Economic Growth and Productivity ( 2 )

• 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 welbeing
• Conditions for Growth
• Rule of Law
• Sound Legal and Economics Institutions
• Economic Freedom
• Respect for Private Property
• Political and 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 the workers increases productivity
• productivity is out 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
• abscence of the Rule of Law
• diminished private property rights
• negative incentives
• welfare state
• lack of savings
• excess current consumption
• failure to maintain existing capital
• Crowding Out of Investment
• government deficits and debt increasing long term interest rates
• increased income inequality
• Populist policies
• restrictions on Free International Trade