A Short History of Economic Growth Theory. Economic growing is an of import portion of economic theory and one of the most important jobs economic experts tried to explicate is the differences of growing rates of states.
Economic advancement has been discussed since the clip of physiocrats and Adam Smith. In his book “ Wealth of Nations ” ( 1776 ) , Adam Smith mentioned economic growing as the improving and increasing of capital. David Ricardo in “ The Theory of Comparative Advantage ” ( 1817 ) emphasized on the benefits of trade and its function in the enlargement of economic systems.
Many economic experts argue that the differences in economic growing between states have been created during the 19th and twentieth century. Maddison ( 2001 ) estimated statistics of the universe states traveling back one thousand old ages. In his work “ The World Economy: Historical Statisticss ” is mentioned the fact that the divergency of income between states occurred during 1800s. Figure 1 below illustrates his findings.
Figure 2. : The development of mean GDP per capita in Western outgrowths, Western Europe, Latin America, Asia, and Africa, 1000-2000
Maddison ( 2001 ) discussed that the last millenary, the population of the universe increased by 22 times, the universe income by 300 times and the income per capita 13 times. During the first 800 old ages of the last millenary universe income increased at about 50 per cent, and the growing flourishing started at the early nineteenth century. Following his research income was non the lone advancement in the quality of life, the part of the educated people in society increased important and the same happened for the life anticipation, which increased about 3 times what it was at around 1000 ( from 24 old ages to 66 ) . The growing though was non every bit distributed around the universe, life quality quickly changed for Western Europe, North America, Australia and Japan, while the remainder of the universe ; Africa, Asia and South America, followed with a slower gait, ensuing to increased divergency in income. It is mentioned that “ by 1998, the spread was 7:1 between the United States and Africa, the spread is now 20:1. ”
From Adam Smith, Robert Malthus and David Ricardo to Robert Solow and Paul Romer, many economic experts made attempts to cast visible radiation on the cardinal factors of growing and therefore on the differences of the growing rates between states. Malthus ( 1798 ) argued that as labour force grew faster than engineering ; the existent rewards would fall, due to the increased cost of life, doing the decreased growing of the economic system. However, as economic advancement intermissions, population growing rates would fall every bit good and this would take to higher existent rewards and so on. Joseph Schumpeter based on the Marxist economic theory, adopted the term “ originative devastation ” in order to depict the fact that economic advancement may be accompanied by negative effects, as the old ways will be replaced by new ( e.g. new engineerings that may cut down the labour force needed ) . The research that set the foundations of modern economic growing theory was the one of Robert Solow and the exogenic growing theoretical accounts. In these theoretical accounts with no technological advancement, the decreasing returns will do the economic growing to decelerate down and finally halt. The factor that determined the uninterrupted growing of economic systems is a parametric quantity A, which is assumed to turn at a changeless and exogenic rate. This simple theoretical account revealed some valuable perceptual experiences about the growing procedure, such as that the technological advancement is one of the chief factors that affect growing. However the restrictions of exogenic growing theoretical account were the ground of new theoretical and empirical attempts from which emerged the endogenous growing theoretical account during the 1980s. Paul Romer in 1986 led the thought of endogenous growing, followed by Aghion, Howitt and others. In these theoretical accounts was introduced the term research and development and the human capital and the accretion of it is what drives the technological alterations. Later invention and instruction were introduced to spread out the abilities of endogenous growing theoretical accounts but still none of these could explicate the big income differences between states.
Figure 1. : The relationship between mean growing of income per capita and mean old ages of schooling, 1960-2000. Beginning: Acemoglu, 2009.
— — One of the oldest growing theories is the 1 of Reverend Thomas Robert Malthus, who in his work “ An Essay on the Principle of Population ” described that the growing of population was supposed to be exponential while the growing of nutrient supply was arithmetical, a fact that would take to a decrease of population in the hereafter. Following his analysis he proposed as steps moral restraints in order to command the growing of population and prevent serious jobs that the society would confront otherwise such as famishment, disease and war which is called Malthusian Catastrophe. Malthusianism was to a great extent criticized by David Ricardo and subsequently by Karl Marx. In his work “ Das Kapital ” ( 1867 ) Carl Marx accused Malthus for faulting the hapless and characterized him as a “ flunky of the middle class. ”