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At base economic growth is all about sustained growth in productivity of labor and capital.

Productivity gains arise from:

Increase in savings and investment in new physical capital

Increases in savings and investments in new human capital

Discovery of new techniques and technologies that enhance productivity

Institutional changes that foster growth productivity

Later in this book we discuss how societies can obtain more savings to finance such investments.

Much of our discussion in the past few chapters can be brought together by a simple aggregate production function.

Integration physical, human&Intangible capital

A production function approach to growth

Production function characterizes how inputs (such as capital and labor) are combined to yield various output levels (see Text p. 66, 90-91 and 109-110).

Production functions ordinarily feature diminishing returns to either capital or labor (i.e. a diminishing marginal product of capital or labor).

But some production functions feature constant returns to scale. Some production functions feature fixed coefficients – i.e. that factors such as capital and labor must be utilized in fixed proportions to each other (see Text pp. 108-109).

A) the cobb-douglas two input production function

The most basic production function is written: Y = L b K c


b = power associated with input L

c = power associated with input K

L = Quantity of Labor inputs

K = Quantity of Physical Capital inputs

This framework first appeared in an article published in 1939 by James Cobb and Paul Douglas (see ____ _____).

A special, useful form of the basic COBB-Douglas function (Y = L b K c ) Where (b + c) = 1: A Linear homogenous production function

When this obtains, we get constant returns to scale (doubling both inputs will give us an output (Y) that is exactly double the initial output). This is called a linear homogenous production function.

In this formulation, the growth rate of an economy is nothing more than the sum of: Productivity growth of capital plus growth in the labor force.

B) other production function approaches to growth

B) Other Production Function Approaches to Growth

(1) Rudimentary Function: By the mid 1900’s, economists and others thought that output (income) in an economy was best understood as an interaction in which existing technology transformed 3 inputs into output: Land, Labor, and Capital). You could write that relationship as:

  1. Y = f (L, P, K) + Z
    Y = output,
    f = the production function, or technology, that converts inputs into outputs
    P = Land
    K = Physical Capital (Human Capital not included)
    Z = unexplained residuals, or “white noise” from missing factors not included in the analysis.
    L = Labor

In this economy, the rate of growth of output would be


d t t = time

(given by the total derivative)

dF (o)

d t of the protection function

In this formulation, Output Changes (∆Y) are entirely due to change in the quantity of factor inputs L,W and K; Changes in Technology play no role at all.

In particular, this model tell us that the more land or workers or Capital a nation has, then the greater will be it growth rate and economic power. This theory attempts to explain what would be expected when a nation puts a larger percentage of its population to work, then its economy will become larger. When the number of “people” increase, as for example there is an expected increase in the female labor force, then the model would yield jump in output. The same holds for land, such one-time jumps can be a very important source of increased economic might. This is one reason why Germany and Japan sought conquest of other nations, it (Hitler stressed “Lebensraum” - more room for life, for Germany).

Questions & Answers

How we are making nano material?
what is a peer
What is meant by 'nano scale'?
What is STMs full form?
scanning tunneling microscope
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
The nanotechnology is as new science, to scale nanometric
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
what school?
biomolecules are e building blocks of every organics and inorganic materials.
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
sciencedirect big data base
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
characteristics of micro business
for teaching engĺish at school how nano technology help us
How can I make nanorobot?
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
how can I make nanorobot?
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
what is the actual application of fullerenes nowadays?
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
is Bucky paper clear?
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Source:  OpenStax, Economic development for the 21st century. OpenStax CNX. Jun 05, 2015 Download for free at http://legacy.cnx.org/content/col11747/1.12
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