Why Economies Grow? December 15, Why Economies Grow? Economy of a country refers to a system or networkof manufacture & consumption of resources by its labor. The exchange of goods between supplier & consumer & the services provided to the people make basic infrastructure of a country’s economy. Any country is said to be developed if the demand & supply chain of that country show that there is more supply of goods than demand by the market. Many factors count in this regard, the natural resources according to the geography, manufacturing, distribution, consumption, exchange medium etc.
All these factors set the constraints & parameters in which the economy of any country works & may or may not flourish. All activities happening in a country also account for its economic growth. The occupations, education, business & investments are the basic pillars upon which the economy stands. The greater amount of people a country produce as literates or skilled workers, the more productivity will increase & the economy will grow. More the resources are being used by the government for its people, the less will be the demand & ultimately the economy will boost. Any country’s economy initially depends upon the extraction of natural resources like iron, coal, oil & gas, petroleum etc, then these are transformed from raw structure to products like machines, furniture, clothes etc, then these products are supplied to consumers along with the personal services provided by skilled workers.
Finally economy depends upon the private & public sector facilities which include hospitals, transports, libraries, institutes etc. All these factors play their parts in the growth of any state’s economy. Overall, the size of economy of any country is determined by the Gross domestic product GDP & GDP per capita of that country, which only includes such economic activities in which the money is exchanged.
The living standards in a particular state are measured through GDP per capita & every change in GDP indicates a change in the living standards. Economic growth is defined as the “increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs including labor, capital, material, energy, etc for a given amount of output”.
(Kendrick, John W. 1961). In his famous book Why Economies Grow, Jeff Madrick argued that market growth through trade & expansion is the biggest factor of economical development. He also said that technological advancement is not the cause of economical growth in developed countries, rather it is an effect caused by the economical revolution during the mid of 20th century. The economic growth also generates such resources which improvise the social services sector which includes healthcare, safety, good infrastructure, education etc.
Such kinds of resources diminish the affects of unequal distribution of income in the society & are equally distributed amongst the whole population. Hence every individual can take benefit from it. The healthier & stronger a nation, stronger will be the country & the economy will get more stable. Such resources increase the living standards of the general public & thus human development propels economic development of a country. If there is an increase in average income, it leads to proper use of social services provided thus building a healthy & prosperous nation.
On the other hand, if poverty is reduced, there will be more use of social services & more population will enjoy their benefits. Economic growth is often related to Economic Freedom, which offers a surviving Hope to Countries which are struggling with poverty & other severe issues. Such countries must develop such policies by which economic growth will increase & then they have to go on the subject of health & food. The policies may include economic freedom in which citizens are allowed to make their own economic policies without the interference of government.
Many underdeveloped countries like Hong Kong, South Korea and Singapore made a rapid growth & get flourished by adapting this method. Less than a half century ago they were among the poor countries, now they are amongst the wealthiest nations of the world (Why economies grow? 2001) China, India & Japan are considered the fastest developing countries amongst all nations. China grew so rapidly because of economical freedom it provided to its firms & organizations; they bring their own ideas of economical growth as at that time, most of the countries were already in the list of developed ones.
From the year 1975 to 2000, income per capita in China grew at almost 6% per year which means that after every 12 years the income becomes double. India lacked behind china as it did not provide its investors enough economic freedom rather operated in a government-created protective time warp. It started its economical reforms in early 1990s & produce efficient skilled workers which started working in foreign countries thus making money for them & for their country.
The same occurs with China & thus the quality of life & economical growth during the years 1975-2000 was driven to a very large extent by foreign investment by multinational firms (Economic Growth by Paul M. Romer). No doubt every nation wants that its economy should get stable & strong, but everyone is not like Chinese people who struggled very hard to achieve their goals & made a bench-mark in economical development. Huge population can be one of the big advantages a country could avail.
Both china & India have a huge population. China makes use of its population by providing enough opportunities in the productivity sector. They produced such products which are in high demands in international markets, thus collected enough revenue for the economy. But before all that, many Chinese who were related to agricultural sector suffered for the time being, as there had been no or very less improvement in the sector. Same is the case with India; more than 50% of Indians are poor, but they are suffering & sacrificing for their country.
People such as Indians who are mostly related with agricultural sector suffer the most, as this sector receives the least income when the foreign investment is being made in cosmopolitan cities. The infrastructure is being rebuilt, the literacy level is increased in cities & there are more job openings in big cities as compared to the villages. Most labor comes from the backward areas because there are very less opportunities in their own surroundings. Hence the labor force in villages decrease & ultimately this sector fully vanishes.
On the other hand, when the economy of any country gets strong enough, then it makes such imports which fulfill the needs of agriculture in country. So every 3rd world country’s citizen should make sacrifices like those made by Indians, in order to make their country economically stable (Madrick. 2002). China is now considered worlds 2nd largest economy & the worlds fastest-growing major economy since past 30 years, having a consistent growth rate of about 10%. In 2010, its per capita GDP was $7,544 & the average gross salary is $4,260 yearly ().
Japan is at the third slot in economies as it is also free market economy; its per capita GDP was at $33,805 which is 24th highest in 2010. Although it suffered too much from the post war consequences, yet it proved itself & took complete control over the disastrous situation. India is at the ninth spot in economy worldwide having per capita GDP of $3608 in 2011(IMF, 2011). It adapted economic freedom rules after 1990s & since then it has been one of the fastest growing economies of the world.
These all economies grew faster by providing freedom to economy. Thus the developing or under developed countries might seek the example from such cases & help their economies to grew more & more. Bibliography Kendrick, John W. (1961). Productivity Trends in the United States. Princeton University Press for NBER. p. 111. Madrick, J. G. (2002). Why economies grow: The forces that shape prosperity and how we can get them working again. New York, NY: Basic Books. Why Economies Grow: Economic Freedom Offers Hope to Countries Struggling with Poverty, November 2001 • Volume: 51 • Issue: 11 < http: //www. thefreemanonline. org/featured/why-economies-grow> Paul M.
Romer. Economic Growth International Monetary Fund: World Economic Outlook Database, April 2011