An economy grows when its capacity to produce goods increases, or when the market value of the goods and services it produces increases.
This can be a result of two things: inflation or real economic growth.
If the value of the goods and services produced increases by 1% from one year to the next, has the economy grown? Maybe, maybe not. If inflation is greater than or equal to 1%, then everything is valued at least 1% more, so the economy hasn't really grown. But if inflation is less than 1%, then the economy has grown.
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Econ: What are Determinants of Economic ...2 Views
And finance Allah Shmoop What are the determinants of economic
growth Shmoop let's talk money And specifically let's talk The
reason some countries have a lot of money and some
countries have well less This is pretty much the oldest
question in economics Aside from the one about you know
why the Kinsey in cross the road anyway this guy
this guy's Adam Smith He's the godfather of economics He'll
make you an offer You can put on a supply
and demand curves Well his first best selling book was
as you probably know everybody poops Yeah you confined it
today in your local book suppository But here we're talking
about macro economics Yeah his second big hit It was
published in seventeen seventy six and was called the Wealth
of Nations Sort of a tale of two cities only
with countries The book covers question of Well why some
countries that had a lot of money and others had
last and well here we are almost two hundred fifty
years later on everything's been solved and people are all
happy around the world and every economic issue of inequality
and someone is clear now right Yeah I know Pretty
much the absolute opposite So what are the determinants of
economic growth Or set another way What makes some countries
wealthy and what makes some poor eye what determines economic
success You know what A countrywide level Okay let's think
about how economic growth is measured Well the main measure
of economic growth in most of the world is GDP
I eat gross domestic product which is what you used
to clean up that crowd that started growing on the
floor of your bathtub last week Yeah your little brother
Trevor claims he had nothing to do with actually GDP
As a measure of an economies output it represents the
sum total of all the stuff people make and all
the services they provide Well there's nothing economist love more
than when GDP well grows you know like a kid
from the eighties taking care of their Chia pet Well
the same is true with GDP Constant growth is seen
as a sign that an economy is Elfi Think of
it like a tree If there's enough rain and sunlight
even giant sequoias are going to get a little bigger
each year until they're chopped down and used to make
packaging material Another thing to keep in mind Economies come
in different sizes The U S Economy is like that
giant sequoia you know pre chain sawing annual GDP Around
eighteen trillion dollars Biggest economy in the world Other countries
economies are smaller Some of them are much smaller This
thing here Yeah this country It's Lichtenstein It's a tiny
country In Europe the GDP of Liechtenstein is six point
seven billion dollars If the U S is a sequoia
Well Lichtenstein is Ah bonzai tree while Lichtenstein's GDP is
basically the change found in the couch cushions of the
U S But remember we're talking about GDP growth here
not just the overall aggregate number that comprises GDP For
instance Lichtenstein had a good run of GDP growth back
in the nineties and Lichtenstein has also had a pretty
good run lately Like Ramon I know fourteen GDP The
country grew four point five billion dollars to that six
point seven billion dollars figure there That's an annual average
growth of eight point one percent over that six year
span Pretty good Well Lichtenstein's GDP is driven by resort
skiing and the production of helmets and the production of
Well Lichtenstein Ian's Yeah of which they're the number one
producer in the world So how does this all happen
What makes GDP grow Whether an economy is bigger small
Well Lichtenstein for instance benefits from its strong banking and
financial sector It's no surprise that it saw big growth
in the go go nineties Lots of sudden dot com
millionaires looking for offshore places Teo you know store their
cash and avoid taxes presumably And then there's Saudi Arabia
Well for generations this was just a sandy homeland for
wondering nomadic tribes Not much growth Then oil was discovered
And while suddenly one of the biggest economic growth spots
on the glove right there well how about China Well
during the early communist days the country was isolated and
pour It had trouble feeding everybody much less leading the
world in economic exuberance Well then the country opened itself
up to trade made itself the world's leading manufacturer Of
all the trinkets and commemorative plates that we all order
every night from Amazon it has become the growth story
of the last thirty years So what do these examples
have in common Well that question brings us to the
determinants of economic growth Like we said economists have been
thinking about this stuff for a long time Exactly how
many determinants you list depends on how specific you want
to be Some economists get more specific than others but
the list breaks down into some general categories here for
major ones that contribute to GDP growth Access to natural
resource is right access to labor intellectual capital in a
stable society right Well first on our list a country
that control's important or scarce resource is that everybody wants
everybody cares about Well if Khun generate a lot of
growth by mining that resource recall Saudi Arabia same goes
for you a United Arab Emirates and a bunch of
other Middle Eastern countries In the second half of the
twentieth century they discovered oil and well They stopped riding
camels and started driving Lam Bo's a natural resource had
become a determinant of their economic growth Up next on
the list access to labor countries with a lot of
people can provide an important economic contributor right Lots of
cheap man hours Well sometimes this is just labor in
general Like with China When it opened itself up for
trade and put its billion plus people to work while
it basically became the unskilled labour capital of the world
Everyone's factory floor labor force which has driven growth in
the country for decades and made it a superpower well
Countries with big populations tend to have an edge in
this area but just having a lot of people are
a lot of valuable resource is doesn't always lead to
economic growth There are other elements involved that matters what
kind of labor you have So what kind of labor
Well let's think Intellectual capital Someone who can engineer a
self driving car has a lot more value than a
worker who can you know drive a car as another
example Well let's look at South Korea The country famously
has one of the world's most elaborate cellphone networks No
trouble getting a superfast data coverage there Even though it's
a relatively small country both in terms of population Natural
resource is it's able to grow its economy by staying
on The technological cutting edge aren't also helpful Yeah a
strong education system It can be true within countries as
well that you have this this cultural edge Look at
Silicon Valley High tech companies thrive here because well they
can draw from the PhDs that air cranked out from
Stanford and UC Berkeley And you know they're right around
the corner Or country might have a strong court system
that can enforce patents and intellectual property if it chooses
Teoh right If you came up with a new baldness
cure would you go found a company in the U
K Where they can enforce your patents Or would you
go to Somalia or India and you know talk to
the bald headed pirates there Yeah another example A stable
banking system that attracts capital Remember our buddies and Lichtenstein
while those banks bringing in global wealth or you just
walk around the southern tip of Manhattan for a while
When you think about sustainable economic growth you're thinking places
like the US UK China etcetera like the UK is
government goes back almost a thousand years no civil wars
of no roving bands of paramilitary groups and no warlords
And there's actually a thing called the Fragile States Index
put out by a think tank called Fund for Peace
Top of list South Sudan then Somalia then Yemen and
then Syria Alright well not coincidentally South Sudan's GDP dropped
six point three percent Two thousand seventeen Yemen saw two
percent contraction Syria Well it's hard to get the figures
for Syria because it's in the middle of an active
civil war and then you have Somalia which is actually
the best of the bunch Its GDP expanded two point
four percent in two thousand seventeen taking advantage of its
intellectual capital in piracy to drive growth Now stable society
doesn't necessarily mean a free society It might be nice
to get free speech and free assembly like you have
in the U S or the U K But just
for economic growth while the key component is stability or
trust places like China where the communist government keeps a
lid on political dissent and on Google which it has
to censor its search results Or you have Singapore where
chewing gum is illegal and you can literally get caned
for breaking law Well the's air still traditionally high growth
places The growth comes despite there being famously repressive government
Well so country like Nigeria which has the seventh highest
population in the world and abundant natural resource is including
membership in OPEC Well they can't sustain any economic growth
Why will the country continues to see cycles of revolution
and unrest from unfair wealth allocation by the corrupt government
there it can't sustain a stable society which doesn't allow
it to build sustained intellectual capital It can't take advantage
of its access to labor or access to natural resource
is to drive sustained economic growth so well it's prospects
are pretty dim But if you bring all the determinants
of growth together big population lots of resource is stable
society Strong intellectual capital Well you've got something like well
say the U S In the nineteenth century where we
went from Well a nearly forgettable former colony to being
the largest economy in the world producing one of the
all time great GDP growth spurts in World history Way
did it only after we got rid of the pirates 00:09:02.644 --> [endTime] So hey Somalia You paying attention No
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