Download Long-run Economic Growth: Services and policies

I. Long-run Economic Growth: Services and policies
Long-run Economic Growth began in England in around
1750 with the onset of the Industrial Revolution
A period that began the application of mechanical power to
the production of goods
Why the Industrial Revolution began in England?
 The powers of government not given to a single dictator
[British Parliament]
 Government’s commitment to:

Upholding property rights

Protecting wealth

No arbitrary tax increases
 Allowed entrepreneurs to have faith in the system and
have the incentive to invest
Therefore, when technology advanced, England produced the
best political infrastructure and business environment to fully
capitalize on technological advances/
 Examples of technological advances at that time:
Steam engine  to power factories
Spinning jenny  cotton production
Why are small differences in growth rate important?
Determinants of the growth rate:
Economic growth model – Explains growth rates in real
GDP/capita over the long run
 Increase real GDP/capita can occur for 2 reasons
1) Increase in capital
2) Technological change
The model:
Why are there diminishing returns to capital?
The importance of technological change for long-run economic
growth