Causes of Economic Growth

Causes of Economic Growth

• Economic Growth doesn’t have a set recipe.

• It is evident that different countries grow at different rates and for different reasons.

• Every country’s economy is built differently

The Possible Causes

• Increase in Total Demand– Can come from a number of sources– However this is a short term cause as

once an economy is at full capacity no more can be produced

• Improvements to the Labour Force– Improvements to Quality and Quantity

will allow for long term economic growth through a rise in productivity

The Possible Causes

• Progression in Technology– As technology gets better, it can lead to

an economy being more productive which will fuel economic growth

• Investment– This would fuel economic growth but the

actual source of the growth would be from new Capital Goods e.g. Machines

Capital Widening and Deepening

• Capital Widening: when investment rises with the rise in the Labour Force

• Capital Deepening: when capital rises as the Labour Force stays the same.

• It is said that Capital Deepening is the most significant form of investment

Economic Growth Around the World

• Different countries have different circumstances which can effect economic growth

• For example China and the UK have very different economies

Difficult to Increase Growth

• Underdevelopment Trap– This means low outputs lead to low

wages meaning a lack of savings, resulting in firms find it difficult to invest so output stays low

• High Birth Rate– Although the quantity of labour has now

increased the factors of production are geared towards public services e.g. Education & Health

Difficult to Increase Growth

• Debts–Many poor countries have borrowed

heavily to finance output raising measures so are constantly paying the Richer Nations

• Low income elasticity– As products are mainly agricultural they

do not benefit from rising incomes in MEDCs