This week, we want to examine in greater detail the factors that contribute to economic growth. Economic growth is measured by growth in Real GDP, but many factors contribute to that.
Among the generally recognized factors that contribute to economic growth are:
Increases in the amount of physical capital: this can be measured by changes in investment spending (software is included in this category);
Advances in technology: this can be approximated by research and development spending;
increases in human capital: this can be approximated by years of education; however, this is a very unreliable measure as educational quality is highly variable; and
Other factors, such as the size of the labor force, also come into play and can be measured rather easily. However, to be meaningful, there has to be a match between the skills possessed by the labor force and the needs of the economy. Thus, the mere size of labor has to be viewed with the human capital variable in mind.
Government regulations, tax policy, immigration policy, interest rates all play a role in investment and thus, economic growth.
For this week’s discussion, gather information on growth in Real GDP and as many other variables as possible on a country of your choice. Report the data and your analysis to the class. Remember that understanding and interpreting the data is more important than just reporting the data.