Causes & Effects

The substantial consumption of economic goods is possible only when there is substantial production of economic goods, and sub­stantial production these days depends upon greater use of technologies. In a narrower sense, therefore, it may be said that economic development refers to “the extensive application of inanimate power and other tech­nologies to the production and distribution of economic goods”.

What Causes Economic Growth?

• Capital: To produce more capital goods, which are not directly consumable, present consumption must be reduced. As the saving rate increases, capital formation increases, and so does economic growth.
• Technological Advances: Technological advances usually come as a result of companies and a country investing in research and development (R & D).

Free Trade As Technology :

• There is really no difference between a machine that can turn wheat into cars and free trade between countries.
• This is exactly what happens when we trade American wheat for Japanese cars.

Economic Freedom

• Some economists believe that economic freedom leads to economic growth.
• The data show that economic freedom and Real GDP per capita are correlated.
• Some economists believe there is a “cause and effect” relationship.

Policies to Promote Economic Growth:

1. When the economy is situated below its PPF, demand inducing expansionary monetary or fiscal policy is often advocated.
2. There are supply-side policies too.
3. These factors include natural resources, labor, increases in human capital, increases in physical capital investment, technological advances, and property rights structures.
4. Any policies that promote these factors promote economic growth.