Economic Growth

Abstract

This chapter considers three key determinants of long-term economic growth: the accumulation of capital, population growth, and improvements in technology. Capital should be viewed in a broad sense to encompass physical capital (machines and buildings), as well as human capital (improvements in the quality of labour due to education, training, and experience). We shall see that the accumulation of capital is an important element of growth but that the workings of diminishing returns imply that growth cannot go on forever just by adding to the capital stock. We shall also find that population growth can sustain growth in the level of output but not in the levels of product and income per capita. Finally, we shall work out the role of technological advances as a crucial mechanism for sustaining growth in the long run.