Effects of eco growth help! (1 Viewer)

[ashwin]

Hey, i was just wondering HOW economic growth leads to an increase in real incomes, and if it is because of productivity, HOW eco growth leads to productivity.


Thnx

 

[SPX]

Higher growth may not benefit all but overall real income will rise. I think productivity leads to eco growth not the other way, this is as we become more competitive, this creates greater demand making more jobs etc and then people will be getting more money by making use of economies of scale. Thus, on average the incomes will rise as we get more money and it is thus distributed for all to have more real income.

 

[Harimau]

Originally posted by SPX
Higher growth may not benefit all but overall real income will rise. I think productivity leads to eco growth not the other way, this is as we become more competitive, this creates greater demand making more jobs etc and then people will be getting more money by making use of economies of scale. Thus, on average the incomes will rise as we get more money and it is thus distributed for all to have more real income.

But isnt it that Higher Growth will only improve real income when it is above the inflation rate?

 

[SPX]

Yes, that is one factor. But it also relates to prices and income policy and distribution of income. Inflation does affect growth but eco growth that is very fast can bring about inflation in itself as prices are pushed up. That is a result of demand pull inflation which affects other products too. So in bringing inflation the wages will also rise and thus real income will also to compensate for higher prices due to growth. It really depends on how fast you grow which determines the speed of inflation.

 

[timmii]

Just to be on the safe side - refer to increases in "real gdp growth" in ur essays etc...that way inflation is already excluded.

Growth can lead to increases in productivity - there is more capital to invest, better workign conditions can be provided, improve the environment etc ---> growth can then self-perpetuate, and poorer nations can sometimes be stuck in a downward spiral.

Also, growth allows greater specialisation and greater wealth from the advantages of trade/comparative advantage. (poorer countries can't afford to establish complex infrastructure, capital markets etc, and ppl are too focussed on subsistence living for the development of secondary occupations - e.g lawyers, stockbrokers etc....) While specialisation also leads to wealth. Specialisation leads to increases in productivity.

Hmmm reminded of that joke "there's no such thing as a one handed economist - everything is always 'on the other hand' "