investment factors like infrastructure , taxation policies , trade opportunities and political stability . Most developing countries suffer from poor communication systems and undeveloped infrastructure , high cost of power , shortage of skilled labor and foreign exchange restrictions . As a result , developed investment destinations like China , India , and South Africa are able to attract more investors than other nations

The endogenous growth theory posits that the developing countries should focus on capacity building and develop their resources and develop them...