ECONOMIC GROWTH: WHERE DOES IT~COME FROM?
No one understands completely why economies grow and no one has a magic formula for inducing growth. In this paper, Dr. Joe Amoako- Tuffour looks at the forces that economists believe underlie growth with an eye toward what public and private institutions can do to make growth possible, especially for economies seeking new directions. The conclusions are simple.
Growth is not an accidental process. It can occur in a variety of settings provided economies (1) identify their core competencies (what they are capable of doing). and (2) develop public policies to build on those competencies and to support those directions Political instability is bad for growth. High and volatile inflation, lack of internal social cohesion, arbitrary rule of law, and a big, greedy government that do not hold taxes down are just as bad for economic growth.
But government actions and the provision of institutions that maintain the rule of law, secure rights of private property and enforce rights of contract all encourage investment and enterprise. The intangibles such as societal values, group reputation, work ethic, culture and temperament of citizens do matter. Savings and capital accumulation do matter greatly.
But they must be aided by technological improvements. That is not new. What is new is that technological improvements come about through learning-by-doing, imitation and invention, all of which are made possible through the quest for ideas and accumulation of knowledge through research and investment in human capital.
For poor economies seeking new directions, the search for a path of growth must point to directions (1) that enable the economy to provide for basic human needs- food security, good general health system, reliable and affordable supplies of energy resources- and (2) that build economic organizations and institutions that stimulate and support growth, and protect as well as reward beneficial private Initiatives and enterprise.
Besides the provision of economic infrastructure, government policy matters in so far as industry policy affects investment levels and also affects opportunities for investment through company laws, regulation, and taxes. Government should be able to use social and economic policies to motivate and to complement private sector initiatives and to foster individual opportunities to spur growth. Government efforts as a national policy in these directions should be seen as one of the very few efficient and effective instruments of economic intervention. ...