Causes of economic growth: little review of four models.

What we currently have, mainly depends of the economic growth of the past. The difference amongst the life levels is showed through the national income or the Gross National Product per capita.  The level of this magnitude is caused by the past of a country.

What are the causes of the growth?

Mokyr determines a key ingredient (but no essential): the technologic creativity.

As we have seen if the society is under the PFF the life level is lowest than the one we can wait (by that this situation is named inefficiency).

This autor determines that the growth depends of four factors regarding four authors:

• Investment: where the work productivity is directly related to the quality of the tools and the equipments as well as the quantity.  When the capital rythm of increase is bigger than the work force, there is economical growht; this growth is also known as "Robert Solow's growth".

• Expansion of the trading because of the interchange of goods, services and production factors. This is known as "Adam Smith's growth".  The trade determines the work division through the specialization.  The capacity to make specific labours means an increase of productivity.

• Scale economies: if there is a population increase it could be possible to increase the income per habitant where the regions are little.  The increase population allows to this region the speciality and the production increase (North and Thomas).  Besides that some public goods are only available when the population is big.  However the population increase does not mean economic growth, because that increase could lead to greater pressure on food

• Increase of knowledge: technical progress and institutions development.  The previous concepts are regarding the "Schumpeter's growth" where the capital expansion allows a continuos increase of innovation financed by the credits of the banks.

All of this growth models are perfectly compatibles among them.

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

Jones E.L. (1990). El milagro europeo. Alianza. Madrid. Introducción y cap. 12.

Mokyr. J. (1987).  La revolución industrial y la Nueva Historia Económica", "Revista de Historia Económica".  Vol. 2. pp 203-41; vol 3, pp 441-82.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Market as the key of growth.

One of several theories that try to explain the growth was developed by Adam Smith (1723 - 1790).

According to this economist (1723 - 1790), the key of growth is related to the market expansion.

The market accomplishes three functions: 

• It gives incentives to people to increase their productivity. 

• Any efficiency of production in any place of the market is immediately known for the rest (flawless information).

• The concentration of the demand allows to increase the specialization linked to the idea of trade.  People deals with that goods which have more productivity.

Smith considered that the growth of market had some limits.  For example, regarding technology he said that from XIX century on, it would not be more progress.  It means that the PPF could not be improve and the progress could be stopped.

The main critique to this theory is the non consideration of the technology.  Anothe critique is that the existence of a market does not warrant growth.

One of the contributions of Adam Smith was the "invisible hand". This "hand" means that the individual interest, that explains certain behavior of people, are guided, unwittingly, to contribute to the maximun wellness of population.

Bibliography:

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.