Economic Growth Defined

•Sustained increase in Real GDP over time.

•Sustained increase in Real GDP per Capita over time.

Why Grow?

 

•Growth leads to greater prosperity for society.

•Lessens the burden of scarcity.

•Increases the general level of well-being.

Conditions of Growth

 

•Rule of Law

•Sound Legal and Economic Institutions

•Economic Freedom

•Respect for Private Property

•Political & Economic Stability

–Low Inflationary Expectations

•Willingness to sacrifice current consumption in order to grow

•Saving

•Trade

Physical Capital 

•Tools, machinery, factories, infrastructure

•Physical Capital is the product of Investment.

•Investment is sensitive to interest rates and expected rates of return.

•It takes capital to make capital.

•Capital must be maintained.

Technology and Productivity  

•Research and development, innovation and invention yield increases in available technology.

•More technology in the hands of workers increases productivity.

•Productivity is output per worker.

•More Productivity = Economic Growth.

Human Capital 

•People are a country’s most important resource. Therefore human capital must be developed.

•Education

•Economic Freedom

•The right to acquire private property

•Incentives

•Clean Water

•Stable Food Supply

•Access to technology

Hindrances to Growth 

•Economic and Political Instability

–High inflationary expectations

•Absence of the rule of law

•Diminished Private Property Rights

•Negative Incentives

–The welfare state

•Lack of Savings

•Excess current consumption

•Failure to maintain existing capital

•Crowding Out of Investment

–Government deficits & debt increasing long term interest rates!

•Increased income inequality à Populist policies

•Restrictions on Free International Trade