The Schumpeterian model of economic growth focuses on innovation as the driving force. It presents a cyclical process where entrepreneurs introduce new innovations or improvements, breaking the circular flow. This leads to profits, growth, and imitations by other firms. Eventually, the innovations are adopted widely and profits decline, leading to economic downturn. The model predicts capitalism will eventually be replaced by socialism as liberalism and dissatisfaction with the system grow over time.
Brief review of Adam Smith's main concepts of growth.Prabha Panth
Adam Smith considered wealth of a nation to be its total output rather than just gold or agriculture. He believed economic growth increased total output, income, and standard of living. Smith argued growth occurs through increasing the division of labor, which raises productivity, and accumulating capital, which raises labor productivity by increasing the capital-labor ratio. This virtuous cycle of growth could eventually lead to a stationary state with zero growth.
Schumpeter Theory of Economic DevelopmentKrishna Lala
Schumpeter's theory of economic development centers around the concept of "creative destruction", where innovations introduced by entrepreneurs periodically revolutionize the economic structure and cause long-term growth. He argues that development occurs in discontinuous bursts due to new innovations, rather than gradually. While innovations fuel capitalist progress, Schumpeter believes capitalism will eventually decline as large firms replace entrepreneurs and undermine private property.
Schumpeter's theory of economic development focuses on the role of entrepreneurs in driving creative destruction and the business cycle. Entrepreneurs spur development by introducing new products, production methods, markets, materials, and industrial rearrangements. This leads to periods of economic prosperity but also creates imbalances that result in recession as unsuccessful businesses close. According to Schumpeter, capitalist economies experience alternating periods of boom and bust as entrepreneurs innovate and create new equilibriums at higher levels of output and income, though social disruption may also occur.
Neo classical general equilibrium theory which is based on Walrasian theory of general equilibrium 2*2*2 model and Marshallian graphical representation
This document discusses Samuelson's social welfare function approach to welfare economics. It introduces key concepts like Pareto optimality, social indifference curves, utility possibility curves, and the grand utility possibility frontier. The key point is that Samuelson's model finds a unique point of constrained bliss where social welfare is maximized, taking into account both individual utility levels and aggregate production possibilities. This point satisfies efficiency conditions and maximizes the social welfare function subject to resource constraints.
Arrow's Impossibility Theorem demonstrates that it is impossible to create a social welfare function that aggregates individual preferences into a collective social preference in a consistent, democratic manner when there are 3 or more alternatives. Arrow identified 5 criteria that any social welfare system should satisfy: collective rationality, responsiveness to individual preferences, non-imposition, non-dictatorship, and independence of irrelevant alternatives. However, his theorem showed that no voting system can simultaneously satisfy all 5 criteria. This finding challenged the notion that majority-rule voting can consistently translate individual preferences into a social ranking.
New Keynesian economics evolved in response to new classical critiques of Keynesian macroeconomics. It incorporates Keynesian ideas like sticky prices and wages to explain short-run economic fluctuations. A key difference from new classical economics is the assumption that prices and wages adjust slowly rather than quickly clearing markets. This allows for involuntary unemployment and a role for monetary policy. A new synthesis has emerged merging tools from both new classical and new Keynesian models.
Brief review of Adam Smith's main concepts of growth.Prabha Panth
Adam Smith considered wealth of a nation to be its total output rather than just gold or agriculture. He believed economic growth increased total output, income, and standard of living. Smith argued growth occurs through increasing the division of labor, which raises productivity, and accumulating capital, which raises labor productivity by increasing the capital-labor ratio. This virtuous cycle of growth could eventually lead to a stationary state with zero growth.
Schumpeter Theory of Economic DevelopmentKrishna Lala
Schumpeter's theory of economic development centers around the concept of "creative destruction", where innovations introduced by entrepreneurs periodically revolutionize the economic structure and cause long-term growth. He argues that development occurs in discontinuous bursts due to new innovations, rather than gradually. While innovations fuel capitalist progress, Schumpeter believes capitalism will eventually decline as large firms replace entrepreneurs and undermine private property.
Schumpeter's theory of economic development focuses on the role of entrepreneurs in driving creative destruction and the business cycle. Entrepreneurs spur development by introducing new products, production methods, markets, materials, and industrial rearrangements. This leads to periods of economic prosperity but also creates imbalances that result in recession as unsuccessful businesses close. According to Schumpeter, capitalist economies experience alternating periods of boom and bust as entrepreneurs innovate and create new equilibriums at higher levels of output and income, though social disruption may also occur.
Neo classical general equilibrium theory which is based on Walrasian theory of general equilibrium 2*2*2 model and Marshallian graphical representation
This document discusses Samuelson's social welfare function approach to welfare economics. It introduces key concepts like Pareto optimality, social indifference curves, utility possibility curves, and the grand utility possibility frontier. The key point is that Samuelson's model finds a unique point of constrained bliss where social welfare is maximized, taking into account both individual utility levels and aggregate production possibilities. This point satisfies efficiency conditions and maximizes the social welfare function subject to resource constraints.
Arrow's Impossibility Theorem demonstrates that it is impossible to create a social welfare function that aggregates individual preferences into a collective social preference in a consistent, democratic manner when there are 3 or more alternatives. Arrow identified 5 criteria that any social welfare system should satisfy: collective rationality, responsiveness to individual preferences, non-imposition, non-dictatorship, and independence of irrelevant alternatives. However, his theorem showed that no voting system can simultaneously satisfy all 5 criteria. This finding challenged the notion that majority-rule voting can consistently translate individual preferences into a social ranking.
New Keynesian economics evolved in response to new classical critiques of Keynesian macroeconomics. It incorporates Keynesian ideas like sticky prices and wages to explain short-run economic fluctuations. A key difference from new classical economics is the assumption that prices and wages adjust slowly rather than quickly clearing markets. This allows for involuntary unemployment and a role for monetary policy. A new synthesis has emerged merging tools from both new classical and new Keynesian models.
Schumpeterian theory views economic development as resulting from "new combinations" introduced through innovations. These innovations disrupt equilibrium and are introduced by entrepreneurs seeking profits. Entrepreneurs are financed through bank credit expansion, fueling investment and economic growth. However, this leads to a boom-bust cycle as old industries are displaced. Over time, capitalism decays due to weakening entrepreneurship, family institutions, and property rights, transitioning toward socialism. Critics argue Schumpeter overstates the role of idealized innovators and the cyclical nature of innovation-driven changes.
This document provides an overview of classical and Keynesian theories of income and employment. It discusses key differences between the two theories, including how they determine full employment. The classical theory believes full employment is the normal state, while Keynes argued unemployment can persist due to insufficient aggregate demand. The document then explains Keynesian concepts like aggregate demand, consumption, investment and their relationship to national income and output. It also outlines Keynes' model and equilibrium conditions between markets.
Lewis proposed that less developed countries could stimulate growth by exploiting their unlimited supplies of labor. His model assumes these countries have high populations engaged in subsistence work, making labor perfectly elastic at that wage. The economies are dual, with a subsistence sector employing most workers at low productivity and a capitalist sector using capital. Growth occurs as labor moves from subsistence to capitalist sectors, increasing output and allowing reinvestment which further raises productivity and employment in a self-sustaining cycle until labor pressures subside. Bank credit can also aid capital formation though inflation is self-correcting. Critics argue the model overlooks demand factors and difficulties transitioning large agricultural populations.
This document outlines the structural theory of inflation in less developed countries. It discusses how structural defects and bottlenecks exist in these economies that cause inflation, making the traditional quantity theory of money not applicable. Three main types of bottlenecks are described: agricultural bottlenecks due to issues like land ownership that limit food production growth; government resource constraints that force them to print money to fund infrastructure projects leading to inflation; and foreign exchange bottlenecks from low exports and high import payments causing currency devaluations and price increases. The structural theory argues these bottlenecks must be addressed through balanced investment instead of just monetary or demand-side policies to effectively reduce inflation in less developed economies.
This document discusses business and trade cycles. It provides three main theories for the causes of trade cycles:
1. Schumpeter's innovation theory which argues that business cycles are caused by periodic bursts of innovation by capitalists. This leads to periods of boom and recession as innovations are adopted.
2. Samuelson's multiplier-accelerator theory which explains how interactions between consumption, investment, and income can cause fluctuations in economic activity through feedback loops.
3. Hicks' theory which views trade cycles as temporary deviations around an economy's steady growth path. It analyzes how increases in autonomous investment can trigger boom-bust cycles through multiplier and accelerator effects.
All three theories attempt to explain the regular patterns of
Harrod – Domar Model - Development Model.pptxNithin Kumar
The document discusses the Harrod-Domar model of economic growth developed by Roy Harrod and Evsey Domar. Some key points:
1. The model focuses on the role of capital accumulation and investment in driving economic growth.
2. It uses the capital-output ratio and investment ratio to determine the rate of economic growth.
3. Harrod identified the actual, warranted, and natural rates of growth and argued stability requires equality between these rates.
4. The warranted rate depends on capital-output ratio and savings ratio matching the demand and supply of capital.
5. The natural rate is determined by long-term factors like population and technology.
The Lewis dual sector model of development describes an economy transitioning from subsistence agriculture to a more modern, urbanized structure. It consists of two sectors: a traditional subsistence sector with zero marginal productivity of labor, providing surplus labor; and a modern industrial sector where labor is transferred from the traditional sector, expanding output and employment through reinvested profits. However, the model is criticized for assuming profits are always reinvested when they could enable labor-saving investments or capital flight, and for assuming perfect competition in labor markets and unlimited surplus labor, which is inconsistent with historical evidence from developing countries.
The Harrod-Domer model theorizes that a country's economic growth rate is defined by its savings level and capital-output ratio. It suggests there is no natural balanced growth. The model was developed independently by Roy Harrod and Evsey Domar to explain growth in terms of savings and capital productivity. It requires continuous net investment to sustain real income and production growth. The model's assumptions include no government intervention, full initial employment, a closed economy, fixed capital-labor ratios and constant savings and interest rates. Its main criticism is the unrealistic assumption of no reason for sufficient growth to maintain full employment.
This document summarizes David Ricardo's theory of economics development known as Ricardian theory. It discusses Ricardo's background and key contributions, including the law of comparative advantage. It then outlines the assumptions of Ricardian theory, including diminishing returns to land and inelastic demand for corn. Ricardo's theory explains how total output is distributed as rent, profits, and wages. It also discusses how capital accumulation, wages, international trade, and criticisms of the theory relate to Ricardian economics.
The theory of Technical dualism is one of the theories of dualism. Professor Higgins has developed the theory of Technological Dualism. By this, he means: "The use of different production functions in the advance sector and in the traditional sectors of UDCs".
Karl Marx was a German philosopher and economist who developed the theory of scientific socialism. He viewed society and history through the lens of class struggle and economic determinism. Some key aspects of Marx's theory include: (1) his materialist interpretation of history that views economic and class conflict as the driving forces of social change, (2) his theory of surplus value which argues that capitalists exploit workers by appropriating the surplus created by labor, and (3) his belief that capitalism would inevitably lead to its own downfall due to internal contradictions such as falling profit rates, which would be replaced by socialism. Marx's theories were aimed at critically analyzing and explaining the dynamics of capitalism and class relations.
Joan Robinson developed growth models that rejected many neoclassical assumptions. Her models considered capital as durable and heterogeneous, not easily substitutable for labor. She argued the value of capital depends on distribution and cannot be estimated without knowing interest rates. Robinson built multiple models to analyze growth under different economic conditions. Her key model showed the relationship between the actual and desired rates of accumulation and profit. Steady growth required these rates to be equal, but various factors could cause them to diverge, making sustained steady growth difficult to achieve.
Domar's growth model from 1946 analyzes how a capitalist economy can grow at a constant rate after reaching full employment. It assumes aggregate supply equals aggregate demand during steady growth. The model shows that for steady growth, the rates of investment, capital stock growth, output growth, and employment growth must all be equal. It derives the equation that the growth rate equals the savings ratio multiplied by the incremental output-capital ratio. Investment has dual effects of increasing both aggregate demand and productive capacity in the long-run.
The theory of balanced growth proposes that simultaneous investments should be made across multiple industries in order to spur economic development. This would enlarge the market and incentivize more investment. Theorists like Lewis, Ghosh, Ragnar, and List discussed balanced growth in terms of maintaining balance between industry and agriculture, consumption and investment, and domestic versus foreign trade. Balanced growth is argued to promote inclusive, balanced regional development through specialization and creation of infrastructure, but critics note the challenges of coordinated planning and resource constraints in developing countries.
David Ricardo (1772-1823) was a British economist who developed theories such as the labor theory of value, comparative advantage, and rent. Some key points about Ricardo's theories include:
- He believed labor determines the long-run price of goods and that international trade benefits both countries based on their comparative advantages in production.
- Ricardo's theory of rent argued that landlords receive economic rent determined by crop prices rather than influencing prices themselves.
- He incorporated Malthus' theory of population growth relative to food supply into his "Iron Law of Wages," which stated wages long-run remain at subsistence level.
The Bergson social welfare function was introduced to provide a scientifically normative study of welfare economics. It defines social welfare as a function of the welfare of each member of the community, depending on factors like their consumption and services. The function establishes a relation between social welfare (W) and the utility levels (U) of each individual (U1, U2, etc.), representing social welfare as an increasing function of individual utilities. It assumes social welfare depends on individual wealth/income and distribution of welfare, and allows for interpersonal comparisons of utility. However, the concept has been criticized for not applying to all governments, being difficult to construct, arbitrary, and not empirically significant or helpful for solving problems.
Keynesian theory rejects Say's law that supply creates its own demand. It argues that the level of income and employment is determined by aggregate demand and supply in the short run, and that equilibrium could be below full employment. The key determinants of income are consumption, investment, and saving. The effective demand curve shows equilibrium between aggregate demand and supply. Keynes believed full employment could be achieved by increasing aggregate demand through policies like government spending.
Jean-Baptiste Say introduced several important economic concepts, including distinguishing between factors of production (land, labor, capital) and introducing the concept of the entrepreneur. He is best known for "Say's Law", which states that supply creates its own demand. Say's Law was an important idea in classical economics and implied that general overproduction was impossible. It was based on ideas that savings equal investment, and that people only hold money for transactions, not as an asset. While Say's Law may have been intended to describe an equilibrium condition, it was often interpreted as being true at all times, which many classical economists like Mill disagreed with.
1. Schumpeter's model of economic development assumes a stationary economy in equilibrium that is disrupted by innovations introduced by entrepreneurs.
2. Entrepreneurs obtain credit from banks to implement innovations in the form of new products or production methods, breaking the circular flow and generating profits.
3. Successful innovations are then adopted by other firms, creating secondary effects that lead to inflation, an economic boom, and eventual recession as the innovations diffuse fully through the economy.
1) Schumpeter's theory of economic development argues that development occurs through "new combinations" introduced by entrepreneurs in the form of innovations, disrupting equilibrium.
2) These innovations include new products, production methods, markets, materials, or organizations and are aimed at earning profits for the innovating entrepreneur.
3) The innovations are financed through bank credit expansion, stimulating economic growth through increased investment, incomes, and demand in a cyclical process eventually leading to structural change away from capitalism.
Schumpeterian theory views economic development as resulting from "new combinations" introduced through innovations. These innovations disrupt equilibrium and are introduced by entrepreneurs seeking profits. Entrepreneurs are financed through bank credit expansion, fueling investment and economic growth. However, this leads to a boom-bust cycle as old industries are displaced. Over time, capitalism decays due to weakening entrepreneurship, family institutions, and property rights, transitioning toward socialism. Critics argue Schumpeter overstates the role of idealized innovators and the cyclical nature of innovation-driven changes.
This document provides an overview of classical and Keynesian theories of income and employment. It discusses key differences between the two theories, including how they determine full employment. The classical theory believes full employment is the normal state, while Keynes argued unemployment can persist due to insufficient aggregate demand. The document then explains Keynesian concepts like aggregate demand, consumption, investment and their relationship to national income and output. It also outlines Keynes' model and equilibrium conditions between markets.
Lewis proposed that less developed countries could stimulate growth by exploiting their unlimited supplies of labor. His model assumes these countries have high populations engaged in subsistence work, making labor perfectly elastic at that wage. The economies are dual, with a subsistence sector employing most workers at low productivity and a capitalist sector using capital. Growth occurs as labor moves from subsistence to capitalist sectors, increasing output and allowing reinvestment which further raises productivity and employment in a self-sustaining cycle until labor pressures subside. Bank credit can also aid capital formation though inflation is self-correcting. Critics argue the model overlooks demand factors and difficulties transitioning large agricultural populations.
This document outlines the structural theory of inflation in less developed countries. It discusses how structural defects and bottlenecks exist in these economies that cause inflation, making the traditional quantity theory of money not applicable. Three main types of bottlenecks are described: agricultural bottlenecks due to issues like land ownership that limit food production growth; government resource constraints that force them to print money to fund infrastructure projects leading to inflation; and foreign exchange bottlenecks from low exports and high import payments causing currency devaluations and price increases. The structural theory argues these bottlenecks must be addressed through balanced investment instead of just monetary or demand-side policies to effectively reduce inflation in less developed economies.
This document discusses business and trade cycles. It provides three main theories for the causes of trade cycles:
1. Schumpeter's innovation theory which argues that business cycles are caused by periodic bursts of innovation by capitalists. This leads to periods of boom and recession as innovations are adopted.
2. Samuelson's multiplier-accelerator theory which explains how interactions between consumption, investment, and income can cause fluctuations in economic activity through feedback loops.
3. Hicks' theory which views trade cycles as temporary deviations around an economy's steady growth path. It analyzes how increases in autonomous investment can trigger boom-bust cycles through multiplier and accelerator effects.
All three theories attempt to explain the regular patterns of
Harrod – Domar Model - Development Model.pptxNithin Kumar
The document discusses the Harrod-Domar model of economic growth developed by Roy Harrod and Evsey Domar. Some key points:
1. The model focuses on the role of capital accumulation and investment in driving economic growth.
2. It uses the capital-output ratio and investment ratio to determine the rate of economic growth.
3. Harrod identified the actual, warranted, and natural rates of growth and argued stability requires equality between these rates.
4. The warranted rate depends on capital-output ratio and savings ratio matching the demand and supply of capital.
5. The natural rate is determined by long-term factors like population and technology.
The Lewis dual sector model of development describes an economy transitioning from subsistence agriculture to a more modern, urbanized structure. It consists of two sectors: a traditional subsistence sector with zero marginal productivity of labor, providing surplus labor; and a modern industrial sector where labor is transferred from the traditional sector, expanding output and employment through reinvested profits. However, the model is criticized for assuming profits are always reinvested when they could enable labor-saving investments or capital flight, and for assuming perfect competition in labor markets and unlimited surplus labor, which is inconsistent with historical evidence from developing countries.
The Harrod-Domer model theorizes that a country's economic growth rate is defined by its savings level and capital-output ratio. It suggests there is no natural balanced growth. The model was developed independently by Roy Harrod and Evsey Domar to explain growth in terms of savings and capital productivity. It requires continuous net investment to sustain real income and production growth. The model's assumptions include no government intervention, full initial employment, a closed economy, fixed capital-labor ratios and constant savings and interest rates. Its main criticism is the unrealistic assumption of no reason for sufficient growth to maintain full employment.
This document summarizes David Ricardo's theory of economics development known as Ricardian theory. It discusses Ricardo's background and key contributions, including the law of comparative advantage. It then outlines the assumptions of Ricardian theory, including diminishing returns to land and inelastic demand for corn. Ricardo's theory explains how total output is distributed as rent, profits, and wages. It also discusses how capital accumulation, wages, international trade, and criticisms of the theory relate to Ricardian economics.
The theory of Technical dualism is one of the theories of dualism. Professor Higgins has developed the theory of Technological Dualism. By this, he means: "The use of different production functions in the advance sector and in the traditional sectors of UDCs".
Karl Marx was a German philosopher and economist who developed the theory of scientific socialism. He viewed society and history through the lens of class struggle and economic determinism. Some key aspects of Marx's theory include: (1) his materialist interpretation of history that views economic and class conflict as the driving forces of social change, (2) his theory of surplus value which argues that capitalists exploit workers by appropriating the surplus created by labor, and (3) his belief that capitalism would inevitably lead to its own downfall due to internal contradictions such as falling profit rates, which would be replaced by socialism. Marx's theories were aimed at critically analyzing and explaining the dynamics of capitalism and class relations.
Joan Robinson developed growth models that rejected many neoclassical assumptions. Her models considered capital as durable and heterogeneous, not easily substitutable for labor. She argued the value of capital depends on distribution and cannot be estimated without knowing interest rates. Robinson built multiple models to analyze growth under different economic conditions. Her key model showed the relationship between the actual and desired rates of accumulation and profit. Steady growth required these rates to be equal, but various factors could cause them to diverge, making sustained steady growth difficult to achieve.
Domar's growth model from 1946 analyzes how a capitalist economy can grow at a constant rate after reaching full employment. It assumes aggregate supply equals aggregate demand during steady growth. The model shows that for steady growth, the rates of investment, capital stock growth, output growth, and employment growth must all be equal. It derives the equation that the growth rate equals the savings ratio multiplied by the incremental output-capital ratio. Investment has dual effects of increasing both aggregate demand and productive capacity in the long-run.
The theory of balanced growth proposes that simultaneous investments should be made across multiple industries in order to spur economic development. This would enlarge the market and incentivize more investment. Theorists like Lewis, Ghosh, Ragnar, and List discussed balanced growth in terms of maintaining balance between industry and agriculture, consumption and investment, and domestic versus foreign trade. Balanced growth is argued to promote inclusive, balanced regional development through specialization and creation of infrastructure, but critics note the challenges of coordinated planning and resource constraints in developing countries.
David Ricardo (1772-1823) was a British economist who developed theories such as the labor theory of value, comparative advantage, and rent. Some key points about Ricardo's theories include:
- He believed labor determines the long-run price of goods and that international trade benefits both countries based on their comparative advantages in production.
- Ricardo's theory of rent argued that landlords receive economic rent determined by crop prices rather than influencing prices themselves.
- He incorporated Malthus' theory of population growth relative to food supply into his "Iron Law of Wages," which stated wages long-run remain at subsistence level.
The Bergson social welfare function was introduced to provide a scientifically normative study of welfare economics. It defines social welfare as a function of the welfare of each member of the community, depending on factors like their consumption and services. The function establishes a relation between social welfare (W) and the utility levels (U) of each individual (U1, U2, etc.), representing social welfare as an increasing function of individual utilities. It assumes social welfare depends on individual wealth/income and distribution of welfare, and allows for interpersonal comparisons of utility. However, the concept has been criticized for not applying to all governments, being difficult to construct, arbitrary, and not empirically significant or helpful for solving problems.
Keynesian theory rejects Say's law that supply creates its own demand. It argues that the level of income and employment is determined by aggregate demand and supply in the short run, and that equilibrium could be below full employment. The key determinants of income are consumption, investment, and saving. The effective demand curve shows equilibrium between aggregate demand and supply. Keynes believed full employment could be achieved by increasing aggregate demand through policies like government spending.
Jean-Baptiste Say introduced several important economic concepts, including distinguishing between factors of production (land, labor, capital) and introducing the concept of the entrepreneur. He is best known for "Say's Law", which states that supply creates its own demand. Say's Law was an important idea in classical economics and implied that general overproduction was impossible. It was based on ideas that savings equal investment, and that people only hold money for transactions, not as an asset. While Say's Law may have been intended to describe an equilibrium condition, it was often interpreted as being true at all times, which many classical economists like Mill disagreed with.
1. Schumpeter's model of economic development assumes a stationary economy in equilibrium that is disrupted by innovations introduced by entrepreneurs.
2. Entrepreneurs obtain credit from banks to implement innovations in the form of new products or production methods, breaking the circular flow and generating profits.
3. Successful innovations are then adopted by other firms, creating secondary effects that lead to inflation, an economic boom, and eventual recession as the innovations diffuse fully through the economy.
1) Schumpeter's theory of economic development argues that development occurs through "new combinations" introduced by entrepreneurs in the form of innovations, disrupting equilibrium.
2) These innovations include new products, production methods, markets, materials, or organizations and are aimed at earning profits for the innovating entrepreneur.
3) The innovations are financed through bank credit expansion, stimulating economic growth through increased investment, incomes, and demand in a cyclical process eventually leading to structural change away from capitalism.
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptxAMBIKABHANDARI5
This document provides a summary of key concepts from lectures on economic growth and development models. It discusses Joseph Schumpeter's analysis of growth, including circular flow, the role of entrepreneurs in driving innovation, and the business cycle. It also covers Rostow's stages of growth model and the five stages of development: traditional society, preconditions for takeoff, takeoff, drive to maturity, and high mass consumption. Finally, it defines the multiplier and accelerator concepts relating investment to income and consumption to investment.
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdfAMBIKABHANDARI5
This document provides an overview and summary of various economic growth and development models and theories. It discusses Joseph Schumpeter's analysis of economic development, including the concepts of circular flow, the role of the entrepreneur, the business cycle process, and the eventual decay of capitalism. It also outlines Rostow's stages of growth model, including the traditional society stage, preparation for take-off stage, take-off period, drive to maturity stage, and high mass consumption stage. Finally, it briefly mentions models like the balanced growth doctrine, unbalanced growth concept, Big Push theory, and Harrod-Domar and Solow growth models.
Schumpeter's theory of business cycles analyzes recurring periods of economic boom and bust that define capitalism. He argues that innovation, primarily driven by entrepreneurs, is the main catalyst of economic change and growth. Innovations take many forms, from new products to new ways of organizing firms and markets. While innovation provides profits for entrepreneurs, it also creates disruption as existing firms and social arrangements are challenged. This process of "creative destruction" is an endless cycle that powers capitalism but faces resistance from entrenched interests. For capitalism to survive long-term, constant internal change through innovation is necessary despite its destabilizing effects.
Chapter 3-1 Classic Growth and Development Models.pptselam49
The document discusses several classic theories of economic growth and development:
1. Rostow's stages of growth model and the Harrod-Domar growth model propose that countries pass through linear stages of economic development as saving, investment, and foreign aid drive growth.
2. The Lewis two-sector model and Chenery model describe theories of structural change, where resources shift from low-productivity agriculture to higher-productivity industry and services as countries develop.
3. International dependence theories examine how countries are influenced by relationships with more developed nations in their economic progress.
4. Neoclassical, free-market theories counter that open markets and free trade best promote development.
The document
Schumpeter's theory discusses the role of entrepreneurship in economic development. He argues that development consists of reforming production equipment, outputs, marketing, and organizations. A key factor is innovative entrepreneurs who combine factors of production to make new products, markets, and production methods. This leads to periods of economic growth and boom, followed by recession as less competitive entrepreneurs fail, creating uncertainty. Overall, development raises the equilibrium level of income.
The document discusses theories and concepts of entrepreneurship. It provides definitions of entrepreneurship over time as innovation, achievement, organization building, and managerial skills. Six factors are described as stimulating entrepreneurial activity: capital formation, technology development, government programs, training, technology transfer, and an innovative environment. Entrepreneurship is analyzed in economic systems like capitalism, socialism, and mixed economies. The modern concept of entrepreneur emerged in the 18th century with industrial innovators taking on development risks to generate profits through new combinations of production factors.
The document summarizes Marx's theory that the rate of profit in capitalist systems will tend to fall over time due to factors like increased capital accumulation making it harder to obtain desired profit rates. This downward trend in profit rates is a threat to continued capitalist growth and accumulation. The document also discusses how capitalists have adopted measures like increased exploitation of labor and financialization to try to counteract and delay this falling profit rate tendency, but that these cannot prevent the eventual overthrow of the capitalist system due to factors like technological change eliminating jobs and the immense social costs.
Did we all around the globe sit down together and decide to follow Capitalism? Was Capitalism in the same form since beginning than now? In fact, it would be unrealistic to say that we decided to pick Capitalism. We just derived into it. And the concepts, forms and philosophy of Capitalism evolved over time.
.........................
Dr. Alan Greenspan, Lawrence
Summers from Harvard, Austan Goolgbee, US President’s Council of Economic Advisors are few of the thinks tanks attending the gathering (October 2011).
...................
How is then the New of Form of Capitalism going to shape like? If we recollect from the beginning paragraph, we notice, one of the major advantages of Capitalism was conceived to be “Less Control of Government over markets”. The New Capitalism is believed to start changing its current hue from this point.
............................
Why would Formative Capitalism would survive during recession and depressions? And why should we believe that to? The simplest reason is: because the performance of Formative Capitalists
isn’t just countercyclical, skyrocketing during the downturn and then collapsing.
Classical theories of Economic Development.pptxKirti441999
The document discusses several classical and contemporary theories of economic development:
1. Early theories included Smith's laissez-faire views and Marx's critique of capitalism. Rostow's model proposed 5 linear stages of growth.
2. Structural change models emphasized shifting labor from agriculture to industry. The Harrod-Domar and Lewis models focused on investment and capital.
3. Dependence theories argued poor countries were exploited by wealthy nations.
4. Neoclassical theories promoted free markets over government intervention. The Solow model included technology and human capital.
5. New growth theories treat technology as endogenous and knowledge-driven. Coordination failure theories address market inefficiencies.
Positive contributions entrepreneurs have to the economics of the worldMbasa Mwawembe
Entrepreneurs contribute positively to economies in three main ways:
1) They create new jobs through establishing new businesses, which provides direct employment as well as stimulating related industries.
2) They drive innovation by developing new technologies, products, and opening new markets, fueling economic growth.
3) Increased competition from new businesses benefits consumers through lower prices and greater variety, while pushing existing firms to improve.
Free markets are based on minimal government intervention and allow private individuals and businesses to freely transact. However, the Great Depression showed some pitfalls of free markets. First, the focus on profits can lead businesses to neglect public safety. Second, wealth is unequally distributed with few wealthy and many in poverty. Third, overproduction can occur as workers are underpaid to buy back what they produce, leading to unused industrial capacity and growing unemployment even as needs go unmet.
This document discusses new models of economic development needed for a shifting global economy. It notes that the old industrial economy is being replaced by a new knowledge-based, networked economy. This requires more open and collaborative civic leadership and processes focused on strategic doing rather than planning. Communities must build innovation clusters through open networks to attract investment and jobs in this new economy.
Measuring the effect of trade openness on entrepreneurship development in cas...Azer Dilanchiev
In contemporary world it have been accepted that entrepreneurship is one of the main life-force of modern economic growth. It became extensively researched and an important concept in academic
society. The Georgian government has been trying to encourage entrepreneurship development by
supporting the development of small and medium enterprises in the country, conducting liberal
reforms, and encouraging openness for doing business. The contribution of trade openness on economic growth has been the subject of several theoretical and empirical studies in the economic literature. The purpose of this paper is to investigate and empirically reveal the importance of trade openness on
entrepreneurship development in case of Georgia.
What Is The Business Cycle? Essay
The Growth And Peak Stage Of A Business Cycle
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Canadas Business Cycle
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Explain The Four Phases Of Business Cycle
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Macro Economics
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Business Cycle
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Business Cycle And Recovery Period Analysis
Business Cycle Theories : A General Comparison
The document discusses the business cycle, which refers to the regular fluctuations in economic activity between periods of expansion and contraction. It describes the different types of business cycles including minor, major, very long period, and Kuznets cycles. The phases of the business cycle are also outlined, including expansion, peak, recession, and trough. Finally, the document analyzes various internal and external causes that can trigger business cycles such as consumer spending, investment, government policy, technology, and human psychology.
Group 4_Evolution of Entrprenurial Thought (1).pptxMANASA759282
The concept of entrepreneurship has evolved over time. Early economists like Cantillon and Smith discussed the roles of entrepreneurs but did not use the term. Cantillon identified entrepreneurs as coordinating producers and consumers under uncertainty. Schumpeter's work in the 1920s emphasized the innovating and disruptive functions of entrepreneurs through new combinations. Modern views see entrepreneurs as discovering opportunities through alertness to introduce new products, markets, sources of supply, and more. The nature of entrepreneurship continues developing with focuses on knowledge, competition, and disequilibrium.
Similar to Schumpeterian Model Of Economic Growth (20)
2. TABLE OF CONTENTS
ECONOMIC GROWTH IN GENERAL
JOSEPH ALOIS SCHUMPETER
SCHUMPETER’S MODEL OF ECONOMIC GROWTH
ROLE OF INNOVATION
ROLE OF ENTREPRENEUR
ROLE OF PROFIT
BREAKING THE CYCLIC FLOW
CYCLIC PROCESS
TRENDS OF GROWTH IN SCHUMPETER’S MODEL
PREDICTION OF DECLINE OF CAPITALISM
CRITICISM OF THE THEORY
DIAGRAMATIC REPRESENTATION OF SCHUMPETER’S
MODEL
3. ECONOMIC GROWTH
Economic development is the development of economic wealth of
countries or regions for the well-being of their inhabitants.
Economic Growth & development are two different terms used in
economics. Generally speaking economic development refers to
the problems of underdeveloped countries and economic growth
to those of developed countries.
4. JOSEPH ALOIS SCHUMPETER
Joseph Alois Schumpeter (8 February 1883 – 8 January 1950) was
an Austrian American economist and political scientist. He briefly served
as Finance Minister of Austria in 1919. One of the most influential
economists of the 20th century, Schumpeter popularized the term
"creative destruction" in economics.
5. SCHUMPETER’S MODEL OF ECONOMIC
GROWTH
Schumpeter Model of Economic Growth:
The Schumpeterian model of economic growth moves round the inventions and
innovations. This model is explained with the following:
(1) Process of Production,
(2) Dynamic Analysis of the Economy,
(3) Trends of Growth,
(4) The Demise of Capitalism.
6. ROLE OF INNOVATION
An innovations may consist of:
1.The introduction of a new product
2.The introduction of new method of production
3.The opening up of a new market
4.The conquest of a new source of raw materials
According to Schumpeter ,it is the introduction of new
product and the continual improvements in the
existing ones that lead to growth and development.
7. ROLE OF ENTREPRENEUR
Schumpeter says that 'Entrepreneur' is such a factor of production who
introduces new combinations of factors of production. He is neither a
technician, nor he is a finance manager. He just makes inventions and
innovations. He makes inventions just for the sake of inventions. However, he is
also influenced by the desire of profit and socio-cultural set-up of the society. In
order to perform his economic functions the entrepreneur is need of two things:
(i) He must be having technical knowledge so that he could produce new goods.
(ii) He could easily get the funds. In this respect, credit plays an important role.
Because of credit, an entrepreneur gets a command over factors of production. Not
doubt, in short run the credit leads to create inflation in the economy, but still it
encourages the inventions and innovations.
The above discussion reveals that in Schumpeter model, economic growth
depends upon technical and technological conditions of the economy. Whereas
the technological changes depend upon the activities of entrepreneurs; and the
activities of entrepreneurs depend upon entry of new. entrepreneurs and
creation of credit.
8. ROLE OF PROFITS
An entrepreneur innovates to earn profits.
Profits are conceived “as a surplus over costs :a difference
between the total receipts and outlay –as a function of innovation
According to Schumpeter ,under competitive equilibrium the price
of each product just equals its cost of production and there no
profits. Profits arise due to dynamic changes resulting from an
innovation. They continue to exist till the innovation becomes
general.
9. BREAKING THE CIRCULAR FLOW
Schumpeter’s model starts with the breaking up of the circular flow with
an innovation in the form of a new product by an entrepreneur for the
purpose of earning profit.
In order to break the circular flow ,the innovating entrepreneurs are
financed by bank-credit expansion.
Investment in innovation is risky, they must pay interest on it. Once the
new innovation becomes successful and profitable, other entrepreneurs
follow it.
Innovations in one field may induce other innovations in related fields.
The emergence of motor car industry may in, in turn ,stimulate a wave of
new investments in the construction of highways ,rubber tyre etc.
10. CYCLIC PROCESS
Investment is assumed to be financed by creation of bank credit.
It increases money incomes and prices and helps to create a cumulative
expansion throughout the economy.
With the increase in purchasing power of the customers, the demand for
the products of the old industries increases to the supply.
Price rise ,profit increase and old industries expand by borrowing from
the banks. It induces a secondary wave of credit ,inflation which is
superimposed or the primary wave of innovation
After a period the new products start appearing in the market displacing
the old products and enforcing process of liquidation and readjustment.
The demand for old product is decreased. Their price fall. some are even
forced to run into liquidation.
As though innovators start repaying bank loans out of profits, the quantity
of money is decreased and prices tends to fall. profit decline. Uncertainty
&the impulse for innovation is reduced.
Depression entered.
11. Analysis begun with the assumption that country’s economic performance is in
rigid condition, i.e., there are no population growth and net investment, and high
level of unemployment. Some entrepreneurs committed to reformation and
followed by other entrepreneurs until there is an increase in investment
The impacts are increasing in society’s income and consumption. This
phenomena will lead the entrepreneurs to increase the new capital.
(a)induced investment – increasing of investment because of increasing in
income , production and profit.
(b)autonomous investment – investments which determined by long-term
development, such as new resources found and technology which can create
reformation
12. TRENDS OF GROWTH IN THE
SCHUMPETER’S MODEL
The economic development (booming period) will be followed by
economic recession
• Some entrepreneurs who cannot compete with those entrepreneurs
whose have done reformation will subsequently failed in their
business and lost their market and have to close their business.
• Creation of new products will lead to uncertainty among the
entrepreneurs in terms investment and capital that are needed for
business development
• Those entrepreneur who are able to create the new products and
market will lead to economic booming However, the equilibrium
point is higher than the economic recession period.
With the new equilibrium, the level of per capita income is higher.
13. PREDICTION OF THE DEMISE OF
CAPITALISM
Like Karl Marx Schumpeter also thinks that eventually the capitalism will
come to an end and it will be replaced by Socialism.
In this respect, he gives following arguments:
(i) Along with the evolution of capitalism the entrepreneurs and their
techniques of production will get obsolete. The salaried managers will
take-over the charge of industrial units in place of entrepreneurs.
(ii) Along with the growth of capitalism the 'Liberalism' will increase. This
will weaken the institution of 'Monarchy'. The capitalistic class will get
weaker, and it will depend upon civil and military bureaucracy. In this
way, an unrest will develop in the society.
(iii) The capitalism provides the right to speak and write. The people will
express their dissatisfaction against capitalism in tea-houses, parks, hotels
and in journals and newspapers.
In this way, the capitalism will finally convert into socialism. Thus
according to Schumpeter the capitalism will have a 'Self-Demise".
14. CRITICISM OF THE THEORY
In Schumpeter Model 'the inventor and innovator has been accorded as an 'Ideal
Man'. But now a days the inventions and innovations are the routine activities of
industrial concerns. Schumpeter further says that economic fluctuations occur
because of inventions and innovations. But it is not true. They come into being
because of business expectations, psychological behaviour and monetary and fiscal
measures.
Again, Schumpeter assigns top importance to inventions and innovations in respect
of economic development. But in countries like India where there is shortage of
funds and resources, inventions might not always be feasible.
Schumpeter depends upon credit creation for the sake of inventions. But it is
objected by saying that in short run the Bank Credit may be helpful for industrial
development. But in case of long run the bank loans will be inadequate for such
development. In such situation, the industrial development will be depending upon
sale of shares etc.
According to Meir and Baldwin it is wrong to say that society, will eventually move
towards socialism. As if we analyse Europe and America like capitalist countries they
have a higher degree of industrial development. They have a right to speak and
write. But till now no possibility has emerged whereby the rich capitalist country
could turn towards socialism. While the reverse has occurred and the socialists
countries are converting themselves into 'Market Economies', after the
disintegration of Soviet Union.
16. BIBLIOGRAPHY
OFFLINE SOURCES OF INFORMATION-
INTERNATIONAL ECONOMICS-J.E.CURRY
THE THEORY OF ECONOMIC DEVELOPMENT:AN ENQUIRY INTO
PROFITS,CAPITAL,CREDIT,INTEREST & BUSSINESS CYCLE-
J.A.SCHUMPETER
FUNDAMENTALS OF FINANCIAL MANAGEMENT-EUGENE BRINGHAM &
JOEL F. HOUSTON
ONLINE SOURCES OF INFORMATION-
WIKIPEDIA
THE ECONOMIST
ECONOMICSCONCEPT.COM