Chapter 39, Problem 2FRQ

To determine

To find:

Role of physical capital, human capital, technology, and natural resources in influencing the differences in economic growth rates in the long run among countries.

Explanation of Solution

Countries face different levels of economic growth in their economies. Few have double-digit growth rates while few face single digit even less than a 2 percent growth rate per annum. The factors such as infrastructure, physical and human capital, government policies, tax rates, availability of technology and natural resources, and spending on research and development, play a very crucial role in deciding the economic growth of an economy.

The country with a higher level of physical and human capital, upgraded technology, and abundance of natural resources will achieve higher economic growth than the countries with a lower level of these factors.

The following responsible factors play a significant role in achieving a higher production level and thus economic growth among nations:

1. A higher level of physical capital such as machinery and equipment along with supporting infrastructure like roads, ports, railways, warehouses, and other storage facilities will improve the production capacity and thus will promote economic growth in the long run. These variables will improve the better connectivity between the forward and backward linkages in the economy.
2. A higher level of human capital such as better education and health facilities will promote economic growth in the long run. For example, an improvement in educational facilities (such as providing courses according to the market demand for workers, opening training institutions, and so on) will help in reducing structural unemployment in the economy which helps in getting long-term sustainable economic growth.
3. The availability of advanced technology will enhance the capacity of firms and industries to produce in long term and thus results in a higher production level in an economy.
4. Similarly, the availability of natural resources will reduce the cost of raw materials needed for production. The more the level of natural resources a country has, the more economic growth is possible.

The above factors when amalgamated lead to a rise in long-run economic growth among countries.

Economics Concept Introduction

An increase in the aggregate production of goods and services in an economy over time is considered economic growth. Economic growth is a quantitative measurement as it represents growth in numerical form in terms of GDP or National income.