8.2 Modern Economic Growth

What defines modern economic growth?

Sustained increases in material prosperity and living standards within a single human lifetime.

When did the Industrial Revolution begin and what invention marked its start?

Around 1776, with James Watt’s efficient steam engine.

Name three major impacts of modern economic growth.

1. Cultural: More leisure and access to the arts

2. Social: Abolition of feudalism, public education, expanded rights

3. Political: Rise of democracy

How has the average human lifespan changed due to modern economic growth?

It more than doubled—from under 30 years to over 72 years globally.

Why do some countries have much higher GDP per capita than others today?

Because they began modern economic growth earlier.

What is the “great divergence” in standards of living?

The widening gap in income levels due to different starting points in economic growth.

Why can follower countries grow faster than leader countries?

They can adopt existing technologies instead of inventing them.

What is an example of technological leapfrogging in follower countries?

Many African nations skipped landlines and adopted mobile networks directly.

What was South Korea’s average GDP growth rate from 1960–2020?

8.8% per year.

What was China’s average GDP growth rate from 1980–2020?

9.9% per year

What happens when a country reaches the “technological frontier”?

Growth slows to 2–3% as innovation becomes harder and more costly.

Why are strong property rights essential for growth?

They protect investments from theft or government seizure, encouraging economic activity.

How do patents and copyrights promote innovation?

They give creators exclusive rights to profit from their inventions, incentivizing creativity.

What role do efficient financial institutions play in growth?

They channel savings into investments for businesses and inventors.

Why is widespread education important for economic growth?

It enables the development and application of new technologies.

How does free trade promote growth?

It allows specialization and spreads innovations across countries.

What does a competitive market system do for growth?

It uses prices and profits to guide efficient production and investment.

What cultural attitudes in the U.S. support growth?

Respect for inventors, positive views on work and risk-taking, and openness to wealth creation.

How does immigration contribute to U.S. economic growth?

It brings in enterprising individuals who expand the labor force and innovation.

What trade-off does India face with stronger patent protections?

More innovation but fewer cheap generic drugs for consumers.

Leader countries

As it relates to economic growth, countries that develop and use the most advanced technologies, which then become available to follower countries.

Follower countries

As it relates to economic growth, countries that adopt advanced technologies that previously were developed and used by leader countries

Catch-up growth

Technological Frontier

Country will no longer be able to grow rapidly simply by borrowing established technologies from other countriesS

Strong Property Rights

Strong property rights are essential for promoting rapid and sustained economic growth. People will not invest if they believe that thieves, bandits, or a rapacious and tyrannical government will steal their investments or their expected returns.

Patents and copyrights

Before patents and copyrights were first issued and enforced, inventors and authors usually saw their ideas stolen before they could profit from them. By giving inventors and authors the exclusive right to market and sell their creations, patents and copyrights provide a strong financial incentive to invent and create

Efficient Financial Institutions

These institutions channel household savings toward the businesses, entrepreneurs, and inventors that do most of society’s investing and inventing. Banks, along with stock and bond markets, appear to be crucial to modern economic growth.

Literacy and widespread education

Without highly educated scientists and inventors, new technologies do not get developed. And without a highly educated workforce, it is impossible to put those technologies to productive use.

Free trade

Free trade promotes economic growth by allowing countries to specialize. With specialization, various types of output are produced in the countries where they can be made at the lowest opportunity cost. Free trade also promotes the rapid spread of new ideas so that innovations made in one country quickly spread to other countries.

Competitive Market System

Under a market system, prices and profits serve as the signals that tell firms what and how much to make. Rich leader countries vary substantially in terms of how much government regulation they impose on markets, but in all cases, firms have substantial autonomy to follow market signals in determining their production and investment decisions.