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1、Chapter 18Chapter 18 Theories of Economic Growth and Theories of Economic Growth and DevelopmentDevelopment 1 SIR ROY F HARROD AND EVSEY DOMAR 2 ROBERT M SOLOW 3 JOSEPH ALOIS SCHUMPETER 4 RAGNAR NURKSE 5 W ARTHUR LEWIS The Capacity Creating Effect of Investment The Demand Creating Effect of Investme
2、nt The Requirement for Balanced Growth 1 SIR ROY F HARROD AND EVSEY DOMAR The Capacity Creating Effect of Investment Domar noted that net investment spending adds to the nation s stock of capital increases the economy s productive capacity and raises its potential level of income He said that the ch
3、ange in productive capacity DYq will depend on the level of investment I and the potential social average productivity of new investment Symbolically Yq I 18 1 The Demand Creating Effect of Investment Because the consumption function in the Keynesian model is assumed to be stable added consumption e
4、xpenditures are forthcoming only in response to expanding income Consequently investment spend ing is the source of increases in aggregate demand from one period to the next Investment spending in the new period must exceed the amount in the previous period if the added potential income arising from
5、 that past investment is to be realized Yd I 1 18 2 The Requirement for Balanced Growth Domar defined balanced growth as a rate of income growth at which full employment of resources is maintained over time It is achieved when changes in productive capacity q in Equation 18 1 equal changes in effect
6、ive demand Yd in Equation 18 2 Yq Yd 18 3 Domar thus reached his major conclusions The economy must grow in order to maintain full employment of its resources To realize the rate of income growth required to match the growth of income capacity investment must annually increase at a percentage rate e
7、qual to the product of the potential social average productivity of investment and the propensity to save Continue Solow s Growth Theory Solow on Technological Progress 2 ROBERT M SOLOW Solow s Growth Theory Solow s theory supported the neoclassical view that the economy adjusts internally to achiev
8、e stable equilibrium growth The Solow growth theory contains several key elements 1 Production the labor force and balanced investment 2 Saving and actual investment 3 The steady state point Continue Figure 18 1 Solow s Growth Theory Solow on Technological Progress Solow emphasized the importance of
9、 technological advance to higher standards of living For Solow technological advance includes not only improved production techniques but also improvements in the quality of labor and capital Life and Influences Economic Development and Business Fluctuations The Decay of Capitalism Schumpeter in Ret
10、rospect 3 JOSEPH ALOIS SCHUMPETER Schumpeter constructed a theoretical system to explain both business cycles and the theory of economic development The key process in economic change is the introduction of innovations and the central innovator is the entrepreneur The entrepreneur is the person who
11、carries out new combinations and who introduces innovations Economic Development and Business Fluctuations Without innovation economic life would reach static equilibrium and its circular flow would follow essentially the same channels year after year Profit and interest would disappear and the accu
12、mulation of wealth would cease Innovations do not occur continuously but rather occur in clusters The activities of the most enterprising and venturesome entrepreneurs create a favorable climate in which others can follow Business fluctuations therefore represent the process of adaptation to innovat
13、ion Continue The Decay of Capitalism Schumpeter believed that capitalistic society had for some time been in a state of decay But he disagreed with most economists about the precise nature of that decay The economic and social foundations of capitalism are beginning to crumble said Schumpeter becaus
14、e of 1 the obsolescence of the entrepreneurial function 2 the destruction of protective politic al strata and 3 the destruction of the institutional framework of capitalist society Obsolescence of the entrepreneurial function The entrepreneurial function is growing obsolete thus the economic and soc
15、ial foundations of capitalism are crumbling Innovation is being reduced to routine Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways Continue Destruction of the political strata The destruct
16、ion of the political strata which has offered the strongest defense of capital ist society spells the second reason for the self destruction of the capitalist system Schumpeter agreed with Marx that big business destroys small and medium sized firms Continue Destruction of the institutional framework The third reason for the crumbling founda tions of capitalism lies in the destruction of the institutional framework of capitalistic society Based on his observation of Europe and the United States
