Question

1. What is the causative relationship between economic growth and economic development? Your answer should be structured in terms of the general factors necessary for economic growth

2. Using a Lewis labor surplus framework show graphically and explain how an increase in capital-augmenting agricultural (traditional sector) technology affects a country’s ability to achieve self-sustaining growth that is driven by modern sector capital accumulation.

3.  Show graphically and explain how a country’s level of capital augmenting technology affects its output per worker and long-run growth rate under Solow model assumptions.

4. Throughout the 1970’s South American countries relied on international loans to achieve their desired short-run growth targets. Which of the 3 growth theory models we have covered (Harrod-Domar, Lewis and Solow) is best suited to demonstrate the effect of these loans on the long-run, self-sustaining growth potential for these countries?

Answer 1

Answer to Question 1

Causative Relationship between economic growth and economic development are :-

It can be said that economic Growth is a subset of Economic development. Growth implies increase in national income and per capita income whereas development means over all increase in every aspect or every field. We can see an economies improvement through development.

To determine the economic growth of a country, we see increase in overall output(real GDP) which is caused due to adding of resources which can be the production inputs and higher productivity of these inputs which can be more efficient for production methods. And in case of economic development , we take into consideration not only the overall increase in output but also the changes which are implemented to technological,structural and institutional and distribution of product.

In development it includes number of structural changes like social, economic ,institutional and cultural. Thats-why when we look at lower/less developed economic countries where the GDP and GNP is relatively low per capita , and we look at develop economies we see much higher GDP and GNP per capita which does not represent significant structural changes which can be termed as growth. Development is related to the increase of output while growth does not necessarily mean development.

Example- increase in oil production of a country can result in positive growth for the country, without implying that this growth will lead to the restructuring(organizing differently) of the production, of the technology or the distribution of the final product.