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Study Notes

Sources of Long Run Economic Growth

AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 18 May 2023

There are many sources of long-run economic growth - this study note summarises some of them.

The main sources of long-run economic growth can be attributed to several factors, including:

  1. Technological Progress: Technological advancements and innovation play a crucial role in promoting long-run economic growth. New technologies increase productivity, efficiency, and competitiveness in various sectors of the economy. This includes developments in areas such as information technology, automation, biotechnology, renewable energy, and transportation.
  2. Human Capital: Education and skill development are essential drivers of economic growth. A well-educated and skilled workforce contributes to productivity gains, innovation, and the adoption of new technologies. Investments in education, vocational training, and lifelong learning programs help enhance human capital and drive long-term economic growth.
  3. Physical Capital Accumulation: The accumulation of physical capital, including infrastructure, machinery, equipment, and other productive assets, contributes to economic growth. Adequate investment in physical capital helps increase productivity and efficiency, facilitates trade, and supports overall economic development.
  4. Natural Resources: Access to and sustainable use of natural resources can contribute to economic growth, especially for countries rich in natural resources such as minerals, oil, and gas. However, it's important to note that relying solely on natural resource extraction may not be sustainable in the long run, and diversification into other sectors is often necessary for sustained economic growth.
  5. Institutions and Governance: Strong institutions and good governance are crucial for fostering economic growth. This includes the rule of law, property rights protection, efficient legal systems, transparent and accountable governance, and the absence of corruption. Stable and predictable institutions create a favorable environment for investment, entrepreneurship, and innovation.
  6. Openness to Trade and Globalization: Participating in international trade and embracing globalization can boost economic growth. Trade allows countries to specialize in areas where they have a comparative advantage, increases market size, promotes efficiency, and encourages technology transfer. Globalization also facilitates the flow of ideas, knowledge, and investment across borders.
  7. Research and Development (R&D): Investment in research and development activities helps generate new knowledge, discoveries, and technological advancements. R&D expenditure by both the public and private sectors drives innovation, leading to productivity growth, new industries, and improved products and services.

It's important to note that the significance of these factors can vary across countries and over time. Additionally, there are interactions and feedback loops between these sources of economic growth, creating a dynamic and complex relationship.

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