Productivity and Growth

Production

A process that transforms resources into goods and services.

Productivity

The ratio of a specific measure of output, such as real GDP, to a specific measure of input, such as labor.

Labor Productivity

Output per unit of labor, measured as real GDP divided by the hours of labor employed to produce that output.

Per-worker production function

The relationship between the amount of capital per worker in the economy and the average output per worker.

Capital Deepening

An increase in the amount of capital per worker; one source of rising labor productivity.

Rules of the game

The laws, customs, manners, conventions, and other institutional elements that determine transaction costs and thereby affect people's incentive to undertake production and exchange.

Industrial Market Countries

Economically advanced capitalist countries of Western Europe, North America, Australia, New Zealand, and Japan, plus the newly industrialized Asian economies of Taiwan, South Korea, Hong Kong, and Singapore.

Developing Countries

Countries with lower living standards because of less human and physical capital per worker.

Basic Research

The search for knowledge without regard to how that knowledge will be used.

Applied Research

Research that seeks answers to particular questions or to apply scientific discoveries to develop specific products.

Industrial Policy

The view that government-using taxes, subsidies, and regulations-should nurture the industries and technologies of the future, thereby giving these domestic industries an advantage over foreign competition.

Physical Capital

The stock of equipment and structures that are used to produce goods and services.

Human Capital

The knowledge and skills that workers acquire through education, training, and experience.

Natural Resources

The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.

Technical Knowledge

Society's understanding of the best ways to produce goods and services.

Rule of Law

Explains 57% of a country's intangible capital.

Society's Standard of Living

Depends on its ability to produce goods and services.

Savings and Investment

Invest in capital goods! Emphasis on Capital over Consumption.

Diminishing Returns

The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases.

Catch-up Effect

The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.

Foreign Direct Investment

A capital investment that is owned and operated by a foreign entity.

Foreign Portfolio Investment

An investment that is financed with foreign money but operated by domestic residents.

Education

Investment in human capital is as important as investment in physical capital for a country's long-run economic success.

Negative Aspect

The Brain Drain - emigration of highly educated workers to other countries.

Health and Nutrition

Healthier workers are more productive.

Malnutrition

Still a problem in developing nations.

Property Rights

People's ability to exercise authority over the resources they own.

Inward-oriented Policies

Attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world.

Outward-Oriented Policies

International trade in goods and services can improve the economic well-being of a country's citizens.

Research and Development

Knowledge a public good. The U.S. government has played a large role in R&D.

Patent System

Encourages research as well. (exclusive right to produce a product for a number of years).

Population Growth

Thomas Robert Malthus (1766-1834) An essay on the principle of population as it affects the future improvement of society.