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GDP real growth rates, 1990–1998 and 1990–2006, in selected countries.

Rate of change of Gross domestic product, world and OECD, since 1961

Economic growth caused the production-possibility frontier to shift outward.

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.

As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries.

As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.

Definitions and history[link]

Economic growth versus the business cycle[link]

Economists distinguish between short-run economic changes in production and long-run economic growth. Short-run variation in economic growth is termed the business cycle. Briefly, the business cycle is made up of booms and busts in production that occur over a period of months or years. The most recent example of a business cycle was the global boom starting in approximately 2002 that ended with the bust of 2008–9. As discussed in the article on the business cycle, economists attribute the ups and downs in the business cycle to a number of causes including: overproduction of goods followed by large inventories that can't be readily sold, overexpansion of credit resulting in piling up of debt that inhibits purchasing; speculative bubbles, and shocks—like wars, political upheavals, and so on.

In contrast, the topic of economic growth is concerned with the long-run trend in production due to basic causes such as industrialization. The business cycle moves up and down, creating fluctuations in the long-run trend in economic growth.

Historical sources of economic growth[link]

Increases in productivity are the main factor responsible for economic growth, especially since the mid 19th century. Most of the economic growth since that time been due to reduced inputs of labor, materials, energy, capital and land per unit of economic output (less input per widget). The balance of growth has come from using more inputs overall because of the growth in output (more widgets), including new kinds of goods and services (innovations).^[1]

Opening up new territories was considered a growth factor in the past, being important since the late 19th century and in limited cases in the 20th century, such as the Amazon.

During colonial times, what ultimately mattered for economic growth were the institutions and systems of government imported through colonization. There is a clear reversal of fortune between the poor and wealthy countries, which is evident when comparing the method of colonialism in a region. Geography and endowments of natural resources are not the sole determinants of GDP. In fact, those that were blessed with good factor endowments experienced colonial extraction which only provided limited rapid growth; whereas, countries that were less fortunate in their original endowments experienced European settlement, relative equality, and demand for rule of law. These initially poor colonies end up developing an open franchise, equality, and broad public education, which helps them experience greater economic growth than the colonies that had exploited their economies of scale.

During the Industrial Revolution, mechanization began to replace hand methods in manufacturing and new processes were developed to make chemicals, iron, steel and other products.

Since the Industrial Revolution, a major factor of productivity was the substitution of energy from, human and animal labor, water and wind power to electric power and internal combustion. Since that replacement, the great expansion of total power was driven by continuous improvements in energy conversion efficiency.^[2] Other major historical sources of productivity were automation, transportation infrastructures (canals, railroads, and highways),^[3] new materials (steel) and power, which includes steam and internal combustion engines and electricity. Other productivity improvements included mechanized agriculture and scientific agriculture including chemical fertilizers and livestock and poultry management, and the Green Revolution. Interchangeable parts made with machine tools powered by electric motors evolved into mass production, which is universally used today.

Productivity lowered the cost of most items in terms of work time required to purchase. Real food prices fell due to improvements in transportation and trade, mechanized agriculture, fertilizers, scientific farming and the Green Revolution.

Great sources of productivity improvement in the late 19th century were the railroads, steam ships, horse-pulled reapers and combine harvesters, and steam-powered factories. The invention of processes for making cheap steel were important for many forms of mechanization and transportation. By the late 19th century, power and machinery were creating overproduction, which eventually caused a reduction of the hourly work week. Prices fell because less labor, materials, and energy were required to produce and transport goods; however, workers real pay rose, allowing workers to improve their diet and buy consumer goods and better housing.^[4]

Mass production of the 1920s created overproduction, which was arguably one of several causes of the Great Depression of the 1930s.^[5] Following the Great Depression, economic growth resumed, aided in part by demand for entirely new goods and services, such as household electricity, telephones, radio, television, automobiles, and household appliances, air conditioning, and commercial aviation (after 1950), creating enough new demand to stabilize the work week.^[6] Building of highway infrastructures also contributed to post World War II growth, as did capital investments in manufacturing and chemical industries. The post World War II economy also benefited from the discovery of vast amounts of oil around the world, particularly in the Middle East.

Economic growth in Western nations slowed after 1973, but growth in Asia has been strong since then, starting with Japan and spreading to Korea, China, the Indian subcontinent and other parts of Asia. In 1957 South Korea had a lower per capita GDP than Ghana,^[7] and by 2008 it was 17 times as high as Ghana's.^[8] The Japanese economic growth has slowed down considerably since late 1980s.

Economic growth per capita[link]

Often, the concern about economic growth focuses on the desire to improve a country's standard of living—the level of goods and services that, on average, individuals purchase or otherwise gain access to. It should be noted that if population has grown along with economic production, increases in GDP do not necessarily result in an improvement in the standard of living. When the focus is on standard of living, economic growth is expressed on a per capita basis.

Economic growth per capita is primarily driven by improvements in productivity, also called economic efficiency. Increased productivity means producing more goods and services with the same inputs of labour, capital, energy, and/or materials. For example, labour and land productivity in agriculture were increased during the Green Revolution. The Green Revolution of the 1940s to 1970s introduced new grain hybrids, which increased yields around the world.

However, there is not necessarily a long term one-to-one relationship between improvements in productivity and improvements in average standard of living.^[9] Among other factors that might prevent a long-term improvement in standard of living despite economic growth is the potential for population growth matching or outstripping productivity improvements. When increased food supplies spur population growth rather than an improvement in the standard of living, people are said to be caught in the "Malthusian trap," named for Thomas Robert Malthus, the first observer to detail out this dilemma. There is considerable controversy, for example, as to whether the Green Revolution resulted in long-term improvements in the standard of living as it was accompanied by rapid population growth creating population sizes that may be unsustainable.^[10]

Economic growth can also be of interest without reference to per capita changes in standard of living. An example of this is the economic growth in England during the Industrial Revolution. Certainly, per capita increases in productivity occurred due to the replacement of hand labour by machines. However, economic growth during this period was in large part so dramatic because England's population simultaneously increased very rapidly (1700 A.D. – 1860 A.D.). The two factors together, more production per worker combined with many more workers, resulted in a sixfold increase in production between 1700 and 1860. Population growth alone accounted for most of this increase.^[11]

Measuring economic growth[link]

Economic growth is measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP). These two measures, which are calculated slightly differently, total the amounts paid for the goods and services that a country produced. As an example of measuring economic growth, a country which creates $9,000,000,000 in goods and services in 2010 and then creates $9,090,000,000 in 2011, has a nominal economic growth rate of 1% for 2011.

In order to compare per capita economic growth among countries, the total sales of the countries to be compared may be quoted in a single currency. This requires converting the value of currencies of various countries into a selected currency, for example U.S. dollars. One way to do this conversion is to rely on exchange rates among the currencies, for example how many Mexican pesos buy a single U.S. dollar? Another approach is to use the purchasing power parity method. This method is based on how much consumers must pay for the same "basket of goods" in each country.

Inflation or deflation can make it difficult to measure economic growth. If GDP, for example, goes up in a country by 1% in a year, was this due solely to rising prices (inflation) or because more goods and services were produced and saved? To express real growth rather than changes in prices for the same goods, statistics on economic growth are often adjusted for inflation or deflation.

For example, a table may show changes in GDP in the period 1990 to 2000, as expressed in 1990 U.S. dollars. This means that the single currency being used is the U.S. dollar with the purchasing power it had in the U.S. in 1990. The table might mention that the figures are "inflation-adjusted" or real. If no adjustment were made for inflation, the table might make no mention of inflation-adjustment or might mention that the prices are nominal.

The power of annual growth[link]

Over long periods of time, even small rates of growth, like a 2% annual increase, will have large effects. For example, the United Kingdom experienced a 1.97% average annual increase in inflation-adjusted GDP between 1830 and 2008.^[12] In 1830, the GDP was 41,373 million pounds. It grew to 1,330,088 million pounds by 2008. (Figures are adjusted for inflation and stated in 2005 values for the pound.) A growth rate which averaged 1.97% over 178 years resulted in a 32-fold increase in GDP by 2008.

The large impact of a relatively small growth rate over a long period of time is due to the power of compounding (also see exponential growth). A growth rate of 2.5% per annum leads to a doubling of GDP within 29 years, whilst a growth rate of 8% per annum (an average exceeded by China between 2000 and 2010) leads to a doubling of GDP within 10 years. Thus, a small difference in economic growth rates between countries can result in very different standards of living for their populations if this small difference continues for many years.

[edit] Theories of economic growth

Classical growth theory[link]

Adam Smith wrote The Wealth of Nations

The modern conception of economic growth began with the critique of Mercantilism, especially by the physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith, and the foundation of the discipline of modern political economy. The theory of the physiocrats was that productive capacity, itself, allowed for growth, and the improving and increasing capital to allow that capacity was "the wealth of nations". Whereas they stressed the importance of agriculture and saw urban industry as "sterile", Smith extended the notion that manufacturing was central to the entire economy.^[13]

David Ricardo argued that trade was a benefit to a country, because if one could buy a good more cheaply from abroad, it meant that there was more profitable work to be done here. This theory of "comparative advantage" would be the central basis for arguments in favor of free trade as an essential component of growth.^[14]

The neoclassical growth model[link]

The notion of growth as increased stocks of capital goods (means of production) was codified as the Solow-Swan Growth Model, which involved a series of equations which showed the relationship between labor-time, capital goods, output, and investment. According to this view, the role of technological change became crucial, even more important than the accumulation of capital. This model, developed by Robert Solow^[15] and Trevor Swan^[16] in the 1950s, was the first attempt to model long-run growth analytically. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. From these two premises, the neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital. Second, poor countries with less capital per person will grow faster because each investment in capital will produce a higher return than rich countries with ample capital. Third, because of diminishing returns to capital, economies will eventually reach a point at which any increase in capital will no longer create economic growth. This point is called a "steady state".

The model also notes that countries can overcome this steady state and continue growing by inventing new technology. In the long run, output per capital depends on the rate of saving, but the rate of output growth should be equal for any saving rate. In this model, the process by which countries continue growing despite the diminishing returns is "exogenous" and represents the creation of new technology that allows production with fewer resources. Technology improves, the steady state level of capital increases, and the country invests and grows. The data does not support some of this model's predictions, in particular, that all countries grow at the same rate in the long run, or that poorer countries should grow faster until they reach their steady state. Also, the data suggests the world has slowly increased its rate of growth.

However, modern economic research shows that the baseline version of the neoclassical model of economic growth is not supported by the evidence.^{[citation needed]}

Salter cycle[link]

According to the Salter cycle, economic growth is enabled by increases in productivity, which lowers the inputs (labour, capital, material, energy, etc.) for a given amount of product (output).^[17] Lowered cost increases demand for goods and services, which also results in capital investment to increase capacity. New capacity is more efficient because of new technology, improved methods and economies of scale. This leads to further price reductions, which further increases demand, until markets become saturated due to diminishing marginal utility.^[18][19]

Endogenous growth theory[link]

World map of the 2008–2009 Global Competitiveness Index.

Growth theory advanced again with theories of economist Paul Romer and Robert Lucas, Jr. in the late 1980s and early 1990s.

Unsatisfied with Solow's explanation, economists worked to "endogenize" technology in the 1980s. They developed the endogenous growth theory that includes a mathematical explanation of technological advancement.^[20][21] This model also incorporated a new concept of human capital, the skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Therefore, overall there are constant returns to capital, and economies never reach a steady state. Growth does not slow as capital accumulates, but the rate of growth depends on the types of capital a country invests in. Research done in this area has focused on what increases human capital (e.g. education) or technological change (e.g. innovation).^[22]

John Joseph Puthenkalam's research aims at the process of economic growth theories that lead to economic development. After analyzing the existing capitalistic growth-development theoretical apparatus, he introduces the new model which integrates the variables of freedom, democracy and human rights into the existing models and argue that any future economic growth-development of any nation depends on this emerging model as we witness the third wave of unfolding demand for democracy in the Middle East. He develops the knowledge sector in growth theories with two new concepts of 'micro knowledge' and 'macro knowledge'. Micro knowledge is what an individual learns from school or from various existing knowledge and macro knowledge is the core philosophical thinking of a nation that all individuals inherently receive. How to combine both these knowledge would determine further growth that leads to economic development of developing nations. For further reading, please refer to "Integrating Freedom, Democracy and Human Rights into Theories of Economic Growth" (1998,2000&2009).

Ayres-Warr model[link]

The useful work growth theory, also called the Ayres-Warr model, addresses deficiencies in the neo-classical and endogenous growth models. It claims that physical and chemical work performed by energy, or more correctly exergy, has historically been a very important driver of economic growth.^{[2] [23]} Key support for this theory is a mathematical model showing that the efficiency of electrical generation is a good proxy for the Solow residual, or technological progress, that is, the portion of economic growth that is not attributable to capital or labor.^[24][25]

The useful work theory relates the slowing of economic growth to energy conversion efficiencies approaching thermodynamic limits, and cautions that declining resource quality could bring an end to economic growth in a few decades.

The useful work theory is part of a body of economic research and analysis sponsored by the International Institute for Applied Systems Analysis (IIASA) and INSEAD and is cited by the International Energy Agency.^[26]

Theory of cognitive wealth (cognitive capitalism)[link]

The theory of "Cognitive capitalism" asserts that cognitive ability is the crucial factor which creates wealth in modern economies, and that the geographical factors which have been necessary in ancient societies are no longer so important. The average cognitive ability of a nation determines its wealth, each IQ point increase boosting a country's average GDP by $229. Of even more significance, the IQ of the brightest 5% of people in the nation (the cognitive elite) boosts GDP by $468 per IQ point. The cognitive elite support general efficiency, technological innovation, efficient administration, independent institutions, and economic freedom. Via these factors intelligence and knowledge stimulate growth leading to national wealth, which in turn may boost cognitive ability in a virtuous circle. The theory was developed by the two psychologists Heiner Rindermann and James Thompson.^[27] The theory is related to human capital theory.

Unified growth theory[link]

Unified growth theory was developed by Oded Galor and his co-authors to address the inability of endogenous growth theory to explain key empirical regularities in the growth processes of individual economies and the world economy as a whole. Endogenous growth theory was satisfied with accounting for empirical regularities in the growth process of developed economies over the last hundred years. As a consequence, it was not able to explain the qualitatively different empirical regularities that characterized the growth process over longer time horizons in both developed and less developed economies. Unified growth theories are endogenous growth theories that are consistent with the entire process of development, and in particular the transition from the epoch of Malthusian stagnation that had characterized most of the process of development to the contemporary era of sustained economic growth.^[28]

The big push[link]

Theories of economic growth, the mechanisms that let it take place and its main determinants are abound. One popular theory in the 1940s, for example, was that of the "Big Push" which suggested that countries needed to jump from one stage of development to another through a virtuous cycle, in which large investments in infrastructure and education coupled with private investments would move the economy to a more productive stage, breaking free from economic paradigms appropriate to a lower productivity stage.^[29]

Institutions and growth[link]

According to Acemoğlu, Simon Johnson and James Robinson, the positive correlation between high income and cold climate is a by-product of history. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates (e.g., due to the presence of tropical diseases), they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently (e.g. those with temperate climates), they established institutions with this objective in mind and modeled them after those in their European homelands. In these 'neo-Europes' better institutions in turn produced better development outcomes. Thus, although other economists focus on the identity or type of legal system of the colonizers to explain institutions, these authors look at the environmental conditions in the colonies to explain institutions. For instance, former colonies have inherited corrupt governments and geo-political boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts which in turn hinder development. In another example, societies that emerged in colonies without solid native populations established better property rights and incentives for long-term investment than those where native populations were large.^[30]

Human capital and growth[link]

One ubiquitous element of both theoretical and empirical analyses of economic growth is the role of human capital. The skills of the population enter into both neoclassical and endogenous growth models.^[31] The most commonly used measure of human capital is the level of school attainment in a country, building upon the data development of Robert Barro and Jong-Wha Lee.^[32] This measure of human capital, however, requires the strong assumption that what is learned in a year of schooling is the same across all countries. It also presumes that human capital is only developed in formal schooling, contrary to the extensive evidence that families, neighborhoods, peers, and health also contribute to the development of human capital. In order to measure human capital more accurately, Eric Hanushek and Dennis Kimko introduced measures of mathematics and science skills from international assessments into growth analysis.^[33] They found that quality of human capital was very significantly related to economic growth. This approach has been extended by a variety of authors, and the evidence indicates that economic growth is very closely related to the cognitive skills of the population.^[34]

Inequality and economic growth[link]

The effect of inequality on economic growth[link]

The classical theory[link]

Inequality has a positive effect on economic development. The marginal propensity to save increases with wealth and inequality increases savings, capital accumulation, and economic growth.^[35]

The neoclassical theory[link]

The neoclassical theory ignores the relevance of income distribution for macroeconomic analysis. It interprets the observed relationship between inequality and economic growth as a reflection of the growth process on the distribution of income.333

The modern theory[link]

The modern theory suggests that income distribution, plays an important role in the determination of aggregate economic activity and economic growth.

The credit market imperfection approach, developed by Galor and Zeira (1993), demonstrates that inequality in the presence of credit market imperfections has a long lasting detrimental effect on human capital formation and economic development.^[36]

The political economy approach, developed by Alesina and Rodrik (1994) and Persson and Tabellini (1994), suggests that inequality is harmful for economic development because inequality generates a pressure to adopt redistributive policies that have an adverse effect on investment and economic growth.^[37]

Evidence[link]

Perotti (1996) examines of the channels through which inequality may affect economic growth. He shows that in accordance with the credit market imperfection approach, inequality is associated with lower level of human capital formation and higher level of fertility, while lower level of human capital is associated with lower growth and lower levels of economic growth. In contrast, his examination of the political economy channel refutes the political economy mechanism. He demonstrates that inequality is associated with lower levels of taxation, while lower levels of taxation, contrary to the theories, are associated with lower level of economic growth.^[38]

The effect of growth on inequality[link]

Economist Xavier Sala-i-Martin argues that global income inequality is diminishing,^[39] and the World Bank argues that the rapid reduction in global poverty is in large part due to economic growth.^[40] The decline in poverty has been the slowest where growth performance has been the worst (i.e. in Africa).^[41]

Quality of life[link]

Happiness has been shown to increase with a higher GDP per capita, at least up to a level of $15,000 per person.^[42]

Economic growth has the indirect potential to alleviate poverty, as a result of a simultaneous increase in employment opportunities and increase labour productivity.^[43] A study by researchers at the Overseas Development Institute (ODI) of 24 countries that experienced growth found that in 18 cases, poverty was alleviated.^[43] However, employment is no guarantee of escaping poverty, the International Labour Organisation (ILO) estimates that as many as 40% of workers as poor, not earning enough to keep their families above the $2 a day poverty line.^[43] For instance, in India most of the chronically poor are wage earners in formal employment, because their jobs are insecure and low paid and offer no chance to accumulate wealth to avoid risks.^[43] This appears to be the result of a negative relationship between employment creation and increased productivity, when a simultaneous positive increase is required to reduced poverty. According to the UNRISD, increasing labour productivity appears to have a negative impact on job creation: in the 1960s, a 1% increase in output per worker was associated with a reduction in employment growth of 0.07%, by the first decade of this century the same productivity increase implies reduced employment growth by 0.54%.^[43]

Increases in employment without increases in productivity leads to a rise in the number of "working poor", which is why some experts are now promoting the creation of "quality" and not "quantity" in labour market policies.^[43] This approach does highlight how higher productivity has helped reduce poverty in East Asia, but the negative impact is beginning to show.^[43] In Viet Nam, for example, employment growth has slowed while productivity growth has continued.^[43] Furthermore, productivity increases do not always lead to increased wages, as can be seen in the United States, where the gap between productivity and wages has been rising since the 1980s.^[43] The ODI study showed that other sectors were just as important in reducing unemployment, as manufacturing.^[43] The services sector is most effective at translating productivity growth into employment growth. Agriculture provides a safety net for jobs and economic buffer when other sectors are struggling.^[43] This study suggests a more nuanced understanding of economic growth and quality of life and poverty alleviation.

Opportunities, education, health, security and a healthy environment contribute to the quality of life. Public policy plays a great role happiness, as Petra Pinzler points out in D+C Development and Cooperation.

Negative effects of economic growth[link]

A number of critical arguments have been raised against economic growth.^[44]

It may be that economic growth improves the quality of life up to a point, after which it doesn't improve the quality of life, but rather obstructs sustainable living.^[45] Historically, sustained growth has reached its limits (and turned to catastrophic decline) when perturbations to the environmental system last long enough to destabilise the bases of a culture.^[45]

Resource depletion[link]

Many earlier predictions of resource depletion, such as Thomas Malthus' 1798 predictions about approaching famines in Europe, The Population Bomb (1968),^[46][47][48] Limits to Growth (1972),^[46][47][48] and the Simon–Ehrlich wager (1980) ^[49] did not materialize, nor has diminished production of most resources occurred so far, one reason being that advancements in technology and science have allowed some previously unavailable resources to be produced.^[49] In some cases, substitution of more abundant materials, such as plastics for cast metals, lowered growth of usage for some metals. In the case of the limited resource of land, famine was relieved firstly by the revolution in transportation caused by railroads and steam ships, and later by the Green Revolution and chemical fertilizers, especially the Haber process for ammonia synthesis.^[50][51]

M. King Hubbert's prediction of world petroleum production rates. Virtually all economic sectors rely heavily on petroleum.

In the case of minerals, lower grades of mineral resources are being extracted, requiring higher inputs of capital and energy for both extraction and processing.^[52] An example is natural gas from shale and other low permeability rock, which can be developed with much higher inputs of energy, capital, and materials than conventional gas in previous decades. Another example is offshore oil and gas, which has exponentially increasing cost as water depth increases.

Some "Malthusians", such as William R. Catton, Jr., author of the 1980 book "Overshoot," are skeptical of these various advancements in technology which make available previously inaccessible or lower grade resources. The counter-argument is that such advances as well as increases in efficiency merely accelerate the drawing down of finite resources. Catton has referred to the contemporary increases in rates of resource extraction as "stealing ravenously from the future."^[53] The apparent and temporary "increase" of resource extraction with the use of new technology leads to the popular perception that resources are infinite or can be substituted without limit, but this perception fails to consider that ultimately, even lower quality resources are finite and become uneconomic to extract when the ore quality is too low. Because of cultural lag, the perception of infinite resources and substitutes may linger on for generations, and may not change, since the inevitable resource bankruptcy is passed on to posterity. Catton has called the faith in technology a form of "cargoism," which takes its meaning from various "Cargo Cults" in Melanesia and Micronesia. Furthermore, Joseph Tainter, anthropologist, historian and author of the book "The Collapse of Complex Societies," has pointed out that each new addition of complexity to technology can only be sustained if there is a good enough return to justify the technology, and that over time, increases in complexity have improved productivity at an ever decreasing rate. As an example, in the early 1900s when much of the world's oil was untapped, it was sufficient to drill a few metres into the ground and install inexpensive rigs to extract oil at rapid rates. At the beginning of the 21st century, in order to achieve the same flowrates or less, oilfields must be drilled much deeper and managed with sophisticated techniques and equipment costing many hundreds of millions of dollars. If such trends continue, there may arrive a time when it becomes uneconomic to increase complexity in order to access lower grade resources with no net improvement in productivity.

Environmental impact[link]

Forest in Indonesia being cut for palm oil plantation.

Some critics^[who?] argue that a narrow view of economic growth, combined with globalization, is creating a scenario where we could see a systemic collapse of our planet's natural resources.^[54] Other critics draw on archaeology to cite examples of cultures they claim have disappeared because they grew beyond the ability of their ecosystems to support them.^[55] Concerns about possible negative effects of growth on the environment and society led some to advocate lower levels of growth, from which comes the ideas of uneconomic growth and de-growth, and Green parties which argue that economies are part of a global society and a global ecology and cannot outstrip their natural growth without damaging them.

Those more optimistic about the environmental impacts of growth believe that, although localized environmental effects may occur, large scale ecological effects are minor. The argument as stated by commentators Julian Lincoln Simon states that if these global-scale ecological effects exist, human ingenuity will find ways of adapting to them.^[56]

Equitable growth[link]

While acknowledging the central role economic growth can potentially play in human development, poverty reduction and the achievement of the Millennium Development Goals, it is becoming widely understood amongst the development community that special efforts must be made to ensure poorer sections of society are able to participate in economic growth.^[57] For instance, with low inequality a country with a growth rate of 2% per head and 40% of its population living in poverty, can halve poverty in ten years, but a country with high inequality would take nearly 60 years to achieve the same reduction.^[58] In the words of the Secretary General of the United Nations Ban Ki-Moon:

"While economic growth is necessary, it is not sufficient for progress on reducing poverty."^[57]

Researchers at the Overseas Development Institute compares situations such as in Uganda, where during a period of annual growth of 2.5% between 2000 and 2003, the percentage of people living in poverty actually increased by 3.8%.^[57] The ODI thus emphasises the need to ensure social protection is extended to allow universal access and that policies are introduced to encourage the private sector to create new jobs as the economy grows (as opposed to jobless growth) and seek to employ people from disadvantaged groups.^[57]

Implications of global warming[link]

see Economics of global warming

Up to the present there are close correlations of economic growth with carbon dioxide emissions across nations, although there is also a considerable divergence in carbon intensity (carbon emissions per GDP).^[59] The Stern Review notes that the prediction that "under business as usual, global emissions will be sufficient to propel greenhouse gas concentrations to over 550ppm CO₂e by 2050 and over 650–700ppm by the end of this century is robust to a wide range of changes in model assumptions". The scientific consensus is that planetary ecosystem functioning without incurring dangerous risks requires stabilization at 450–550 ppm.^[60]

As a consequence, growth-oriented environmental economists propose massive government intervention into switching sources of energy production, favouring wind, solar, hydroelectric, and nuclear. This would largely confine use of fossil fuels to either domestic cooking needs (such as for kerosene burners) or where carbon capture and storage technology can be cost-effective and reliable.^[61] The Stern Review, published by the United Kingdom Government in 2006, concluded that an investment of 1% of GDP would be sufficient to avoid the worst effects of climate change, and that failure to do so could risk climate-related costs equal to 20% of GDP. Because carbon capture and storage is as yet widely unproven, and its long term effectiveness (such as in containing carbon dioxide 'leaks') unknown, and because of current costs of alternative fuels, these policy responses largely rest on faith of technological change.

On the other hand, Nigel Lawson claimed that people in a hundred years' time would be "seven times as well off as we are today", therefore it is not reasonable to impose sacrifices on the "much poorer present generation".^[62]

Prominent growth economists[link]

See also[link]

References[link]

Further reading[link]

• Joseph Halevi, David Laibman and Edward J. Nell (eds.) (1992) Beyond the Steady State: Essays in the Revival of Growth Theory, edited with , London, UK:
• Barro, Robert J. (1997) Determinants of Economic Growth: A Cross-Country Empirical Study. MIT Press: Cambridge, MA.
• Argyrous, G., Forstater, M and Mongiovi, G. (eds.) (2004) Growth, Distribution, And Effective Demand: Essays in Honor of Edward J. Nell. New York: M.E. Sharpe.
• Galor, O. (2005) From Stagnation to Growth: Unified Growth Theory. Handbook of Economic Growth, Elsevier.
• Jones, Charles I. (2002) Introduction to Economic Growth 2nd ed. W. W. Norton & Company: New York, N.Y.
• Kirzner, Israel. (1973) Competition and Entrepreneurship
• Puthenkalam, John Joseph, "Integrating Freedom, Democracy and Human Rights into Theories of Economic Growth", Manila, 1998.
• Lucas, Robert E., Jr. (2003) The Industrial Revolution: Past and Future, Federal Reserve Bank of Minneapolis, Annual Report online edition
• Mises, Ludwig E. (1949) Human Action 1998 reprint by the Mises Institute
• Schumpeter, Jospeph A. (1912) The Theory of Economic Development 1982 reprint, Transaction Publishers
• Weil, David N. (2008) Economic Growth 2nd ed. Addison Wesley.
• Vladimir N. Pokrovskii (2011) Econodynamics. The Theory of Social Production, Springer, Berlin.

External links[link]

Articles and lectures[link]

• Economic Growth by Paul Romer, The Concise Encyclopedia of Economics.
• "Economic growth." Encyclopædia Britannica. 2007. Encyclopædia Britannica Online. 17 November 2007.
• Beyond Classical and Keynesian Macroeconomic Policy. Paul Romer's plain-English explanation of endogenous growth theory.
• Does Economic Growth increase Living Standards?
• Who's afraid of economic growth? Essay by Daniel Ben-Ami on the contemporary anxiety about economic growth.
• CEPR Economics Seminar Series Two seminars on the importance of growth with economists Dean Baker and Mark Weisbrot
• On global economic history by Jan Luiten van Zanden. Explores the idea of the inevitability of the Industrial Revolution.
• The Economist Has No Clothes – essay by Robert Nadeau in Scientific American on the basic assumptions behind current economic theory
• World Growth Institute. An organization dedicated to helping the developing world realize its full potential via economic growth.
• Economics for Everyone- Evaluating Economic Growth
• Understanding the world today Multiple reports on economic growth

Data[link]

• Historical data - since 1954 - comparing the US GDP growth rate versus the US Fed Funds Rate
• Angus Maddison's Historical Dataseries -Series for almost all countries on GDP, Population and GDP per capita from the year 0 up to 2003
• OECD Economic growth statistics
• multinational data sets easy to use data set showing gdp, per capita and population, by country and region, 1970 to 2008. Updated regularly.

Michael Spence

Born	(1943-11-07) November 7, 1943 (age 68) Montclair, New Jersey, USA
Nationality	United States
Institution	Harvard University Stanford University SDA Bocconi School of Management New York University
Field	Microeconomics
Alma mater	Harvard University (Ph.D.) University of Oxford (B.A.) Princeton University (B.A.)
Influences	Kenneth Arrow Thomas Schelling Richard Zeckhauser
Contributions	Signaling theory
Awards	John Bates Clark Medal (1981) Nobel Memorial Prize in Economics (2001)
Information at IDEAS/RePEc

Andrew Michael Spence (born November 7, 1943) is an American economist and recipient of the 2001 Nobel Memorial Prize in Economic Sciences, along with George A. Akerlof and Joseph E. Stiglitz, for their work on the dynamics of information flows and market development. He conducted this research while at Harvard University. In the current technological environment—with ever more abundant information flows about market development, prices, profit margins, investment instruments and rates of return—their work is more relevant than ever.

Michael Spence is probably most famous for his job-market signaling model, which essentially triggered the enormous volume of literature in this branch of contract theory. In this model, employees signal their respective skills to employers by acquiring a certain degree of education, which is costly to them. Employers will pay higher wages to more educated employees, because they know that the proportion of employees with high abilities is higher among the educated ones, as it is less costly for them to acquire education than it is for employees with low abilities. For the model to work, it is not even necessary for education to have any intrinsic value if it can convey information about the sender (employee) to the recipient (employer) and if the signal is costly.

Spence did his middle and high school education at the University of Toronto Schools of the University of Toronto. In 1966, he was awarded a Rhodes Scholarship at Oxford University upon graduation from Princeton University with a degree in Philosophy. He studied Mathematics at Oxford. Spence is a former Dean of the Stanford Graduate School of Business and is presently the Chairman of the Commission on Growth and Development.

Spence joined the faculty of New York University Stern School of Business on September 1, 2010.^[1]

He is currently a senior fellow at Stanford University's Hoover Institution.

Selected works[link]

• Spence, A. M. (1973). "Job Market Signaling". Quarterly Journal of Economics (The MIT Press) 87 (3): 355–374. DOI:10.2307/1882010. JSTOR 1882010. 
• Spence, A. M. (1974). Market Signaling: Informational Transfer in Hiring and Related Screening Processes. Cambridge: Harvard University Press. 
• Spence, A. M. (May 2011). The Next Convergence: The Future of Economic Growth in a Multispeed World. New York: Farrar, Straus and Giroux. 

See also[link]

• List of economists

References[link]

External links[link]

• Michael Spence Senior Fellow at Hoover Institution, Stanford University
• Signaling in Retrospect and the Informational Structure of Markets 2001 lecture at NobelPrize.org
• Profile and Papers at Research Papers in Economics/RePEc
• Appearances on C-SPAN
• Michael Spence on Charlie Rose
• Works by or about Michael Spence in libraries (WorldCat catalog)
• Spence on Growth at EconTalk
• Website for [1]"The Next Convergence: The Future of Economic Growth in a Multispeed World" by Michael Spence

Dambisa Moyo

Field	Macroeconomics, International development, Global affairs
Alma mater	Oxford University (Doctorate) Harvard University (MPA) American University (BS, MBA)

Dr. Dambisa Moyo is an international economist and New York Times best-selling author of both Dead Aid: Why Aid is Not Working and How There is a Better Way For Africa,^[1] published in 2009, and How the West Was Lost: Fifty Years of Economic Folly - And the Stark Choices that Lie Ahead, published in 2011.^[2] Moyo's 3rd book Winner Take All: China's Race for Resources and What It Means for the World will be published in June 2012.^[3]

Biography[link]

Moyo was born and raised in Lusaka, Zambia.^[4] She holds a Doctorate (PhD) in Economics from St Antony's College, Oxford University; her 2002 dissertation is titled "Essays on the determinants of the components of savings in developing countries".^[5] In 1997, Moyo earned a Master of Public Administration (MPA) from Harvard University’s Kennedy School of Government.^[6] She also earned a Master of Business Administration (MBA) in Finance and Bachelor of Science (BS) in Chemistry from American University in Washington D.C. She worked for the World Bank as a Consultant and at Goldman Sachs where she worked in the debt capital markets and as an economist in the global macroeconomics team.

On March 14, 2011, Moyo spoke at the annual Observance ceremony marking Commonwealth Day in Westminster Abbey. She spoke on "Women as Agents of Change" in the presence of the Queen Elizabeth II, British Prime Minister David Cameron and 2000 guests.^[7] In the same month The Daily Beast also selected Moyo as one of "150 Extraordinary Women Who Shake The World" along with Hillary Clinton, Madeleine Albright and others.^[8]

Awards and memberships[link]

In 2009, Moyo was honoured by the World Economic Forum as one of its Young Global Leaders.^[9] In 2009 TIME Magazine named Moyo as one of the world's 100 most influential people.^[10] In September 2009 Moyo was featured in Oprah Winfrey's power list of 20 remarkable visionaries.^[11] In 2010, Dambisa Moyo was a participant at the Bilderberg Conference.^[12] Moyo gave the keynote address at PIMCO's 2011 Secular Forum.^[13]

Moyo serves on the board of Barclays Bank,^[14] SABMiller,^[15] and Barrick Gold.^[16] She has done numerous speaking engagements at organizations including: OECD, World Bank, International Monetary Fund, Council on Foreign Relations, American Enterprise Institute and the 2009 Munk Debates as well as most of the G7 countries. In 2009 she spoke at the TEDx conference at the EU Parliament.^[17]

Moyo is a regular contributor to financial journals such as The Economist^[18] and Financial Times^[19] and has appeared as a guest on networks such as CNN,^[20][21] CNBC,^[22][23] Bloomberg^[24], BBC^[25] and Fox Business.^[26] She is a Patron of Absolute Return for Kids (ARK),^[27] a hedge fund supported children’s charity.

Bibliography[link]

[edit] Winner Take All

Moyo's 3rd book Winner Take All: China's Race for Resources and What It Means for the World will be published in June 2012. The book examines the commodity dynamics that the world will face over the next several decades. In particular, the implications of China's rush for resources across all regions of the world. With the scale of China’s resource campaign for hard commodities (metals and minerals) and soft commodities (timber and food) being one of the the largest in history, Moyo presents her research of the financial and geopolitical implications of this in a world of diminishing resources and argues that we are in the middle of unprecedented times.^[28].

The book has praise from commodity trader and author Jim Rogers who says "[The book] offers a smart primer for investors looking to make sense of the opportunities and risks in the commodity space today...I am afraid the West is going to wake up too late to prepare for the future."^[29], Barrick Gold founder Peter Munk who says "Ms Moyo sheds light on and makes sense of a profound and dramatic moment in our history. Her book is a must-read."^[30] and Eurasia Group President Ian Bremmer who says "[The book] offers a timely and provocative answer...at a crucial moment for the future of the global economy."^[31]

Kirkus Reviews states "Written to clarify important global questions, this book deserves a wide audience."^[32]

[edit] How The West Was Lost

Moyo’s second book entitled How the West Was Lost: Fifty Years of Economic Folly - And the Stark Choices that Lie Ahead offers an account of the decline of the economic supremacy of the West over the past 50 years. In particular, Moyo examines how America’s flawed decisions and blinkered policies choices around Capital, Labour and Technology – key ingredients for economic growth and success - have resulted in an economic and geo-political seesaw that is now poised to tip in favour of the emerging world.

It became a New York Times bestseller, debuting at #6 in its first week.^[33] It also debuted at #4 in the Washington Post^[34] and #2 in the Wall Street Journal.^[35] The book also had success in Canada, peaking at #4 and remaining on the bestseller list for 6 weeks.^[36]

In a review, Paul Collier states that "her diagnosis of the recent disasters in financial markets is succinct and sophisticated"^[37] and continues "I applaud her brave alarum against our economic and social complacency: her core concerns are sufficiently close to painful truths to warrant our attention."^[37] Dominic Lawson writes in The Times "This argument...can rarely have been made more concisely...Moyo is a very serious lady indeed."^[38] The Independent says "the sad saga of the recession gives legs to Dambisa Moyo’s provocatively-entitled book, for it goes to the heart of the great economic issue of our times: how swiftly will power shift over this century?".^[39] The Guardian says "How the West Was Lost is more interesting, wider in scale and more important than Dead Aid".^[40]

Bloomberg summarizes "[The book] offers up a well-reasoned look at how the world’s most-advanced nations are squandering their economic lead — and how they might survive by fighting Chinese fire with fire….The book offers Western politicians a prescription for stopping the rot."^[41] Bloomberg named it one of their top business books of 2011.^[42]

In contrast, Alan Beattie of the Financial Times says "The challenges it identifies are for the most part real, if not original. But the huge flaws of the emerging economies are ignored." ^[43] The Economist says "these arguments need much better supporting material than the book provides".^[44]

Ireland's Sunday Business Post says "Moyo’s analysis of the fundamental underpinnings of the credit crunch, especially the role of leveraging, is ... nuanced and insightful".^[45]

[edit] Dead Aid

Dead Aid: Why Aid Is Not Working and How There is Another Way for Africa argues that foreign aid has harmed Africa and that it should be phased out.^[46] It became a New York Times bestseller. It is published in Chinese, English, French, German, Greek, Italian, Japanese, Korean, Polish, Portuguese and Dutch.

The book offers proposals for developing countries to finance development, instead of relying on foreign aid. Moyo has stated that her arguments are based on those made by pro-market economists like Peter Bauer (to whom the book is dedicated)^[47] and, later, William Easterly.^[48] The Financial Times summarized the book's argument: "Limitless development assistance to African governments, she argues, has fostered dependency, encouraged corruption and ultimately perpetuated poor governance and poverty."^[49] She argues that foreign aid helps perpetuate the cycle of poverty and hinders economic growth in Africa.

Harvard professor and historian Niall Ferguson wrote the foreword to Dead Aid. Quotes by the Chairman and CEO of Forbes, Steve Forbes, appear on the book jacket as well as by former United Nations Secretary-General Mr. Kofi Annan who says "Dambisa Moyo makes a compelling case for a new approach to Africa".

Moyo's ideas are similar to those held by the Rwandan Government and President Paul Kagame. He says that "Dead Aid has given us an accurate evaluation of the aid culture today".^[50] Kagame also invited Moyo to Rwanda to discuss her thesis and bought copies of the book for his entire cabinet.^[48][51] The President of Senegal, Abdoulaye Wade has also expressed similar views on aid.^[48]

The thesis has also been noted by the Chinese Premier Wen Jiabao. Speaking at a China-Africa Cooperation summit in Egypt, he said "I have read a book titled Dead Aid written by Dambisa Moyo. The author talks about her personal experiences and draws the conclusion that China's assistance to Africa is sincere, credible, practical and efficient and is welcomed by the African people. I am confident that time will prove that friendship and cooperation between the Chinese and African people has a bright future."^[52]

In a book review, economist Paul Collier calls Moyo's analysis "over-optimistic" in that "She implies that, were aid cut, African governments would respond by turning to other sources of finance that would make them more accountable." According to Collier, "this exaggerates the opportunity for alternative finance and underestimates the difficulties African societies face." ^[53] David Roodman, a research fellow at the Center for Global Development calls the book "sporadically footnoted, selective in its use of facts, sloppy, simplistic, illogical, and stunningly naive",^[54] while the Financial Times notes that the book "studiously ignores evidence of development assistance working".^[49]

The pro-aid organization ONE has claimed that Dead Aid is "reckless" and that it calls to "cut-off all aid".^[55] Moyo points out in a number of interviews that this is a misrepresentation of her ideas^[56] and the Financial Times notes that ONE's campaign "at least partially backfired".^[49]

The economist Jeffrey Sachs has said more foreign aid is needed to improve conditions for Africa^[57] but Moyo points out that when Sachs was her lecturer at Harvard it was he himself who taught that "the path to long-term development would only be achieved through private sector involvement and free market solutions".^[58]

Publications[link]

• Moyo, Dambisa (2012). Winner Take All: China's Race for Resources and What It Means for the World. New York: Basic Books. ISBN 0-465-02828-4. 
• Moyo, Dambisa (2011). How the West Was Lost: Fifty Years of Economic Folly - And the Stark Choices that Lie Ahead. New York: Farrar, Straus and Giroux. ISBN 0-374-17325-7. 
• Moyo, Dambisa (2009). Dead Aid: Why Aid Is Not Working and How There is Another Way for Africa. New York: Farrar, Straus and Giroux. ISBN 0-374-13956-3. 

• Financial Times (Feb 6th 2012) : "Capitalism for Africa"^[59]
• Change This Manifesto (Mar 10th 2011) : "A Call Against Complacency"^[60]
• The New York Times (Mar 1st 2011) : "How to Get America Back on Track"^[61]
• The Times (Jan 17th 2011) : "The country faces a dramatic choice: sink or swim"^[62]
• Barron's (Nov 28th 2010) : "Holding Housing's Head Above Water"^[63]
• Aberdeen Asset Management (Nov 2010) : "America's Hobson's Choice" ^[64]
• Financial Times (Jan 30th 2010): "The Diary: Dambisa Moyo"^[65]
• The Economist (Nov 13th 2009): "The lure of Africa: Bond markets will discover its attractions"^[18]
• Financial Times (Jun 1st 2009): "Little appetite to question the aid-based status quo"^[66]
• Foreign Policy (Apr 21st 2009): "The Next Big Thing: Africa"^[67]
• Wall Street Journal (Mar 21st 2009): "Why Foreign Aid Is Hurting Africa"^[68]
• Financial Times (Feb 28th 2009): "The Diary: Dambisa Moyo"^[69]
• The Guardian (Feb 26th 2009): "Capitalism for Africa"^[70]

References[link]

External links[link]

• dambisamoyo.com, Moyo's official website
• Facebook Fan page, Moyo's official Facebook fan page
• Jake Whitney in Guernica Magazine interviews Moyo
• Allan Stevo at LewRockwell.com reviews Moyo's Dead Aid.
• "Africa with Dambisa Moyo" link to Uncommon Knowledge interview filmed 12 June 2009
• Dambisa Moyo on Twitter
• Dambisa Moyo Interview May 2010
• C-SPAN Q&A interview with Moyo, April 5, 2009

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Goodluck Jonathan
President of Nigeria
Incumbent
Assumed office 9 February 2010 Acting: 9 February 2010 – 6 May 2010
Vice President	Namadi Sambo
Preceded by	Umaru Yar'Adua
Vice President of Nigeria
In office 29 May 2007 – 6 May 2010
President	Umaru Yar'Adua
Preceded by	Atiku Abubakar
Succeeded by	Namadi Sambo
Governor of Bayelsa
In office 9 December 2005 – 28 May 2007
Preceded by	Diepreye Alamieyeseigha
Succeeded by	Timipre Sylva
Personal details
Born	(1957-11-20) 20 November 1957 (age 54) Ogbia, Nigeria
Political party	People's Democratic Party
Spouse(s)	Patience Jonathan
Alma mater	University of Port Harcourt
Profession	Zoologist
Religion	Christianity

Goodluck Ebele Azikiwe Jonathan, GCFR, BNER, GCON (born 20 November 1957^[1]) is the 14th Head of State and current President of Nigeria. Prior to his role as President, he served as Governor of Bayela State and Vice President of the Federal Republic of Nigeria. Jonathan is a member of the ruling People's Democratic Party (PDP).

Early and personal life[link]

Jonathan was born in what is now Bayelsa State to a family of canoe makers.^[1][2] Jonathan holds a B.S. degree in Zoology in which he attained Second Class Honours. He also holds an M.Sc. degree in Hydrobiology and Fisheries biology, and a Ph.D. degree in Zoology from the University of Port Harcourt. After earning his degree, he worked as an education inspector, lecturer, and environmental-protection officer, until he decided to enter politics in 1998.^[3]

Jonathan and his wife, Patience, have two children. He is a Christian and comes from the Ijaw ethnic group.^[4]

Presidency[link]

Jonathan (fifth from right) standing with other world leaders at a meeting of the Economic Community of West African States in July 2010.

Former President Umaru Yar'Adua died on 5 May 2010. Goodluck Jonathan was sworn in as Yar'Adua's successor on the following day,^[5] becoming Nigeria's 14th Head of State, to serve until the next election, in 2011, at which time he could elect to run again, which he has done. Upon taking office, he cited anti-corruption, power and electoral reform as focuses of his administration. He stated that he came to office under "very sad and unusual circumstances".^[6]

On 18 May 2010, the National Assembly approved Jonathan's nomination of former Kaduna State governor, Namadi Sambo, an architect, for the position of Vice President.^[7][8]

On 29 June 2010, Jonathan launched a Facebook fan-page;^[9] The president said that he launched his page in fulfillment of a promise he made earlier in the year to interact more with Nigerians.

On 2 August 2010 Jonathan launched a comprehensive plan, called the 'Roadmap for Power Sector Reform‘,^[10] aimed at restructuring the power sector and achieving stable electricity in the country. In his speech, the President identified the factors that affected reliable electricity service delivery to include the absence of a sustained and deliberately deployed long term power development strategy, under exploitation of the nation’s abundant energy endowments and the absence of adequate implementation of reforms.

2011 election[link]

On 15 September 2010, Jonathan, in a message on his Facebook Page, said he had finally decided to run for the presidency after wide consultations with various organisations across the country. This single action of his made him the first ever sitting president to declare his re-election bid via social media.^[11] The move came under scrutiny, as it was a northern Muslim candidate's turn to run for the presidency.

On 20 December, he flagged off the national book campaign called 'Bring Back The Book',^[12] and presented his book, My Friends and I: conversations on policy and governance via Facebook to the public. He declared that the fight to bring back the book should be supported by all Nigerians, as the project provided Nigeria a sure path to technological growth. He further said that his government was encouraging a culture of catch-them-young so as to secure the future of the children.

On 14 January, President Jonathan was chosen to run for president by the People's Democratic Party during the election. He won with 77.7% of valid votes cast.^[13][14] On 18 April, Jonathan was declared the winner of the election. His victory was, however, followed by violence in the north over claims of vote rigging.^[15]

Controversies[link]