The Mystery Of Economic Growth - 1812 Words

Introduction: Economists have always been asked why and how economic growth exists in a world filled with so much disparity between the richest and the poorest. First we need to define economic growth as that which is measured by change in real income per capita(Parker, 2015). Arguably Adam Smith was one of the first economists to develop a sound theory of the classical free market in his piece The Wealth of Nations written in 1776. Much has changed since the 1700s across the world horizons. Things aren’t as simplistic as we once thought they were. Some countries have gained exorbitant amounts of wealth, while others have withered away at the expense of the more privileged. So lies the question of whether or not we can compensate the†¦show more content†¦More specifically, countries that focus on physical and human capital accumulation and improving their total factor productivity should continue to see sustained growth as long as they continue to innovate. Innovation and constant change is key in order to keep an economy growing. Information is one resource in this world that we could define as infinite. An economy with an infinite amount of supply in theory is an economy that will continue to grow. Ultimately, Helpman concludes that understanding institutions are the missing key to truly understanding growth economics. In this case we can take the United States, Argentina, South Africa, and South Korea, and compare specific variables such as investment in education to more accurately predict future growth. Further analyses of these countries using Helpman’s models are done in the Data section below. Essentially, Elhanan Helpman argues that GDP is a far too simplistic tool used for measuring economic growth. Instead we should use a total factor productivity or TFP for short to measure an economy’s strength. TFP takes into account confounding variables that make each country unique and would in most cases skew GDP. There are too many determinants in a country that factor into economic grow, and many more indirect determinants or exogenous factors that can sometimes skew measurements. Each country in the world is unique in every way imaginable. Helpman argues that new models