Saturday, 9 February 2008

The glories of growth theory

One of my research specialisations is growth theory, which looks at the causes and nature of changes in economic output. It has been actively researched in the two decades, with improvements in theoretical modelling and applied analysis.

Growth theory is important for many reasons. A country with a high growth rate will see its national income increase quickly, which is highly likely to result in people's average incomes rising quickly over time, at least in the long run, with all the social benefits that usually brings. Few things are more likely to lead to social instability than a contracting economy. Most issues of concern to macroeconomists, such as inflation control or the theory of the firm, at least partially have as their indirect aim the promotion of economic growth.

Growth is exceptional in human history, with almost all of our past spent in extreme poverty. The driving force behind the exceptional change in the last two hundred and fifty years has been capital accumulation, either through market mechanisms or through state involvement - either capitalists save money and goods, or the state does. Scientific developments have increased the value of capital accumulation enormously. To condense the main conclusions of growth theory, what eases capital accumulation helps growth.

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