The Importance Of Economic Growth

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Economic growth – the annual rate of increase in a country’s gross domestic product (GDP) – is what determines the material well – being of people within a society. It is the process of accelerating growth that has allowed for a better style of living for majority of people as compared to the standards of living of say, 100 years ago. Though there has been an increased clamor by economists and policy makers for a broader perspective to economic growth – to include poverty alleviation, reduce inequality and propagate structural changes – in order to induce economic development, economic growth is an important proponent for achieving the purpose of development. From economic literature that emphasizes on explaining the growth process, the concept…show more content…
For these very poor countries, there seems to be a divergence from the world frontier and thus creating a “club convergence”. In particular, there seems to be a “club convergence” for countries like South Korea, India and China that brings their growth rates closer to the world productive frontier and a different kind of “club convergence” that deviates the growth rates from the world productive frontier for the very poor countries especially in Sub – Sahara…show more content…
The paper follows the a Schumpeterian growth theory with technological transfers that implies that countries above some level of financial development will converge to the same long run growth rates (Aghion et al, 2004). As noted by Aghion et al, (2004), there are three important aspects to this theory. The first aspect of the theory relates to the absorptive capacity of a country (Nelson and Phelps 1966). This refers to the capacity of a country to make use of an imported technology. Technology and innovations are usually very country specific, thus countries importing these technologies have to invest resources to master these technologies and adapt them to their own environment. These necessary actions by countries importing foreign technologies play the same role as research and development in the
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