Economic Growth

Benefits of Economic Growth

1. Higher SOL 2. Increase Investment and Consumption 3. Settle debts and accumulate reserves

Cost of Economic Growth

1. Social Costs 2. Forgo Consumption Today 3. Depletion of Natural Resources

How is potential growth determined?

Determined by the amount by which the quantity and quality of resources improved

Productive Capacity

Determined by the quantity and quality of factors of production

Why increase I and C?

Economic growth boosts consumers' and firms' confidence which in turn increases investment and consumption, hence fueling further economic growth.

Entreprenuership

Entrepreneurs play an important role in economic growth. It is the entrepreneurs who organic and co-ordinate factors of production, explore new markets, innovate and take risks in anticipation of demand. The more dynamic is the pool of entrepreneurs, the more viable the enterprises because they contribute to better management of scarce resources and to the exploitation of market opportunities and innovation, therein contributing to higher output and moves the PPC outwards.

Limitation of "teaching/training" entreprenuership

Entrepreneurship is not a skill that can be taught easily it requires certain personal qualities like leadership.

Labour force: quality over quantity

Human capital is the economist; term for the knowledge and skills that workers acquire through education, training and experience. It includes the skills accumulated in schools, university and on the job training for adults in the labour force. A literal, healthy and skilful workforce is able to raise productivity, as workers are more receptive to changes, more able to assimilate instructions and more willing to accept further training to upgrade existing or acquire new skills. Thus policies placing great emphasis on better medical facilities, technical education, on-the-job training and continuous skill training are important.

Limitation (Capital) of attracting FDI

Impede growth of indigenous SMEs

Labour

Labour is the mental and physical effort, measured in man-hours that people apply to the production of goods and services.

Land

Land refers to all gifts of nature or natural endowments, which can be used for the production and distribution of goods and services. It includes everything above, on and beneath the surface of which is not man-made.

Capital

Man-made aids to further production. Some examples of capital include factory buildings and machinery.

Economic Growth

Measured as the rate of increase in real GDP. Growth is usually calculated in real terms (i.e. inflation-adjusted terms) in order to negate the effect of inflation on the value of the goods and services produced. Economic Growth: (Real GDP-Real GDP)/(Real GDP) ×100

Social Costs - Income inequality

One, the tax structure may be made less progressive in the pursuit of economic growth. Second, the benefits of growth are not evenly distributed as a rise in GDP is likely to benefit the rich rather than the poor since the rich are more able to use and invest with their money.

Potential Growth

Potential growth refers to the growth in the productive capacity of the economy which may or may not be present when there is actual economic growth.

PPC

Production Possibility Curve It shows the different quantities of two goods that an economy could efficiently produce with limited productive resources.

Quality growth

Quality growth in the context of Singapore refers to Productivity-driven growth.

How low savings rate will affect achieving sustained economic growth?

Saving is the source of finance for capital accumulation, which is one of the main engines of economic growth. The level of savings crucially affects the pace at which a country can grow and the proportion of income that is saved independent on the income level. As poor people have a low level of income, there is the issue of rapid population growth. A larger production would mean that the country has more productive resources, greater potential for more specialization and a greater division of labour, and thus, a greater output. But when the population is growing at a rapid rate and when a country is poor, it will lead to an increase in the proportion of dependents to workers and hence a lower saving rate. This explains the slow growth in some of the countries.

Why forgo consumption today

To achieve faster growth, firms will probably need to invest more, however, to increase the amount of capital stock, resources that could otherwise be used to increase the production of consumer goods will have to be diverted to the production of capital goods instead. Hence, economic growth requires a sacrifice of current satisfaction. While it is true that the policy will lead to a greater output of consumption goods in the future, it might take time before any net gain is achieved.

Social Costs - Damages environment

While a richer society may be more concerned for the environment, it is also likely to have incurred a higher level of damage. This is because industrialization is often done at the expense of the environment, which results in water and air pollution. With a more rapid rate of economic growth, the rate of obsolescence of production methods, machinery and labour skills increases as well. As a result, there could be higher structural unemployment and this will exert a social cost in the form of disruption and unpleasant breaks in a person's working life. In addition, it may be useful to consider the example of China, where huge disparities between rural and urban areas exists. Most of China's GDP growth can be attributed to high investment (foreign directed investment) rather than consumption. This can easily lead to industrial pollution in addition to the pre-existing income gap.

Limitation (Capital) of SS-side policies

requires substantial government funding

Economic Policies to increase quality/quantity of CAPITAL

• Attract FDI in fixed capital investment • SS-side policies - encourage firms to adopt technology or increase usage of capital equipment • Improve social capital - facilitate and integrate all economic activities

Economic Policies to increase quality/quantity of LABOUR FORCE

• Attracting foreign talent • Investment in human capital development (worker training) • Encourage women/ elderly to join workforce

Economic Policies to increase quality/quantity of LAND

• Build upwards/ go underground (marina coastal expressway) • Explore new natural resources eg. oil/ mineral exploration [urban planning]

Why higher SOL?

• Economic growth, measured by a higher real income per head, and usually accompanied by a higher employment rate given the higher production, does contribute to a higher standard of living. In addition, • Prospect of reducing income inequality or poverty through the introduction of policies aimed at a more equitable re-distribution of income. For example, when income rises, the amount of taxes paid by an individual would increase and this additional government revenue can be channeled to programmes aimed at alleviating poverty. For example, in India, growth as used as a tool to alleviate poverty by directly creating productive employment. With higher economic growth, there might be a greater concern for environments and governments may be more capable to invest in green technology. • Improve the environment. This is because with higher income, people may become more concerned with the environment and exhibit more social consciousness. And with higher economic growth, government will also be more capable to improve on the living environment.

Economic Policies to increase quality/quantity of ENTREPRENUERS

• Funding and create facilities to start up • Training and education • Creating a culture which encourages entrepreneurship without stigma of failure