Why do some economies grow faster than others?

Running head : Economic Growth

Why do some economies grow faster than others

Name

Course

University

Tutor

Date Growth is said to mean change from one situation to another . Economic growth is therefore change from one economic situation to anther economic situation . Various scholars give various reasons why economic growth occurs . Adam Smith (Nature and Causes of the Wealth of Nations 1776 ) says that division of labor , specialization and accumulation of capital , the laissez faire system and a stable legal framework are the major causes of the economic

growth experienced in countries . David Ricardo adds by saying that increasing returns to scale , international trade and the welfare gains from specialization add to the economy resulting in growth

Robert Solow who is a Neo-classical theorist says that capital accumulation , savings and net investment are the major causes of economic growth . He explains capital in three ways : capital widening capital deepening and quality of capital goods . He explains capital widening as being the point in the economy where the capital stock increases at the same rate as that of the labor force . This then means that capital is never more than or less than the labor force thus avoiding diminishing rates of return . Capital deepening on the other hand is when the capital stock is growing faster than the labor force leading to excess capital comparison to labor force . This is what causes diminishing returns to scale . Quality of capital goods can only be improved by involvement in research and development alongside innovations . According to Solow , a combination of capital deepening widening , and quality of capital goods , net investment and increased savings leads to economic growth

Schumpeter sees innovation as leading to increased profits . This is because quantity and quality are increased by having up to date capital equipment . This in turn increases productivity thus increasing profits Also economic growth is affected by government policies of investing in physical capital . This investment can lead to permanent economic growth and in the process reduce diminishing returns to scale . Creation of government policies that advocate the open market system is also necessary for growth to occur . Once a government starts investing in physical capital , it can then be able to look at population growth as a component of economic growth . The population increases market for the produce thus reduction of diminishing returns to scale caused by imbalance between production and consumption . The increased population in turn increases the work force and this leads to competition for employment and thus specialization occurs causing an increase in the quality of the work force

There is emphasis on growth occurring as a result of increased labor force , entrepreneurship , and capital stock and government policies . The increased labor force contributes by providing a market and quality increase in the work force . Entrepreneurship contributes by increasing the ability of more people to join the work force and also improving the quality of the goods and services provided . Capital stock contributes by bringing about increasing returns to scale . It also improves...