GROUP 1

Almarines| Amante | Angeles |

Aninion | Arroyo | Bautista |
Bedasua

DEFINITION

ECONOMIC GROWTH
is the increase in the inflationadjusted market value of the goods and
services produced by an economy over time.
It is conventionally measured as the percent
rate of increase in real gross domestic
product, or real GDP. Of more importance is
the growth of the ratio of GDP to population
(GDP per capita, which is also called per
capita income).

INTENSIVE GROWTH
An increase in growth caused by more
efficient use of inputs (such as
labor, physical capital, energy or
materials).
EXTENSIVE GROWTH
GDP growth caused only by increases in
the amount of inputs available for use
(increased population, new territory).

FOUR WHEELS OF
GROWTH

HUMAN RESOURCES
(labor supply, education, discipline,
motivation)
These add greatly to the productivity of
labor. For example, skilled and trained
workers can effectively maintain and use
capital goods.

NATURAL RESOURCES
(land, minerals, fuels, environmental quality)
High income countries like Canada and
Norway depend on their natural resources such
as agriculture, fisheries and forestry. However,
natural resources are not necessary for
economic success for those that do not have
much natural resources. Japan thrived
concentrating on sectors that depend more on
labor and capital than on indigenous resources.

CAPITAL FORMATION
(machines, factories, roads)
Investment on capital helps in the
productivity of labor. The construction of
railroads in the 19th century in North
America paved the way for the advent of
commerce in the land.

TECHNOLOGY
(science, engineering, management,
entrepreneurship)
Inventions and technological advances led
to a vast improvement in the production
possibilities in Europe, North America and
Japan.

THEORIES OF ECONOMIC GROWTH

CLASSICAL DYNAMICS
Smith and Malthus all postulated the identical
production function, which can be written as Y = f(K,
L, N, S)......... (1) which means that output depends
on the stock of capital, labour force, land and the
level of technology. In the generalized classical
growth model Land is taken as the supply of known
and economically useful resources and this seems
like the right thing to do as it is not the amount of
cultivable land and its fertility that determines the
national output but the total supply of know and
usable natural resources.

 Most of the other classical economists, except

for Adam Smith, seem to believe that the
production function is linear and
homogeneous, which implies that it has
constant returns to scale meaning that on
doubling the quantities of all the factors of
production output would double. Adam Smith,
on the other hand, believed in increasing
returns to scale on account of improved
division of labour.

 In case the term land is restricted to

cultivable land only, the supply of which is
a fixed amount, then the ask able question
to be answered would be as to how the
output would respond to an increased
supply of labour with a fixed supply of
land.

 Most classical economists believed that output

would not show a uniform response to the increase
in the quantity of land. The referred to four different
responses of output which depended on the phase
of the production, that is to say, increasing marginal
returns (where an increase in the variable input
results in an increase in the marginal product of the
variable input), Diminishing returns (when additional
units of an input result in a smaller increase in
output), dimishing average returns (where the
average output increases by less from additional
units of an input used) and diminishing total returns.

TWO MAIN LIMITATIONS IN THE

CLASSICAL DYNAMICS
1. The classical economists knew the role of
entrepreneurs in the process of
production, yet they never assigned any
important position to them in their system

2. Contrary to what the classical economists has

envisioned, Capital had become an important factor
in agriculture and is now increasingly substituting
land. This is prevented a fall in the rate of profits.
Even in the industrial sector, growth caused by
increasing returns has prevented profit rates from
falling. Hence, investment activity has not slowed
down. The classical economists were right to
observe the technical progress was greatly
dependent on savings and investment, but the
relationship they share is not as rigid as the one
they have assumed in their model.

ECONOMIC GROWTH WITH CAPITAL

ACCUMULATION: THE NEOCLASSICAL
MODEL
The neoclassical growth theory was developed in the
late 1950s and 1960s of the twentieth century as a
result of intensive research in the field of growth
economics.
The American economist Robert Solow, who won a
Noble Prize in Economics and the British economist,
J. E. Meade are the two well known contributors to
the neo-classical theory of growth. This neoclassical
growth theory lays stress on capital accumulation and
its related decision of saving as an important
determinant of economic growth.

 The neoclassical growth theory is the economic theory

that outlines how a steady economic growth rate will be
accomplished with the proper amounts of the three
driving forces: labor, capital and technology. The theory
states that by varying the amounts of labor and capital
in the production function, an equilibrium state can be
accomplished. When a new technology becomes
available, the labor and capital need to be adjusted to
maintain growth equilibrium. Neoclassical growth model
considered two factor production functions with capital
and labour as determinants of output. Besides, it added
exogenously determined factor, technology, to the
production function.

FACTORS AFFECTING PRODUCTIVITY

 There are issues why the trends are not

applicable in the Philippines. First is the
relationship of governance and the
economy. Based on our previous lessons, the
government is in charge of policy
implementations that affect the economy. There
is a problem with the implementation of policies
of the country, as well as with the governance.
The countrys corruption record is concerning,
and this proves problems in governance. High
rates of corruption also leads to a decrease in
foreign investors which may affect capital.

 Another problem is the quality of social services in the

country. Our countrys population is rising while the
quality of education being offered to the people are
degrading. In the four wheels of economic growth,
human resource must be skilled in order to achieve
economic growth. People have limited access not only to
education but also to health services. Once you have an
educated and healthy labor force, this will increase
productivity. It will also attract foreign investors. The table
below shows the distribution of the national budget to the
different social services under the different
administrations.

 Education receives the highest share from the

national budget yet no improvements are evident.
Every school year opening, the same issues are
tackled. Lack of classrooms, resources (books,
chairs, chalks etc.) even lack of teachers. This
points back to the problem in governance. As for the
health sector, it must be accessible to all patients.
There must be disease prevention and health
promotion projects that will raise the awareness of
people in order to have a healthier and more
competitive labor force.

 Another factor is the handling of natural

resources. Natural resources are one of the four
wheels. Our country is known to be rich in natural
resources. Many economists focuses only on the
technological advancements but few tend to be
concerned with the depleting environmental
resources. This is because technological progress
now helps in sustaining the environment (ex.
Fiber-optic cables, incinerators) however we
should still need to protect the environment since
there not all resources are renewable. Proper and
stricter implementation of environmental laws will
help with the handling of resources.

THE PATTERNS OF ECONOMIC

GROWTH IN THE PHILIPPINES

FACTS OF ECONOMIC GROWTH

Modern economics has moved beyond
qualitative discussion more focused on
empirical science thanks to gathering of
data, analysis, etc.
(discussion of the key trends in the
economic developments in the USPH)
Trends can be seen in real GDP, capital
stock, population, growth in output, real
wages.

7 BASIC TRENDS OF ECONOMIC

DEVELOPMENT
Trends of the advanced nations
Warning: the historical trends are not inevitable

This view of constant growth should be resisted for it

misreads the lessons of history and economic theory
Major waves of deviations
No law of economics ensures that future must
continue to provide the robust growth of incomes
experienced over the last century
These seven trends portray fundamental facts

 We should recognize the key role of technological progress in explaining the

seven trends of modern economic growth
1.The capital stock has grown more rapidly than population and employment,
resulting in capital deepening.
2.For most of this century, there has been a strong upward trend in real wages.
3.The share of wages and salaries in national income has edged up very
slightly over the long run but has been virtually constant over the last two
decades.
4.There have been major oscillations in real interest rates and the rate of profit,
but there has been no strong upward or downward trend in this century.
5.Instead of steadily rising, the capital-output ratio has actually declined since
1900.
6.For most of the 20th century, the ratios of national saving and of investment to
GDP have been stable.
7.After effects of the business cycle are removed and technological innovations
must have played a key role in economic growth.

SOURCES OF ECONOMIC GROWTH

THE GROWTH ACCOUNTING

APPROACH
Growth Accounting: technique used in detailed studies of
economic growth. A way of separating out the contributions
of the different ingredients driving observed growth trends.
% Q growth = (% L growth) + (% K growth) + T.C.
Wherein:
Q- Growth in output
L-Labor
K- Capital
T.C- Technical Change or total factor productivity
Note:% are relative contributions of each input to economic growth. Can change. /Countries have different patterns for
growth.

PHILIPPINE SETTING
The fractions used in the formula vary from country
to country, depending on which factor brings the
most change. The value of labor and capital share
can determine whether a country is labor intensive
or capital intensive. Developing countries are most
likely to become a labor intensive because of lower
cost of labor compared to developed countries (US,
European Countries, and the likes).
Based from the equation, it can be said that the
Philippines is Labor intensive.

SUMMARY

THEORY OF ECONOMIC GROWTH

The analysis of economic growth of potential
output over the long run.
The Four Wheels of Economic growth
The quantity and quality of the labor force
The abundance of its land and resources
The stock of accumulated capital
Technological change and innovation

(Smith and Malthus) linked Economic growth with land

mass and population size. Stated that an increase in
population will trigger the law of diminishing.

 However the technological innovations has

progressed the economy in industrial countries.
The fear of limited resources has long questioned
the stability of economic growth
Capital accumulation with complimentary labor
forms are the core of modern growth theory.
Technological change is a key factor for
economic growth together with consumer demand.
The new growth theory seeks to uncover the
process of technological.

CHALLENGES FOR ECONOMIC

GROWTH IN THE PHILIPPINES
There is little to no factors other than consumer
demand
that drives economic growth in our country.
With an increasing population and with a lack of
adequate jobs the unemployment rate is still quite high which
is nullifying the effects of economic growth.
Due to most Filipinos looking for work overseas the country
can still produce a large quantity of workers however the
ones who remain are of somewhat
questionable quality.
We Filipinos can adapt and learn quickly however our country
lack the means and the drive to pursue
technological
innovations that can help speed-up
economic growth.

REFERENCES:

Statistics on the Growth of the Global Gross Domestic Product (GDP) from 2003 to
2013, IMF, October 2012.
Bjork, Gordon J. (1999). The Way It Worked and Why It Wont: Structural
Change and the Slowdown of U.S. Economic Growth. Westport, CT; London:
Praeger. pp. 2, 67.ISBN 0-275-96532-5
https://en.wikipedia.org/wiki/Classical_theory_of_growth_and_stagnation
S K Mishra, V K Puri. Economics of Development and Planning Theory and
Practice. Himalya. ISBN 81-7866-055-5.
http://www.yourarticlelibrary.com/economics/neoclassical-theory-of-economic-growthexplained-with-diagrams/38321/
Mankiw, N. G. (2011). Production and growth. In Economics principles (4th ed., pp.
565-572). Cengage Learning.
Senate Economic Planning Office. (2004). Five pillars of growth: An economic and
social development framework.