possible success in the new global panorama. In general terms, if we compare Nigeria and Turkey GDPs, we see that in only eight years Nigeria has narrowed the gap between them. If we would continue the trajectory, both countries would converge and probably exchange their paths. It is possible because, according to the latest data in the World Bank, GDP annual growth averaged is bigger in Nigeria (6.3%) than in Turkey (2.9%), although Turkey has a higher GDP (see appendix D). Figure 2: Nigeria and Turkey’s GDPs (US current $) (Source: World Bank, 2015)
The possible converge between Nigeria and Turkey is explained by the Solow-Swan model (1956) that is known as the exogenous growth model/neoclassical growth model, based on the theory of diminishing returns of capital (Acemoglu 2009).
In the long-run, because of the structure of the production function, the capital is subject to diminishing returns, that is to say, “as the stock of capital rises the extra output produced from an additional unit per capita falls”. That means the curve of the productivity becomes flatter as the amount of capital increases (Mankiw and Taylor 2011, pp. 536).
This theory connects with the “Catch-up Effect” or “Global Convergence Theory”, which states that “other things equal, it is easier for a country to grow fast if it starts out relatively poor, due to giving it an additional unit of capital increases the productivity only slightly if the country already has a large quantity
Human capital is what makes us work, and working is what establishes are living conditions. That’s why productive countries have had increases in income, which made for increases in education and labor training. This is especially beneficial to third world countries, because as women receive more education, the more they learn about their roles in society, independence, family, and contraceptives - which, in turn, decreases the infant mortality rates. However, in order to be productive for a society’s economy, you need to possess certain skills. Skilled individuals have to work together to achieve success. Those who are talented come to the realization that their skills are more valuable in countries that already have a great amount of skilled workers. Being skilled helps trade, and not practicing trade, or being a closed off economy, has a damaging effect. An open economy will grow
What does the AK growth model lead you to expect about the relative growth of rich and poor countries?
i. In most cases, the more educated a country is, the more developed the country is. The concept is easier to understand on a smaller scale. Imagine two people, Person A and Person B. Both Person A and B are extremely intelligent and hardworking; the difference between them is their opportunities. They both have access to primary school, and do very well. Person A goes on to graduate from a secondary education, but Person B cannot because he does not have access to it. Person B gets an unspecialized job, where he cannot utilize his brainpower. His potential is wasted. After graduating from his secondary education, Person A goes for a tertiary education, where he gets a degree in engineering. He uses his degree to help his country develop. Now, imagine a country primarily populated with people like Person A. The country would develop rapidly. A country primarily populated with people like Person B, however would hardly develop.
Through analysing the data presented by Penn Wharton at the University of Pennsylvania, one can find that the capital labour ratio has stayed on the projected trend from pre-1980. This shows a steady growth of the average worker’s productivity and wages, as stated in the article. From this we can say that, at even the
1) With reference to theories of growth and development, explain the contrasting growth experience of China and Sub Saharan Africa post 1980.
However, this pattern was only observed in select countries, not in a broad sample. Romer and another economist Robert Lucas wrote papers defending models of growth that differ from the neoclassical model , which failed to properly explain convergence. Namely, the assumptions that technological change is exogenous and that the same technology is available in all countries were dropped. Growth was explained by endogenous factors, such as investment in human
The Solow Model, also known as the neoclassical growth model or exogenous growth model is a neoclassical attempt created in the mid twentieth century, to explain long run economic growth by examining productivity, technological progress, capital accumulation and population growth. This model was contributed to by the works of Robert Solow, in his essay ‘A Contribution to the Theory of Economic Growth’ and by Trevor Swan in his work, ‘Economic Growth and Capital Accumulation’, both published in 1956. The model is perceived to be an extension of the 1946 Harrod-Domar model, which Solow (1956) describes as a ‘model of long-run growth which
Michael Green 's article, “Why We Shouldn’t Judge A Country by Its GDP,” explored the concept of judging a country’s growth by the prosperity of its citizens, not by its economic prowess (2015). Green and his team developed a model in 2014, called the Social Progress Index,
level of investment, capital, and productivity. This suggests that, in the long-term, an increase in
Turkey is the 18th largest economy body in the world, the 6th largest economy entity in Europe, GDP with $786 billion, GNI per capita with $10, 970, which belong Upper middle income country (World Bank, 2013). Service industry contributed approximately 64.9% for GDP, the industrial sector just over a quarter, agriculture was about 8.2% (CIA, 2014). Moreover, Turkey has a sustainable and steady growth after structural reforms and macroeconomic stabilization since 2001, Turkish economy is becoming diversified and export-oriented due to the large inflow of FDI (ibid). GDP is expected to grow by about 5% over the next five years, single-digit inflation rate will continue to decline (Invest in Turkey, 2014: 24).
Jhingan (2007: 31-32) further developed and expanded Nurke’s theory of Vicious Circle of Poverty, that the basic vicious circle stems from the fact that in less developed countries, total productivity is low due to deficiency of capital market and low investment on human capital, economic backwardness and underdevelopment. This is illustrated
Taking into consideration the trickle-down theory of economics by Lewis, if the growth in economy is not sufficient to satisfy the needs and wants of the upper sections, nothing or very little shall trickle down to the lower sections in the hierarchy of society. Thus, the gap between the rich and poor widens and though economic growth has impacted a certain section of society, this cannot be considered development. Another example is an increase in the defence output of a nation, which accounts for an increased GDP but does not in any way contribute to economic development. Economic growth is not enough in itself to measure economic development as even if there has been a leap in the income of people in a particular nation,
Eyeballing any cross sectional data on growth across countries shows that countries grow at different rates. Many theories try to explain this phenomenon with emphasis with capital accumulation being one of them. I will start by developing the standard neoclassical growth model as developed by Solow(1956)[1]. I will then proceed to discuss the extensions that have been made to this basic model in an attempt to better understand actual growth figures, for e.g. the standard neoclassical model cannot explain the magnitude of international differences in growth rates. Mankiw[2] points out that “the model can explain
Sub-Saharan Africa’s economic growth has increased rapidly since the turn of the 21st century. GDP growth in the region was expected to rise over 5% between 2013 and 2015 (Source: World Bank Database). This growth is largely driven by an increasing population, a commodity-price boom, rapid urbanization and rise in use of information and communications technologies (ICTs). Within Sub-Saharan Africa, Ghana’s economy has expanded due to political stability, relatively liberal economic policies and a growing middle class.
He pointed out that different economic levels have their own requirements and they may not follow the same process of industrialization. Moreover, he raised the most influential theory related to late industrialization that the economically backward states may have rapider growth rate as they are late comers, and the national development process relied on the degree of economic backwardness. That is to say the more backward a country, the faster it will advance (ibid).