Domestic and External Factors on African Macroeconomic Formulation Introduction Growth, productivity and employment are the most common economic variables to reduce extreme poverty and break poverty trap. Report from World Bank in 2007 revealed that one percent in GDP growth results to 1.3% poverty decline in low-income countries. Moreover, development in the productive capacity leads to reduction in sustainable poverty. With improvement in the economic growth, many people have been removed from poverty during the past few decades in many developing countries. However, poverty continues to be worsening in the 33% of the world's least developing African countries. (African Economic Research Consortium 2008). While there are many factors influencing growth, management of macroeconomic is very crucial to economic growth. Appropriate macroeconomic policies are critical for wealth creation, sustainable economic expansion and employment generating investment. Recent improvement in the economic performances of some African countries was underpinned by the improvement in macroeconomic management. However, inefficient macroeconomic policies are the features of many African countries leading to the substantial growth disparities in the African continent. The role of productivity in accelerating growth within an economy has been widely recognized by the neo-classical economic theory. The economic growth of a country is the sum of the "growth of capital accumulation, growth of
Economic growth is a common term used by economists to describe in increase in production in the long run. According to Robinson (1972) economic growth is defined as increases in aggregate product, either total or per capita, without reference to changes in the structure of the economy or in the social and cultural value systems. The basic tool of measuring the economic growth includes the real GDP. It provides some quantitative measures in terms of the production volume.
A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity. (Investopedia, n.d.)
Whilst raising money for African charities at school I developed an interest in global inequality and alternative policies that can help low-income nations escape the poverty trap. Reading ’23 Things’ by Ha-Joon Chang, I was intrigued by his view on blaming free-market policies like SAPs that exposed sub-Saharan Africa to international competition, slowing economic growth. Hence, this extended my research to the other side of the
Not all aspects of economic growth are positive, for example when an economy is at, or near its full capacity of productivity prices can be driven up causing inflation and the devaluing of their currency, where each unit of currency buys fewer goods and services that it previously could have. It can increase the
African nations easily fall at the bottom of any list that involve economic measures. In fact, “34 of the 50 nations on the UN list of least developed countries are in Africa” (“UN List of Least Developed Countries”) and “40% of people living in sub-Saharan Africa live in absolute poverty” and this is definitely a problem (“Poverty”). Poverty is known as the state of being extremely poor. The causes of Africa’s poverty ranges from “political instability, national debt, discrimination and social inequality, vulnerability to natural disasters, and overpopulation” (“What Are the Causes of Poverty?”). However, these are just a few examples. There are many other economical disasters that are currently happening in Africa. Poverty is a conflict that can easily relate to any other problem, which is why it should be considered the biggest problem in Africa. Moreover, if poverty is reduced, it would solve a number of Africa’s other complications. Poverty has many affects on Africans such as reducing their education, unfortunately gives residents mental and physical issues and diseases, and extra social spending from adults.
Economic growth, put simply, is “an increase in the amount of goods and services produced per head of the population over a period of time”; development is inextricably linked with this economic growth. By utilising theories of economic growth and development we can see how the Chinese and Sub-Saharan African economies have emerged, but, more notably, we can use these to look at patterns from past and present to show their experience and the implications of this growth for the future.
Productivity is “the measure of how much an average worker produces in an hour” (Cornwall); the government actually tracks this. This number isn’t super flashy and doesn’t get reported about a lot in the news, but productivity growth is extremely important in the long run. Productivity growth makes society as a whole get better. Higher productivity means more and better products are made with the same amount of work.
The BRICS as developing countries have more recently industrialized than developed ones, however they are considered to be emerging economically at a very fast rate along with having a growing impact and weight on the international scale. Nevertheless, those countries are highly vulnerable and affected by poverty and inequalities, jeopardizing their capacity to have some sort of control in global institutions (Miles Kahler, 2013, page 721). Some of the most important issues developing countries encounter, slowing down their growths are related to poverty along with inequality. This is the reason why certain worldwide institutions such as the World Bank set objectives, in an attempt to lift people out of poverty and decrease inequalities among
The productivity gap is defined as ‘the ratio between the productivity of a benchmark country (such as the United States) and that of a less developed economy.’ Productivity is a key economic indicator and thus such a long-term short
Respect for private property rights, free markets, and the rule of law are often do cited as fundamental to economic development. However, many countries well in some of these indicators but still lag behind, development wise. This paper seeks to investigate factors that lead to economic growth without economic development, using Botswana as a case study. From around independence 1966 to 1995, Botswana was the fastest growing country in the world. During those three decades Botswana’s average annual growth rate was 9% percent, and she graduated from being the third poorest nation in the world to being an “upper middle income”.
“In 2010, the prestigious Nemmers Prize in Economics, awarded biennially to recognize work of lasting significance, was given to Helpman for fundamental contributions to the understanding of modern international economics and the effects of political institutions on trade policy and economic growth” (Clement, 2012). “The Mystery of Economic Growth” that was written by Elhanan Helpman provides a non-technical description of growth economics over the last half of a century. This paper will connect theory to data of four major countries United States, French, Brazil, and Japan. The principle that emerges from “The Mystery of Economic Growth” is that long term growth comes from innovation and adoption of technology in an economy. Four outlooks that Elhanan Helpman has on economic growth that are relevant in his book are able to help readers connect theory to countries and see why economies behave the way they do. First, Innovation of technology with new techniques of production helps globalization. Second, the gain of human capital for the explanation of growth rates in different counties. Third, Total Factor Productivity of technology and knowledge leads to greater prosperity and economic growth in a country. Fourth, economic intuitions play a role in economic growth by implementing policies. The next paragraphs will relate these outlooks from Helpman and compare them to the economies of the United States, French, Brazil, and Japan. Innovation
Robert Solow explained growth in output as a result of capital accumulation and technological progress. However, there is a limitation; it fails to explain how and why technological progress occurs.
Economic definitions of productivity usually centre on its wealth creating potential. Language such as "satisfying market needs" and "maximizing input/output relationships" are typical.
As an important and popular issue in the field of economic research, it attracts many economists and there are many models to explain economic growth. In the history of the development of economic growth theories, there are three important stages which are the Classical Growth theory, the Neoclassical Growth theory and the Endogenous Growth theory. To start with, the Classical Growth theory is based on the Keynesian theory and the representative one is the Harrod–Domar model. It was put forward by Roy F. Harrod in 1939 and Domar in 1946. This is the first economic growth model, changing the research on economic growth from the qualitative to the quantitative. There are four exogenous parameters in the Harrod–Domar model: the capital - output ratio, saving rates, technological progress and population growth rate (Harrod, 1939). Harrod brought in the notion of three different growth. The first one is warranted growth (Gw), which means the growth rate when the investment can absorb all saving. The second one is natural growth (Gn), which is the rate to maintain full employment and determined by labor force. And the last one is actual growth (G), which can be determined by saving rate. The condition of stable growth is G=Gw=Gn. However, the condition cannot be met in the real world. As a result, the result of the Harrod–Domar model is the unstable growth (ibid). After that, Solow and Swan proposed the Solow-Swan model in 1956 separately, which belongs to
The long history of ideas on economic growth started from the classical economists like Adam Smith, Robert Malthus, Ricardo and Marx. For more than three decades the Neoclassical and the Endogenous Growth theories were arguing and forwarding economic reasons on trend of economic growth through investment as a general and private investment in particular. Though there are various theories, as mentioned above, regarding economic growth, in this section we will address the most commonly applied models: the classical theory of economic growth, Harrod–domar Growth model, The Neoclassical and Endogenous Growth Models.