Chapter 25. Production and Growth. Economic Growth around the World. Productivity and Its Determinants. Productivity. Definition : The quantity of goods and services produced from each unit of labour input. OR
Production and Growth
- It has no military power, no car industry, no
computer industry: among many other things, it
exports milk, chocolate, drugs, watches and has
large tourism and banking sectors
The four determinants of productivity are:
(1) physical capital:
is the stock of machinery,equipment and structures that are usedto producegoods and services, such as
– The machinery in oil refineries, steel mills, power plants
– Tools used to repair automobiles or to build homes
– Office buildings, schools, TV towers, etc.
• Education constitutes the most important element in human capital
• Longer and better education of the citizens increasetheir ability to undertake complex tasks required in the production process
• Training usually takes place during working life and in firms
• Like physical capital, human capital raises a nation’scapacity to produce goods and services
(3) natural resourcesare inputs used in production thatare provided by nature, such as agricultural land, rivers, mineral deposits, forests, etc.
• Natural resources can be divided into two major categories
– Renewable: trees, forests, hydroenergy
– Nonrenewable: petroleum, coal, other minerals
• Having a large natural resource can be anadvantage but it does not lead automatically to high productivity
• Some rich countries are poor in natural resources(Denmark, Japan, Singapore) while some poor countriesare rich in natural resources (Brazil ($11.000 GDP per capita, Iraq($4500 GDP per capita))
• Technological knowledge is related to but different from basic science
• A country may be well advanced in basic scienceand produce many high-tech products but still havelow real GDP per head (Soviet Union and India are good examples)
• Producing good wine (France), expensive shoes(Italy), quality cars (Germany) also correspond to advanced technological knowledge
• Human capital refers to the resources expended totransmit the technology to the labour force
- Y/L = A f( 1, K/L, H/L, N/L)
Y/L is output per worker (measure of productivity)
K/L is capital per worker
H/L is human capital per worker
N/L is natural resources per worker
-By adopting larger,
-Capital per person
-Human Capital per person
- Technological Knowledge
We will discuss this issue in chapter 26.
On the other hand, increases in population may take technological progress more rapid, since there are more people around to discover and invent.
1. )International data show a positive correlation between income per person and the health of the population.
2.) International data show a positive correlation betweenpolitical stability and economic growth.
a. Through what mechanism could political stabilitylead to strong economic growth?
b. Through what mechanism could strong economicgrowth lead to political stability?
3.) In many developing nations, young women have lower enrollment rates in secondary school than do young men. Describe several ways in which greater educational opportunities for young women could lead to faster economic growth in these countries.
4.) How does the rate of population growth influence thelevel of GDP per person?