Book contents
- Frontmatter
- Contents
- Introduction
- PART I POSITIVE GROWTH THEORY
- 1 The welfare of society and economic growth
- 2 The growth process
- 3 A production function of central importance
- 4 The CES production function as a general mean
- 5 Capital–labour substitution and economic growth (in collaboration with Robert M. Solow)
- 6 The long-term growth rate as a random variable, with an application to the US economy
- PART II OPTIMAL GROWTH THEORY
- PART III A UNIFIED APPROACH
- In conclusion: on the convergence of ideas and values through civilizations
- Further reading, data on growth and references
- Index
2 - The growth process
Published online by Cambridge University Press: 01 February 2010
- Frontmatter
- Contents
- Introduction
- PART I POSITIVE GROWTH THEORY
- 1 The welfare of society and economic growth
- 2 The growth process
- 3 A production function of central importance
- 4 The CES production function as a general mean
- 5 Capital–labour substitution and economic growth (in collaboration with Robert M. Solow)
- 6 The long-term growth rate as a random variable, with an application to the US economy
- PART II OPTIMAL GROWTH THEORY
- PART III A UNIFIED APPROACH
- In conclusion: on the convergence of ideas and values through civilizations
- Further reading, data on growth and references
- Index
Summary
Economic growth is simply defined as an increase of income per person. Our aim in this chapter is to explain, first without any formalization, the process by which such an increase may be achieved in a given country. The necessity for a more formal approach will emerge in a natural way.
This will lead to a precise model, from which unambiguous inferences can be made. In particular, we will be able to answer the following questions: what are the necessary conditions for an economy to grow? And if those conditions are met, will income per person always increase, or will it tend toward a limit?
The growth process: an intuitive approach
In a given country, at the beginning of a given year t, society has two fundamental factors of production at its disposal. First, it has inherited from the past a stock of capital, that we may call Kt. This is the value of all equipment that has been accumulated by society and preserved until that instant: it includes the value of land, factories, machinery, transport infrastructure, and so forth. The second production factor is labour, which we will always consider as a given proportion of population; we will thus assume that a measure of this labour force is the population itself, denoted Lt. It is endowed at time t with a given technological knowledge, also inherited from the past.
Together with the capital at its disposal, this work force will produce within a given time span (a year for instance) an output which we call the gross domestic product.
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- Information
- Economic GrowthA Unified Approach, pp. 29 - 73Publisher: Cambridge University PressPrint publication year: 2009