Task 2 You are an economist who believes in endogenous growth theory. You have been approached by the government of a developing country to provide some advice on a set of policies that the government is planning to introduce. 1) Some ministers from the

ENDOGENOUS GROWTH THEORY

1 . The theory of diminishing returns to scale posits that production outputs peak at a certain point . Beyond the optimal level , the marginal return to scale per additional unit of input leads to less output 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 . However the theory assumes that the factors of production are fixed . In theory this appears to be the case but practically , nations have been able to reclaim

land from the sea and put it to productive use . Further , technological advancements have improved the outputs of various processes , leading to higher production levels

Foreign direct investment (FDI ) is attracted to those nations that can provide a good business environment that will enable the investor to recoup their money and generate good returns on their investment . Thus when it comes to making decisions to invest in a certain country many factors are considered . 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 , Malaysia , Egypt and South Africa are attracting the lion 's share of FDI

Rather than wait for foreign investors , the developing countries should focus on their resources and develop them so they can be in a position to promote endogenous growth . Developing an efficient infrastructural network will enable the quick movement of goods...