Daarshinie Nadarajan

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What is the fundamental factor that contributes to long-run growth?

Why have some countries achieved sustained long-run growth compared with those that have not?
What are the causes that spear heads nations in achieving long run growth? Looking back at the Industrial Revolution in Britain or European colonies in the New World, was it a single element or a prefect storm of endogenous factors that came together in creating a conducive environment for the take off?
Main stream ideas points to democracy and trade in creating incentives for economic growth.
What about geography and factor endowments? Why then can't these factors be applied to other nations? Share your thoughts?

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    Sep 27 2011: Stability.
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    Sep 29 2011: I beleive there is another factor that the preceeding commenters have missed. Population Expansion. Any given market will grow to the size allowed by the quality of its resources and institutions as noted above. Therefore improvements in those will yield growth. At the margin where there are no more improvements to be had the only way to continue growth is by adding more consumers and producers into the market.

    On the flip side, for any given level of market factors, population growth will grow the economy as well.
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    Sep 27 2011: While I am not totally sold on his logic, this talk by Naill Ferguson really answers your question exactly. If you do not have time to watch the whole talk start at time frame 8:30 for the direct answer- 6 factors which created western "success'.

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      Sep 28 2011: Hey Debra, thanks for the link. Ferguson does make some good points regarding institutions and securing private property rights and how that fosters democracy to achieve GDP growth or the wealth of nations as describes by Adam Smith

      However I'm not convinced of his geography argument as he uses East, West Germany and North, South Korea as modern day examples. I would say these two nations show differences in institutions rather than differences in geographical factors e.g. climate, soil and disease/pest outbreak prone.

      Also I wish he would have gone further into whether China can maintain sustainable growth without secure private property rights.
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        Sep 29 2011: Excellent analysis, Daarshinie! I am not convinced as I alluded to above about his premises either. I am not sure that humanity itself can bear this rapaciousness forever. I am convinced that China has synthesized the lessons of the past and that they are moving forward more like one large family than we see in the west. I have the impression that China will sustain long term growth because it appears to be conducting its processes with great deliberation, logic and goal centredness. They seem to have mastered the lesson that the good of the many outweigh the good of the few and while that manifests in human rights violations at times, they are doggedly pulling millions out of poverty to the point that they are the financial backers of many of the major economies of the world.
        One of the factors that China has that is not on Ferguson's list is self discipline.
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    Sep 27 2011: Innovations thru Research & Developement. I believe R&D is one of the most important & fundamental factors of growth for developed countries.
    • Sep 27 2011: Dear Rafi,I tend to agree with you. If you look at the total patents in the world, the USA is up to 8 million, half of them being generated in the past 50 years. In Europe the patents are in the same ballpark. Of those patents, only a fraction have been world changing: alternating current, light bulb, wireless communication, random access memory, transister etc.. Compared to the global population of 6 billion, the very tiny number of innovative world changing patents pales in comparison. In a sense one could say that the world is in a state of infancy with respect to creativity. Everyone knows that China and India are the source of patent infringing products. The ethics around protection of intellectual property is not well developed in China or India. What self respecting mainland China individual would rely upon a China patent for protection of his/her invention (creative capital)? And what portion of China's export market relies upon infringement of international intellectual property rights? Until reform respecting individual rights and freedoms of this nature occurs in China, and the contradications of this nature are resolved, the crucial creative capital of over 2 billion cititzens of India and China may remain stagnant. Another source for this contradication may be the obsessive focus on material growth as opposed to a focus on creative growth. Perhaps the focus on material growth is a factor of its measurabilty versus creative capital, but in my opinion influential patents are a direct measure of creative capital and are systematically ignored by economists.
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    Oct 7 2011: Daarshinie, the fundamental factor contributing the most for long run growth... is a vision and continuously evolving goals. If any economy, industry or individual is without a vision for growth, it will not sustain itself. There are many such examples where the individual or economy growth was rapid, but could not sustain, because of lack of vision.

    Vision and goals will drive for all resource of finance, manpower, etc. You can find it in all the countries, companies and individuals.

    And the second most important aspect is persistence and consistence till the end.

    Once you have both these things with you... you can have a sustained growth... and with every economy there is a phase of correction, which means revisiting your vision and goals to maintain that long run growth. Such periods helps them to resurge again as leaders.
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    Sep 29 2011: If I put it in single words

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    Sep 29 2011: Is it then right to argue that it is initial institutions that restricts the monarch's absolutist power and ability to renege on property rights and rule of law that leads to institutions that benefit the masses to support sustained economic growth. Perhaps the Magna Carta in the 13th century could be an explanation?
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    Sep 29 2011: I think there are many factors that help to achive long-run growth. For example,
    1. Institutions- rule of law, predictability of gov't policies, economic system, property rights etc.
    2. Enhancing productivity thru education and R&D
    3. Sound capital market
    4. Healthy fiscal condition
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    Sep 28 2011: This is topic i find great intrest in! I love that you have asked this question and i have an opportunity to give you what i believe is the answer. Those countries are what i call "inspired" nations. The collective unconscious works in mysterious ways but you can see a trend through history in the rise in fall of nations. Nature gives pushes when and where it is needed to make thing the way they are and the way they need to be. After the push becomes successful the inspiration leaves to another group of people. This is why Rome was Rome and why it fell.The country of Italy is still Italy but you can agree that it is no Rome anymore. These pushes of inspiration power reality to what is is now. Everything in the past has happened for a reason to get us to where we are today. If you connect to the collective unconscious you will forever be inspired.
    Have you seen this? www.truthcontest.com

    Click on the entry called “The Present.” The writing is not very good, but what it says will turn this world around. You will see what I mean when you read the first page.
  • Sep 27 2011: A correlation to any one factor, such as political reform is perhaps short-hand for a correlation to a number of factors. For example, political reform permitting individual rights and freedoms such as the right to be protected by patent law in China could anchor its continued economic growth asit may spur more innovations from China. The speaker was not specific about which political reforms and took a macroeconomic view that is likely due to the necessity for brevity.

    The focus on growth from human capital is perhaps not as interesting as a focus on creative capital. The speaker mentioned that human capital has been the advantage of China, with a population > 1 billion, the shear output from a country such as China whose industrialization process only truly got an authentic start post-Mao, accounts for its superstar status given literacy rates and consolidated political direction. A focus on creative captital, which is the engine of countries such as Germany, Japan, and USA as a comparative measure of sustained long run growth may be more apt.

    Just putting it out there. Good question!
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    Sep 27 2011: Working on own strength keeping vision in horizon avoiding temptation of quick fix as much as possible
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    Sep 27 2011: capital accumulation
  • Sep 27 2011: Sustainability. They think to find sustainable ideas and implement them immediately.
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    Sep 27 2011: What do you mean by stability? Perhaps economic or political stability? But then what brings about stability? Do we start with democracy? Taking Britain as an example, growth in trade and innovation which brought about the industrial revolution was not possible without the security of property rights. Any thoughts?
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      Sep 27 2011: I mean stability at all levels. From the stability of the ground, to the work force, to the politics.

      As you said with Britain, the stability of secure property rights had an effect. So too did the stability of private security, which later became the police force. The stability of the workforce being brought in by train. That was further improved by unifying all of the train systems to one standardize track. The stability of the currency. The stability of the consumer appetite.

      The more stable an environment is (physical, political, and social), then the easier it is for companies to plan for the future.