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Long Run Growth



        Increase in population can stimulate growth by expanding domestic market.

        Rise in participation rates among population of working age

        Quality of the labour force - human capital - conducive to high productivity & real output



        Entrepreneurial ability - organises and combines other resources to make a profit.

        The quantity of entrepreneurs - forces which encourage entrepreneurial talent include:

        A well-developed capital market, infrastructure & favourable social & political climate

        Quality of entrepreneurs improved by increasing education & government assistance to business.



        Importance of gross and net investment

        Quality of investment as important at quantity

        Positive externality effects from higher investment (increasing returns to scale?)


Government Policies And Economic Growth

  1. Open markets - internal and external competition in markets for goods and services
  2. Promotion of liberal capital market providing a flow of liquidity to finance investment
  3. Protection of private property rights
  4. Scale of government spending - possible crowding out of the private sector if government spending is too
  5. Efficiency of the tax and benefit system - may create disincentives which constrains the active labour supply
  6. Incentives for entrepreneurial activity
  7. Investment in human capital - active labour market policies
  8. Macro-economic stability and credibility of macro economic policy


Young, 1994, Asian tiger's success resulted from:

        Rapid accumulation of capital (through high investment)

        Labour (through population growth and increased labour-force participation)

        Government policies of encouraging education, opening economy to foreign technologies, promoting trade, keeping taxes low & encouraging savings (30% of GDP in 'tiger' economies)

Small state - government spending around 20% of GDP compared to over 50% in Europe



E-mail Steve Margetts