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.

Development through the exploitation

Many of the current developed countries had been exploiting to other countries in the past, because of the control of natural resources, trading areas or cheap hand labour.

Is the development of one country the cause of underdevelopment of other country?

What is true, is that the trading expands favoring some countries and harming some others.

According to Inmanuel Wallerstein (1930) "our richness depends to the poorness of others".

All the economies in the world depend of a global system (mainly established by the capitalism rules). The market transfers the resources from one countries to others.  The central economies exploits to peripherical ones.  The exploitation happens because:

• The central countries have free hand labour and salaried, besides, these countries export finish goods and import raw materials.  
• However the peripherical countries the hand labour is not free and these countries export raw materials and import finish goods.

https://littleusgoneglobal.wordpress.com/2015/03/18/119/

This situation make that the balance of payments is always negative in a permanent state of dependency.  There is an unequal interchange.

It is argued that rich nations have exploited many poor nations by buying up their natural resources and the food crops they produce at very low prices, and the using these resources to produce goods and services which they then export back to the same less developed countries at much higher prices. Further, many rich countries have protected their own mining and agricultural industries by paying them subsidies.  These subsidies have increased the global supply of these products and forced down world prices.  Producers in less developed countries have not been able to compete as a result, they have lost sales, incomes and jobs.

The international trade has actually increased the ga between rich and poor countries because multinational firms and consumers from rich, developed economies dominate global markets.  As a result they are able to force producers of materials and goods in less developed countries to accept low prices.

The main critique to the arguments of Wallerstein is that the peripherical countries will adquire the cualification of central with the capital investments and the technology diffusion.

Bibliography:

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.

Technological change: how technology relates to economic change

New inventions, better production techniques than produce more efficiently, better organization and management of firms, better training, better transport and communications all come under the banner of technical progress.

All these things allow a country to increase output.  Progress and investments often go together when old machines are replaced by new, more sophisticated machines that can work faster.

However, is the technological change able to explain the economical change? is it the more importante factor?

Joel Mokyr (1946) states that the technological change is a very important factor but not the decisive one.  The institutional framework is the fundamental factor of technological change through the incentives.

The technological change, according to this author, is any change in the use of the information, regarding to the production, with the end to increase the efficacy.  The consequence of this process is to produce more with less resources or the production of new and better goods (innovation; concept that Mokyr links up with diffusion).

When the institutional framework allows the flow of information, the diffusion is posible.  According to Mokyr the invention is an exogenous factor; if the diffusion exists, the innovation is posible because the invention has been diffused.

Lynn White (1907 - 1987) treats to explain how the stirrup invention is caused by the feudalism.  In many occasions the invention already exists, however there is no application for it, as consequence there is no technological change because there is no diffusion.

http://licn.typepad.com/my_weblog/2012/09/technical-progress-john-dunn-consultant-ambertec-pe-pc.html

During the feudalism because of costs maintenance of the defence, the feudal lords decided to use the stirrup because the cost of horse rider maintenance is lower than a soldier; this is mainly because of the quantity of them to defence the lands, it is needed less horse riders than soldiers.

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.

Theories of economic change: environment.

Regarding to theories of economic change the problems of the environment can be focused on: differences among the regions and how the environment changes affects to the development of a country.



Different authors have written about the environment and the economical change.  Let us see three opinions.

Karl August Wittfogel (1896 - 1988): he analyzed the ancient and modern era. His conclusions are related to the development of different cultures around rivers and deltas needed to make it work the irrigation systems.  These kind of systems brought about a centralization where the autor based his ideas about the oriental despotism. The one who has the control of the irrigation systems has the control of the economy.

The environment factors determine the kind of economic organization. This organization affects to the results of an economy.

The main critique to this theory is that the factors are independent each others, that is to say, for the develop of the despotism, it does not suggest the existence of irrigation systems and vice versa. Besides, at the old chinese empire, the peasants organized their own irrigation systems, without any control of the goverment.

     

Eric Jones (1936): he analyzes and explains the origin of the industrial revolution in Europe.  The differences in the XIV century between Europe and Asia were not very big, however, different environmental factors make this differences started to be relevant:

Europe has the luck of to own fertile and separated areas by natural barriers, that it did not allow contact among them. This fact means to develop a decentralized power (unlike that Asia where the population was concentrated around the deltas).  The european natural disasters kept untouched the physical capital.  It had the consequence to develop an increase of productivity and per capita income.  

The demographic european model is different from the asiatic (It easiest to recover than the asiatic).

The climate is much more varied in Europe than in Asia.  The consequence for Europe is more oportunnities regarding natural resources.

Finally, the physical european situation allow to this continent, to be isolated from invasions (mongols and turks). 

Jones considers countries as enterprises. These countries competed among them with the end to achieve the richness of each others.

Besides the countries started to developed a kind of organization where the goverments supplied defense and justice in exchange for a tax.  This situation allows to develop scale economics (the largest the population, the lower the cost associated to this population).  However there is a point where the increase of this population is negative.  This point is negative proportional to technology (how much more is invested in technology later this point appear.

There is another theories that try to explain the economic change regarding the environment by the climates change. However this theories are not adequate because of the lack of predictive.

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.

The economic development in historical perspective

Through the following two points we are going to introduce the economic development in historical perspective.

• Economic History.
• Growth and development.

Economic History.  Purpose.

"Explain the structure, operation and the outcome of the economies" (Douglas North)

An economist is worried about the general characteristics of a society (structure), studies the institutional working (families and state), the technology operation, ideology of society and the preferences (institutional scope of oportunities and restrictions).

There is not only a concern about the economic performance but also about the factors needed for the economic growth and development (because of the existence of countries rich and poor).

The classical economy stablished a tripartite classification of the production factors: land, work and capital.  The total production of a economy is determined by the quantity of this factors used.

            

Growth and development.

The growth is possible thanks to the technology application because of capital investments.  These investments can be:

• Extensive: when the investments is made over more than one particular factor (land, work and capital).
• Intensive: when  the resources are used in a more effective way (that is to say, we have the same resources, but we are able to use better).

By other hand the development is the economic growth with a structural change.  This changes are substantial regarding to the structure and the organization of the economy.

Growth and development are not the same concepts.  As a rule, in countries where the industrialization is being born, to a certain extent, there is a big change in the Economy (development), while the growth is only starting to emerge (for example in UK during the first step of its industrialization).

The progress is linked to the development.  The growth of the economy is a reversible process, that is to say, the decadency could follow to this growth.  However when we speak about development and progress of economy, unfrequently it appears a regresive cycle wherein a country is able to lose out structures or organizations created in the past.

By other hand the progres (according to Cameron) is related to moral or subjective issues, unlike the growth and development which correspond to objective issues.

To understand the difference between growth and efficiency we will use the support of the production-possibility frontier example:

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.