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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

what are the products of Nano chemistry?
Maira Reply
There are lots of products of nano chemistry... Like nano coatings.....carbon fiber.. And lots of others..
Even nanotechnology is pretty much all about chemistry... Its the chemistry on quantum or atomic level
Preparation and Applications of Nanomaterial for Drug Delivery
Hafiz Reply
Application of nanotechnology in medicine
what is variations in raman spectra for nanomaterials
Jyoti Reply
I only see partial conversation and what's the question here!
Crow Reply
what about nanotechnology for water purification
RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
yes that's correct
I think
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
How we are making nano material?
what is a peer
What is meant by 'nano scale'?
What is STMs full form?
scanning tunneling microscope
how nano science is used for hydrophobicity
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
what is differents between GO and RGO?
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
analytical skills graphene is prepared to kill any type viruses .
Any one who tell me about Preparation and application of Nanomaterial for drug Delivery
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
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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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