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The Sources and Evolution of Growth

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Economic Growth and Development Policy

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Abstract

A country’s wealth and prosperity over time depend almost entirely on its ability to increase productivity, an affirmative answer might seem reasonable. Economists have long puzzled over the factors that enhance productivity and the relationship between productivity and growth. This chapter has an introductory character and surveys the sources of growth and development. The concepts of diminishing returns and productivity lie at the centre of the theoretical analysis for the construction of growth policy. Thus, the scope of the chapter is to identify the pro-growth factors and also to give a concise and comprehensive view of the evolution of the theory of growth and development.

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Notes

  1. 1.

    For a full analysis, the reader may refer to Part III by Petrakis (2017) Economic Development and Growth: General and Integrated Approach, Quaestor Editions.

  2. 2.

    The Cass Criterion, also known as the Malinvaud–Cass criterion, is the central result of the OGMs, named after David Cass (1965). An important feature of OGMs is that the first welfare theorem cannot be applied, that is, that competitive balance may not be Pareto optimal.

  3. 3.

    According to Schumpeter (1939), the Kondratiev circles, or, else, waves, is a phenomenon that suggests that economics follows a periodical pattern, named after Nikolai Kondratiev. According to this phenomenon, there is a period where high growth is followed by low, and the cycle is broken down into four phases named after the four seasons of the year.

    • The first phase is inflationary growth and is described as “spring”. It is the phase where the economy is at the bottom of the cycle and expanding steadily, with unemployment falling and productivity, wages and prices rising.

    • Then comes the second phase, the “summer”. It is the period of recession or, as it was initially called, stagflation. Initially at this stage the economy is expanding until it reaches the limit of its available resources—human and material. At this point, there is a shortage of resources and the product is starting to decline as unemployment increases.

    • The third phase, the “autumn”, also known as deflationary growth, is characterized by low growth. But quickly the imbalance—the sharp rise in prices—created in the previous period gives way to the rapid formation of excessive debt, eventually leading the economy into a sharp recession.

    • The fourth phase, termed “winter”, is one in which significant expenditure cuts are observed, leading to a sustained deflationary period. Finally, in this period, the innovation and technologies of the growth period are becoming cheaper and more widespread.

    Yet, there is no specific model that fits Kondratiev’s circles. Empirical work to support Kondratiev’s hypothesis usually chooses a measure that describes the product and the data available on a log scale to detect yield and distribute data smoothly over time, using a mobile medium to eliminate accidental “noise” events. Another approach was supported by Metz (2011), who uses structural time series (STS) models to detect the hyper-cycles supported by Kondratiev. Finally, a reasonable estimate has been made by the Allianz Investors Group (2010) using the ten-year moving average returns of the S&P 500.

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  1. Department of Economics, National and Kapodistrian University of Athens, Athens, Greece

    Panagiotis E. Petrakis, Dionysis G. Valsamis & Kyriaki I. Kafka

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Petrakis, P.E., Valsamis, D.G., Kafka, K.I. (2020). The Sources and Evolution of Growth. In: Economic Growth and Development Policy . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-43181-5_1

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