long-term economic growth question?

Question

What are the major determinants of long-term economic growth? How accurate, in general, are most forecasts of long-term economic growth? Explain why you take this position.

Answer 1

It depends on how you define economic growth. If you define economic growth as growth in real GDP per capita, then there are two determinants of economic growth: productivity of labor and the size of the workforce relative to population. If you define economic growth as growth in real GDP, then you should add another determinant, the growth of the workforce.

Answer 2

Economic growth stems from an inprovement in an economy's productive capacity. There are Four Factors of Production (determinants of the productivity of an economy and hence the economic growth possible in that economy):
(1) Human Capital (i.e. labour)
(2) Physical Capital (eg. machinery, tools, etc.)
(3) Natural Resources (eg. gold deposits, diamonds, etc.)
(4) Technological Knowledge (i.e. skills and knowledge)

(1) Human Capital

In order to increase long-term economic growth, an economy ideally should attempt to retain a stably increasing population. The most important thing in regards to preserving human capital is health-related. The workforce requires a safe, healthy environment, with adequate access to clean drinking water, plumbing and other basic necessities. Also, in oder to retain the workforce from the 'brain drain' (the exodus of skilled persons due to the lack of employment opportunities in the home nation), there should be Government programmes that stimulate growth.

(2) Physical Capital

To encourage producers to increase the nation's capital stock, Governments could offer tax incentives (i.e. 'tax breaks') for those that invest in certain types of capital deemed most beneficial for the economy. An alternative would be subsidies for producers investing in capital. The most common method of increasing long term economic growth is increasing the nation's capital stock [investment].
Note: infrastructure is a form of physical capital.

(3) Natural Resources

Well, there's not much you can do here. If you don't have enough access natural resources you either have to discover more resources in the nation or import the raw materials needed in production.

(4) Technological Knowledge

This is where nations really move up the add-value chain. Education allows workers to be more productive, meaning an educated worker could produce more output with the same production inputs than if they weren't educated. Increased funding for schools and particularly tertiary institutions (eg. college, university, etc.) would greatly increase the technological knowledge of an economy and subsequently put upward pressures on long term economic growth. But, as mentioned above, certain economies, such as New Zealand, are prone to the emigration phenomenon known as the 'Brain Drain'.

The Accuracy of Forecasts of Long-Term Economic Growth

Economists that specialise in growth forecasts are usually correct, give or take half a per cent. If they weren't accurate those economists would be fired. If an economy is predictable and the statistics are realiable, then there is no reason to doubt the forecasts. However, if the statistics in a country are frequently inaccurate, such as in China and India, then there is a caveat attached to the forecast figures.

Answer 3

Long term economic growth forecasts are difficult.
Politics can have an impact, war, population growth, social changes, technological changes, etc.
In general, I'd say they are not particularly accurate, because the underlying factors are not easily determined.
China might yet have unused labor supply to fuel further growth, but what about political instability and difficulty maintaining the artificial exchange rates...seems like anything can happen to me.
What's the famous Keynes quote, "in the long run we are all dead", or something like that.

Answer 4

It is too hard to determine long-term growth. They are very inaccurate. This is precisely why budgets are hard to balance. You make up a budget before the year starts, and must stick with that set amount for the whole year...But who knows what is going to happen during that year??? Good question though...

Answer 5

Economics in the long term determine growth as it steadily rises constantly basically.