08. Economic Growth

Production

A process that transforms resources into goods and service

Productivity

The ratio of a specific measure of outputs such as real GDP to a specific measure of input, such as labor in this case productivity measures real GDP per hour of labor

Labor Productivity

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

Over-worker Production Function

The relationship between the among 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 a lower living standard because of less human and physical capital per worker

Basic Research

The search of 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

How is Productivity Determined?

• Productivity

• Physical Capital

• Human Capital

• Natural Resources

• Technical Knowledge

Productivity (2)

The quantity of goods and services produced from each unit of labor input

Physical Capital

The stock of equipment and structure 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

Societies understanding of the best ways to produce goods and services

World Bank

Human capital and rule of law constitute the largest share of wealth in virtually all countries