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Examine the factors which explain the differences between economic growth rates in countries

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Introduction

Harjevan Hare Examine the factors which explain the differences between economic growth rates in countries Economic growth is the long term increase in productive capacity as shown by an outward shift on a PPF curve. The PPF shows the maximum potential output of the economy. Productive capacity is an economies ability to produce goods and services, so if an economy grows, it can produce more goods and services for the population of the economy to use. Differences in Economic growth in countries result due to many factors, such as land and its resources. The amount of land a country possesses, and all the natural resources it finds on the land can affect the amount of output. For example, Saudi Arabia has experienced very high growth rates due to the richly endowed lands which contain much oil. In this developing economy, the oil exploitation was vital for its growth. Some 3rd world countries are so poor, and lack such growth as Saudi Arabia, because they have insufficient land, or insufficient resources to produce goods and have a higher output, and therefore have a higher economic growth. ...read more.

Middle

Capital can also affect the rate of economic growth. If there is a higher investment in assets in one country than another's, there could be a difference in growth rates. If countries invest in things like housing for example, it is unlikely that it will result in economic growth, but if invested in education, businesses, etc, there may be higher output in the future, and long-term economic growth. Countries in which investment differs may also experience differences in economic growth. If an economy invests in social capital, such as schools, and hospitals, there is going to be differences in economic growth compared to a country which invests in infrastructure, i.e. Roads, power, and transport, as these can increase output by reducing travelling costs, and other production costs. Differences in technological progress will also result in a difference in growth rates. Technological advances can help increase efficiency in businesses, for example computers have taken the place of filing cabinets, and are much quicker and useful than filing cabinets. Also, technology has helped reduce costs, for example 50 years ago; a large room full of expensive equipment was needed to perform tasks which a calculator can do today. ...read more.

Conclusion

Many economists believe that education and training is the most important factor in determining economic growth rates. Some countries like Germany concentrate on training their current workforce to increase productivity, whilst others such as the USA, focus on educating children and teenagers. The USA boasts the highest percentage of 18-24 year olds in full-time education, and experiences high growth rates. China, one of the fastest growing countries, also concentrates strongly on educating people at a young age. Another factor influencing growth is the significance of international trade. In countries that don't participate in international trade, such as , there is very slow or no economic growth. This is because it is very hard for one economy to produce all goods which people require. It is better to specialise in a few goods, use them, sell the surplus, and use the money to buy other goods from other economies, rather than the economy to produce everything itself, which is very inefficient. In this country, there is a much slower rate of economic growth compared to other countries. So altogether, there are many factors influencing economic growth, and this leads to different growth rates in different countries. ...read more.

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