Growth Theory: A Primer

Growth Theory: A Primer

Atanu Sengupta (The University of Burdwan, India) and Anirban Hazra (The University of Burdwan, India)
DOI: 10.4018/978-1-4666-7470-7.ch007
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Abstract

In this chapter, the authors discuss how the modern thinking of growth starts from the classicists. To the classical economists, limitedness of resources is the limit to growth. Neo-classicists transplanted the natural resources with the producible means of production – capital. Limitedness of resources is removed but it is replaced by the limitedness of operational structure – the firm size. The result is the diminishing returns to capital1 that shape the frontier growth. New growth theorists introduce the concept of generating “ideas” – involving human endeavour with its intellect. This is human capital – the seed of unlimited growth. However, this main story does not cover sharper niceties that are of paramount human interest. Issues of inequality and sustainability are some of these. This chapter is not any encyclopedic attempt. It only tries to cover some of the basic dynamics into which man has fashioned to understand his own destiny.
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Some Basic Facts

Since majority of us live in an environment of persistent growth, it is difficult to imagine a world of stagnancy. However this was the reality which our forefathers lived over centuries. Ever since human being evolved out of apes, there were some periodic spurts of technological advances: use of fire, discovery of wheel, animal domestication, agriculture, development of cognitive language and phonetic alphabets, use of mathematics and geometry and so on and so forth. These changes helped to advance per capita output2 to a certain higher level. However such changes could not be sustained. The economy became richer and leaved happily thereafter3. The idea was an attainment of a steady state where growth in per capita growth is arrested. Moreover these changes were sporadic and not shared by majority of the people either in the same country of elsewhere. Neither could it be sustained for a long enough period. The idea of continuous improvement in the life of a majority of the people is an entirely recent phenomenon. This idea can be grasped from the following table that gives the growth rate of per capita world GDP (in 1985 dollars).

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