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Will technological improvements themselves run into diminishing returns over time? That is, will it become continually harder and more costly to discover new technological improvements? Perhaps someday, but, at least over the last two centuries since the Industrial Revolution, improvements in technology have not run into diminishing marginal returns. Modern inventions, like the Internet or discoveries in genetics or materials science, do not seem to provide smaller gains to output than earlier inventions like the steam engine or the railroad. One reason that technological ideas do not seem to run into diminishing returns is that the ideas of new technology can often be widely applied at a marginal cost that is very low or even zero. A specific additional machine, or an additional year of education, must be used by a specific worker or group of workers. A new technology or invention can be used by many workers across the economy at very low marginal cost.

The argument that it is easier for a low-income country to copy and adapt existing technology than it is for a high-income country to invent new technology is not necessarily true, either. When it comes to adapting and using new technology, a society’s performance is not necessarily guaranteed, but is the result of whether the economic, educational, and public policy institutions of the country are supportive. In theory, perhaps, low-income countries have many opportunities to copy and adapt technology, but if they lack the appropriate supportive economic infrastructure and institutions, the theoretical possibility that backwardness might have certain advantages is of little practical relevance.

Visit this website to read more about economic growth in India.

The slowness of convergence

Although economic convergence between the high-income countries and the rest of the world seems possible and even likely, it will proceed slowly. Consider, for example, a country that starts off with a GDP per capita of $40,000, which would roughly represent a typical high-income country today, and another country that starts out at $4,000, which is roughly the level in low-income but not impoverished countries like Indonesia, Guatemala, or Egypt. Say that the rich country chugs along at a 2% annual growth rate of GDP per capita, while the poorer country grows at the aggressive rate of 7% per year. After 30 years, GDP per capita in the rich country will be $72,450 (that is, $40,000 (1 + 0.02) 30 ) while in the poor country it will be $30,450 (that is, $4,000 (1 + 0.07) 30 ). Convergence has occurred; the rich country used to be 10 times as wealthy as the poor one, and now it is only about 2.4 times as wealthy. Even after 30 consecutive years of very rapid growth, however, people in the low-income country are still likely to feel quite poor compared to people in the rich country. Moreover, as the poor country catches up, its opportunities for catch-up growth are reduced, and its growth rate may slow down somewhat.

The slowness of convergence illustrates again that small differences in annual rates of economic growth become huge differences over time. The high-income countries have been building up their advantage in standard of living over decades—more than a century in some cases. Even in an optimistic scenario, it will take decades for the low-income countries of the world to catch up significantly.

Calories and economic growth

The story of modern economic growth can be told by looking at calorie consumption over time. The dramatic rise in incomes allowed the average person to eat better and consume more calories. How did these incomes increase? The neoclassical growth consensus uses the aggregate production function    to suggest that the period of modern economic growth came about because of increases in inputs such as technology and physical and human capital. Also important was the way in which technological progress combined with physical and human capital deepening to create growth and convergence. The issue of distribution of income notwithstanding, it is clear that the average worker can afford more calories in 2014 than in 1875.

Aside from increases in income, there is another reason why the average person can afford more food. Modern agriculture has allowed many countries to produce more food than they need. Despite having more than enough food, however, many governments and multilateral agencies have not solved the food distribution problem. In fact, food shortages, famine, or general food insecurity are caused more often by the failure of government macroeconomic policy, according to the Nobel Prize-winning economist Amartya Sen. Sen has conducted extensive research into issues of inequality, poverty, and the role of government in improving standards of living. Macroeconomic policies that strive toward stable inflation, full employment, education of women, and preservation of property rights are more likely to eliminate starvation and provide for a more even distribution of food.

Because we have more food per capita, global food prices have decreased since 1875. The prices of some foods, however, have decreased more than the prices of others. For example, researchers from the University of Washington have shown that in the United States, calories from zucchini and lettuce are 100 times more expensive than calories from oil, butter, and sugar. Research from countries like India, China, and the United States suggests that as incomes rise, individuals want more calories from fats and protein and fewer from carbohydrates. This has very interesting implications for global food production, obesity, and environmental consequences. Affluent urban India has an obesity problem much like many parts of the United States. The forces of convergence are at work.

Key concepts and summary

When countries with lower levels of GDP per capita catch up to countries with higher levels of GDP per capita, the process is called convergence. Convergence can occur even when both high- and low-income countries increase investment in physical and human capital with the objective of growing GDP. This is because the impact of new investment in physical and human capital on a low-income country may result in huge gains as new skills or equipment are combined with the labor force. In higher-income countries, however, a level of investment equal to that of the low income country is not likely to have as big an impact, because the more developed country most likely has high levels of capital investment. Therefore, the marginal gain from this additional investment tends to be successively less and less. Higher income countries are more likely to have diminishing returns to their investments and must continually invent new technologies; this allows lower-income economies to have a chance for convergent growth. However, many high-income economies have developed economic and political institutions that provide a healthy economic climate for an ongoing stream of technological innovations. Continuous technological innovation can counterbalance diminishing returns to investments in human and physical capital.

References

Central Intelligence Agency. “The World Factbook: Country Comparison: GDP–Real Growth Rate.” https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html.

Sen, Amartya. “Hunger in the Contemporary World (Discussion Paper DEDPS/8).” The Suntory Centre: London School of Economics and Political Science . Last modified November 1997. http://sticerd.lse.ac.uk/dps/de/dedps8.pdf.

Questions & Answers

more explanation on GDP
Isaac Reply
it is a country total out put of goods and services divided by the total population of the country.I think it can also be derived from the country labour force,,because it mostly depend on the labour force and the level of technology .
Tantoh
labour force and technological progress leads to greater production increases the GDP
Ahmed
What is economics?
Bubu Reply
by this time
Emmanuel
It is a social science that analyses production,distribution and consumption of goods and services
Emmanuel
A social science that study human behavior in relationship with decision making
Jessica
What are the typical patterns of GDP for a high-income economy like the United States in the long run and the short run?
mwangala Reply
What are the limitation and significant of macroeconomic
Usman Reply
explain the significance of concerpt of opportunity cost in planning
Mwanaid Reply
what is meant by the price elasticity of demand?
Martine Reply
when price of a commodity increase it's demand contracts , and whe the price of a commodity decreases it's demand expands so the degree of change in demand in response to change in own price of the commodity is called PED . Ed = percentage change in quantity demanded / percentage change in price
shaswat
What are the limitations of macroeconomic and their segnificant
Usman Reply
Discuss the role of competition in stimulating economic growth?
Daniel Reply
competition stimulate economic growth because in such types of economy,they is no monopoly power every supplier will want to produce to meet customers choice which brings about quality production and attract invested and customers into such economy
Koka
competition creates Monopoly because of economy of scale. it's not antithesis but different side of same coin
toko
competition result in high economic growth since every firm will intend to provide quality services and products to meet customers needs and requirements unlike in Monopoly situation where a firm just provide what it want to resulting in large stock piles of unwanted products ,ie inefficiency, howev
Mark
microeconomics study part of the economy but macroeconomic study the whole economy
Olokun Reply
studying the whole economy, solving the problem of the economy and building up the economy
Olokun
micro means small while macro means large
Olokun
standard of living is the footsteps of an economy because it plays important role for country to have crucial view about their budget ,import and export
Olokun
it will be differ because economic agent will only take their views on some part of household
Olokun
can opportunity cost be zero
OBED Reply
how many types of transportation do we have
Jacob
yes. when a customer's purchasing power is high, he may have d ability to purchase all he needs, dt makes opportunity cost zero
George
please can give more explanation on this question
OBED
what are the factors production
PETER Reply
Labour capital entrepreneurs
Leta
Land,capital, labour,and the entrepreneur
Tantoh
I will like to know use of calculus in economics
JHUMA Reply
do they use it in economics?
Pranav
I want to know if I should take calculus or statistics and probability my senior year of highschool
Yahir
yes for example in monopolistic competitive market..... TR=TC* & THIS CALCULATED BY CHANGING( DERIVATIVE LAW) MR =MC ** WILL BE THE FORMULA THAT USE.
Leta
please in which topic in economic is the question coming from.
Tantoh
from PCF in economics
Leta
why is unitary proportional to responsiveness
Etim Reply
any tip for igcse economics exam?pls
Stacey Reply
well
The
What is a market
Divine Reply
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
price of the related goods 2 price of the given commodity 3 income of the consumer 4 taste and preference 5 expectation in the future price
John
pls the taste and preference
Nas
explain briefly
Nas
a consumer taste and preference commodity changes for a time the man becomes
John
sorry sorry
John
is when the price of a commodity becomes high and can't afford example Samsung instead of iPhone
John
consumers who have high intense for goods will purchase the goods even if the price of that commodity increases because he or she preferred that commodity.people will be prefer iphone as its price increase
Yussif
as usual bad taste of preference is when a consumer regrets from one commodity to another in terms of the price
John
thanks alot
Nas
you're welcome
John
#Preference; #Income #Test
Dereje
#price Of Commodity #Income #Taste #Preference
Dereje
#Market is The Place Where Buyers And Sellers Are Exchanging Their Goods And service. #
Dereje
difference between macro and micro economics
Lawrence
Microeconomic Study about individual consumers market But Macroeconomis Study General economic Process Such As #Aggregate Demand #Aggregate Supples #GDp= #GNp
Dereje
nice so can u run down a brife discussion on GDP
Lawrence
good
Chinex
Difference between extinct and extici spicies
Amanpreet Reply
Researchers demonstrated that the hippocampus functions in memory processing by creating lesions in the hippocampi of rats, which resulted in ________.
Mapo Reply
The formulation of new memories is sometimes called ________, and the process of bringing up old memories is called ________.
Mapo Reply
Equilibrium price is a stable price and it must stay.discuss
Elvis Reply
Card 14 / 21: What are the similarities between a consumer’s budget constraint and society’s production possibilities frontier, not just graphically but analytically?
Ali Reply

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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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