GLOBAL ECONOMIC GROWTH

Global Economic Growth

Submitted by:

Divya Raunak, B.A. L.L.B (Hons)

Submitted to:
Dr. Shivani Mohan
Faculty of Economics
This final draft is submitted in the fulfillment of the topic ‘Global Economic
Growth’

Chanakya National Law University, Patna

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 GLOBAL ECONOMIC GROWTH

1. ACKNOWLEDGMENT

I would like to thank my faculty Dr. Shivani Mohan, whose assignment of such a pertinent topic
made me work towards knowing the subject with a greater interest and enthusiasm and moreover
she guided me throughout the project.

I owe the present accomplishments of my project to my friends, who helped me immensely with
sources of research materials throughout the project and without whom I couldn’t have
completed it in the present way.

I would also like to extend my gratitude to my parents and all those unseen hands that helped me
out at every stage of my project.

THANK YOU!

NAME-DIVYA RAUNAK
ROLL NO. - 2119
3rd Semester (BA LL. B)

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DECLARATION

I hereby declare that the work reported in the B.A. LLB (Hons.) project report titled “GLOBAL
ECONOMIC GROWTH” submitted at Chanakya National Law University Patna, is an authentic
record of my work carried under the mentorship of Dr. Shivani Mohan. I have not submitted this
work elsewhere for any other degree or diploma. I am fully responsible for the contents of my
project report.

DIVYA RAUNAK
Chanakya National Law University

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CONTENTS
1. ACKNOWLEDGMENT ..................................................................... 2

2. INTRODUCTION ............................................................................... 5

3. RESEARCH METHODOLOGY ........................................................ 8

4. FACTORS AFFECTING GLOBAL ECONOMIC GROWTH ........ 10

5. VARIOUS THEORIES OF ECONOMIC GROWTH ...................... 14

6. ENVIRONMENTAL IMPACT ........................................................ 18

7. ECONOMIC CRISIS ......................................................................... 21

8. CONCLUSION .................................................................................. 23

9. REFERENCES .................................................................................. 23

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2. INTRODUCTION

The term economic growth is associated with economic progress and advancement.
Economic growth can be defined as an increase in the capacity of an economy to produce goods
and services within a specific period of time.
In economics, economic growth refers to a long-term expansion in the productive potential of the
economy to satisfy the wants of individuals in the society. Sustained economic growth of a
country’ has a positive impact on the national income and level of employment, which further
results in higher living standards.
Apart from this, it plays a vital role in stimulating government finances by enhancing tax
revenues. This enables the government to earn extra income for the further development of an
economy. The economic growth of a country can be measured by comparing the level of Gross
National Product (GNP) of a year with the GNP of the previous year. The economic growth of a
country is possible if strengths and weaknesses of the economy are properly analyzed.
Economic analysis provides an insight into the essentials of an economy. It is a systematic
process for determining the optimum use of scarce resources and selecting the best alternative to
achieve the economic goal. Moreover, economic analysis helps in assessing the causes of
different economic problems, such as inflation, depression, and economic instability. It is
performed by taking into consideration various economic variables, such as demand, supply,
prices, production cost, wages, labor, and capital.

Meaning of Economic Growth:

Economic growth can be defined as a positive change in the level of goods and services
produced by a country over a certain period of time. An important characteristic of economic
growth is that it is never uniform or same in all sectors of an economy For example, in a
particular year, the telecommunication sector of a country has marked a significant contribution
in economic growth whereas the mining sector has not performed well as far as the economic
growth of the country- is concerned.

Secondly, Economic Growth can be defined as as the increase in the inflation-adjusted market

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value of the goods and services produced by an economy over time. Statisticians conventionally
measure such growth as the percent rate of increase in real gross domestic product, or real GDP.

Growth is usually calculated in real terms - i.e., inflation-adjusted terms – to eliminate the
distorting effect of inflation on the prices of goods produced. Measurement of economic
growth uses national income accounting. Since economic growth is measured as the annual
percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that
measure. The economic growth-rates of countries are commonly compared using the ratio of
the GDP to population (per-capita income).

The "rate of economic growth" refers to the geometric annual rate of growth in GDP between the
first and the last year over a period of time. This growth rate represents the trend in the average
level of GDP over the period, and ignores any fluctuations in the GDP around this trend.

Economists refer to an increase in economic growth caused by more efficient use of inputs
(increased productivity of labor, of physical capital, of energy or of materials) as intensive
growth. In contrast, GDP growth caused only by increases in the amount of inputs available for
use (increased population, for example, or new territory) counts as extensive growth.

The economic growth rate is calculated from data on GDP estimated by countries' statistical
agencies. The rate of growth of GDP per capita is calculated from data on GDP and people for
the initial and final periods included in the analysis of the analyst. Living standards vary widely
from country to country, and furthermore the change in living standards over time varies widely
from country to country. .if we can learn about government policy options that have even small
effects on long-term growth rates, we can contribute much more to improvements in standards of
living than has been provided by the entire history of macroeconomic analysis of countercyclical
policy and fine-tuning. Economic growth is the part of macroeconomics that really matters. It has
been observed that GDP growth is influenced by the size of the economy. The relation between
GDP growth and GDP across the countries at a particular point of time is convex. Growth
increases with GDP reaches its maximum and then begins to decline. There exists some extreme
value. This is not exactly middle-income trap. It is observed for both developed and developing

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economies. Actually, countries having this property belong to conventional growth domain.
However, the extreme could be extended by technological and policy innovations and some
countries move into innovative growth domain with higher limiting values.

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3. RESEARCH METHODOLOGY

The researcher will do doctrinal type of research in which he will go through the primary as well
secondary sources. The researcher through this methodology will be able to get an exact picture
of the topic in question. The doctrinal method helps in doing a comparative study of the topic.
This methodology helps in going through not only the work of one eminent person but of many
other too. This helps in getting the bird’s eye view of the subject. To satisfy the need of the
project, the researcher will go through rigorous online research and will also try to find the
authenticity of the fact. Since the researcher is at home in a global pandemic with the limited
resource, he will try to find different facts from different online authentic websites. The
researcher will also take help from the PDFs of Economics books which are available online.

Aims and Objective

i. To study the concept of Global Economic Growth.

ii. The researcher wants to discuss about Economic growth, its factors, its theories,
economic crisis etc.

Hypothesis: Whether economic growth has an adverse impact on environment.

Scope of the study

 After giving the introduction on the topic the researcher will deal the topic in detail. He will
also discuss about its factors, different data by various organization and also about
Economic crisis.

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Sources of data collection.

The researcher will collect data from both primary as well as secondary sources

i. The primary sources :

ii. Data released by different organization like WEF, IMF, WB etc.

ii. The secondary sources are :

a. Magazine.

b. Books.

c. Journals.

Limitation of the study

The researcher having read the contents on different websites on the topic concerned will
understand the topic thoroughly. The knowledge would have been gained more if he had no
limited resources. The researcher has limited time for the project. The knowledge of
fundamentals of Economics is also necessary for having a bird’s eye view of the particular topic
and it gets developed only by effective and extended reading over a long period of time. The
researcher has a restricted access or rather no access to the library as the project has been made at
the comfort of home. The researcher is going through a global pandemic which has affected his
normal life in many ways. But still researcher with his hard work will manage to take out the
best possible work.

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4. FACTORS AFFECTING GLOBAL ECONOMIC GROWTH

The economic growth of a country may get hampered due to a number of factors, such as trade
deficit and alterations in expenditures by governmental bodies. Generally, the economic growth
is adversely affected when there is a sharp rise in the prices of goods and services.The following
six causes of economic growth is key components in an economy. Improving or increasing their
quantity can lead to growth in the economy.

1. Natural Resources
The discovery of more natural resources like oil, or mineral deposits may boost economic growth
as this shifts or increases the country’s Production Possibility Curve. Other resources include
land, water, forests and natural gas.
Realistically, it is difficult, if not impossible, to increase the number of natural resources in a
country. Countries must take care to balance the supply and demand for scarce natural resources
to avoid depleting them. Improved land management may improve the quality of land and
contribute to economic growth.
The resources beneath the land or underground resources include oil, natural gas, metals, non-
metals, and minerals. The natural resources of a country depend on the climatic and
environmental conditions. Countries having plenty of natural resources enjoy good growth than
countries with small amount of natural resources.
The efficient utilization or exploitation of natural resources depends on the skills and abilities of
human resource, technology used and availability of funds. A country having skilled and
educated workforce with rich natural resources takes the economy on the growth path.
The best examples of such economies are developed countries, such as United States, United
Kingdom, Germany, and France. However, there are countries that have few natural resources,
but high per capita income, such as Saudi Arabia, therefore, their economic growth is very high.
Similarly, Japan has a small geographical area and few natural resources, but achieves high
growth rate due to its efficient human resource and advanced technology.

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2. Physical Capital or Infrastructure

Increased investment in physical capital, such as factories, machinery, and roads, will lower the
cost of economic activity. Better factories and machinery are more productive than physical
labor. This higher productivity can increase output. For example, having a robust highway
system can reduce inefficiencies in moving raw materials or goods across the country, which can
increase its GDP. Capital formation increases the availability of capital per worker, which further
increases capital/labor ratio. Consequently, the productivity of labor increases, which ultimately
results in the increase in output and growth of the economy.

3. Population or Labor
Refers to one of the most important determinant of economic growth of a country. The quality
and quantity of available human resource can directly affect the growth of an economy.
The quality of human resource is dependent on its skills, creative abilities, training, and
education. If the human resource of a country is well skilled and trained then the output would
also be of high quality.
On the other hand, a shortage of skilled labor hampers the growth of an economy, whereas
surplus of labor is of lesser significance to economic growth. Therefore, the human resources of
a country should be adequate in number with required skills and abilities, so that economic
growth can be achieved.
A growing population means there is an increase in the availability of workers or employees,
which means a higher workforce. One downside of having a large population is that it could lead
to high unemployment.

4. Human Capital
An increase in investment in human capital can improve the quality of the labor force. This
increase in quality would result in an improvement in skills, abilities, and training. A skilled
labor force has a significant effect on growth since skilled workers are more productive. For
example, investing in STEM students or subsidizing coding academies would increase the

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availability of workers for higher-skilled jobs that pay more than investing in blue-collar jobs.

5. Technology
Another influential factor is the improvement of technology. The technology could increase
productivity with the same levels of labor, thus accelerating growth and development. This
increment means factories can be more productive at lower costs. Technology is most likely to
lead to sustained long-run growth. Technological development helps in increasing productivity
with the limited amount of resources. Countries that have worked in the field of technological
development grow rapidly as compared to countries that have less focus on technological
development. The selection of right technology also plays an role for the growth of an economy.
On the contrary, an inappropriate technology- results in high cost of production.

6. Law
An institutional framework that regulates economic activity such as rules and laws. There is no
specific set of institutions that promote growth.

Factors limiting economic growth

1. Poor Health & Low Levels of Education

People who don’t have access to healthcare or education have lower levels of productivity. This
lack of access means the labor force is not as productive as it could be. Therefore, the economy
does not reach the productivity it could otherwise.

2. Lack of Necessary Infrastructure

Developing nations often suffer from inadequate infrastructures such as roads, schools, and
hospitals. This lack of infrastructure makes transportation more expensive and slows the overall
efficiency of the country.

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3. Flight of Capital
If the country is not delivering the returns expected from investors, then investors will pull out
their money. Money often flows out of the country to seek higher rates of returns.
4. Political Instability
Similarly, political instability in the government scares investors and hinders investment. For
example, historically, Zimbabwe had been plagued with political uncertainty and laws favoring
indigenous ownership. This instability has scared off many investors who prefer smaller but
surer returns elsewhere.

5. Institutional Framework
Often local laws don’t adequately protect rights. Lack of an institutional framework can severely
impact progress and investment.

6. The World Trade Organization

Many economists claim that the World Trade Organization (WTO) and other trading systems are
biased against developing nations. Many developed nations adopt protectionist strategies which
don’t help liberalize trade.

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5. VARIOUS THEORIES OF ECONOMIC GROWTH

The Malthusian theory

The Malthusian theory proposes that over most of human history technological progress caused
larger population growth but had no impact on income per capita in the long run. According to the
theory, while technologically advanced economies over this epoch were characterized by higher
population density, their level of income per capita was not different than those among
technologically regressed society.
The conceptual foundations of the Malthusian theory were formed by Thomas Malthus1 and a
modern representation of these approach is provided by Ashraf and Galor. [82] In line with the
predictions of the Malthusian theory, a cross-country analysis finds a significant positive effect of the
technological level on population density and an insignificant effect on income per capita
significantly over the years 1–1500.

Classical growth theory

In classical (Ricardian) economics, the theory of production and the theory of growth are based on
the theory or law of variable proportions, whereby increasing either of the factors of
production (labor or capital), while holding the other constant and assuming no technological change,
will increase output, but at a diminishing rate that eventually will approach zero. These concepts
have their origins in Thomas Malthus’s theorizing about agriculture. Malthus's examples included the
number of seeds harvested relative to the number of seeds planted (capital) on a plot of land and the
size of the harvest from a plot of land versus the number of workers employed. See also Diminishing
returns.
Criticisms of classical growth theory are that technology, an important factor in economic growth, is
held constant and that economies of scale are ignored.
One popular theory in the 1940s was the big push model, which suggested that countries needed to
jump from one stage of development to another through a virtuous cycle, in which large investments
in infrastructure and education coupled with private investments would move the economy to a more

1
Malthus, Thomas R. (1798). Gilbert, Geoffrey (ed.). An Essay on the Principle of Population. Oxford: Oxford
University Press (published 1999).

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productive stage, breaking free from economic paradigms appropriate to a lower productivity
stage. The idea was revived and formulated rigorously, in the late 1980s by Kevin Murphy, Andrei
Shleifer and Robert Vishny.2

Solow–Swan model
Robert Solow and Trevor Swan developed what eventually became the main model used in growth
economics in the 1950s.3 This model assumes that there are diminishing returns to capital and labor.
Capital accumulates through investment, but its level or stock continually decreases due to
depreciation. Due to the diminishing returns to capital, with increases in capital/worker and absent
technological progress, economic output/worker eventually reaches a point where capital per worker
and economic output/worker remains constant because annual investment in capital equals annual
depreciation. This condition is called the 'steady state'.
In the Solow–Swan model if productivity increases through technological progress, then
output/worker increases even when the economy is in the steady state. If productivity increases at a
constant rate, output/worker also increases at a related steady-state rate. As a consequence, growth in
the model can occur either by increasing the share of GDP invested or through technological
progress. But at whatever share of GDP invested, capital/worker eventually converges on the steady
state, leaving the growth rate of output/worker determined only by the rate of technological progress.
As a consequence, with world technology available to all and progressing at a constant rate, all
countries have the same steady state rate of growth. Each country has a different level of
GDP/worker determined by the share of GDP it invests, but all countries have the same rate of
economic growth. Implicitly in this model rich countries are those that have invested a high share of
GDP for a long time. Poor countries can become rich by increasing the share of GDP they invest.
One important prediction of the model, mostly borne out by the data, is that of conditional
convergence; the idea that poor countries will grow faster and catch up with rich countries as long as
they have similar investment (and saving) rates and access to the same technology.
Although the rate of investment in the model is exogenous, under certain conditions the model
implicitly predicts convergence in the rates of investment across countries. In a global economy with
a global financial capital market, financial capital flows to the countries with the highest return on

2
Murphy, Kevin M.; Shleifer, Andrei; Vishny, Robert W. (1989). "Industrialization and the Big Push". Journal of
Political Economy.
3
Swan, Trevor W. (1956). "Economic Growth and Capital Accumulation'". Economic Record.

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investment. In the Solow-Swan model countries with less capital/worker (poor countries) have a
higher return on investment due to the diminishing returns to capital. As a consequence,
capital/worker and output/worker in a global financial capital market should converge to the same
level in all countries.4 Since historically financial capital has not flowed to the countries with less
capital/worker, the basic Solow–Swan model has a conceptual flaw. Beginning in the 1990s, this
flaw has been addressed by adding additional variables to the model that can explain why some
countries are less productive than others and, therefore, do not attract flows of global financial capital
even though they have less (physical) capital/worker.

Endogenous growth theory

Unsatisfied with the assumption of exogenous technological progress in the Solow–Swan model,
economists worked to "endogenize" (i.e., explain it "from within" the models) productivity growth in
the 1980s; the resulting endogenous growth theory, most notably advanced by Robert Lucas, Jr. and
his student Paul Romer, includes a mathematical explanation of technological
advancement.5 This model also incorporated a new concept of human capital, the skills and
knowledge that make workers productive. Unlike physical capital, human capital has increasing rates
of return. Research done in this area has focused on what increases human capital (e.g. education) or
technological change (e.g. innovation).6
One branch of endogenous growth theory was developed on the foundations of the Schumpeterian
theory, named after the 20th-century Austrian economist Joseph Schumpeter. The approach explains
growth as a consequence of innovation and a process of creative destruction that captures the dual
nature of technological progress: in terms of creation, entrepreneurs introduce new products or
processes in the hope that they will enjoy temporary monopoly-like profits as they capture markets.
In doing so, they make old technologies or products obsolete. This can be seen as an annulment of
previous technologies, which makes them obsolete, and "destroys the rents generated by previous
innovations".7 A major model that illustrates Schumpeterian growth is the Aghion–Howitt model [ru].

4
Lucas, Robert E. (1990). "Why Doesn't Capital Flow from Rich to Poor Countries?". American Economic Review.
5
Romer, Paul (1986). "Increasing Returns and Long-Run Growth". Journal of Political Economy.
6
Helpman, Elhanah (2004). The Mystery of Economic Growth. Harvard University Press. ISBN 978-0-674-01572-
2.
7
Aghion, Philippe (2002). "Schumpeterian Growth Theory and the Dynamics of Income Inequality".

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Unified growth theory

Main article: Unified growth theory
Unified growth theory was developed by Oded Galor and his co-authors to address the inability of
endogenous growth theory to explain key empirical regularities in the growth processes of individual
economies and the world economy as a whole.8 Unlike endogenous growth theory that focuses
entirely on the modern growth regime and is therefore unable to explain the roots of inequality across
nations, unified growth theory captures in a single framework the fundamental phases of the process
of development in the course of human history: (i) the Malthusian epoch that was prevalent over
most of human history, (ii) the escape from the Malthusian trap, (iii) the emergence of human capital
as a central element in the growth process, (iv) the onset of the fertility decline, (v) the origins of the
modern era of sustained economic growth, and (vi) the roots of divergence in income per capita
across nations in the past two centuries. The theory suggests that during most of human existence,
technological progress was offset by population growth, and living standards were near subsistence
across time and space. However, the reinforcing interaction between the rate of technological
progress and the size and composition of the population has gradually increased the pace of
technological progress, enhancing the importance of education in the ability of individuals to adapt to
the changing technological environment. The rise in the allocation of resources towards education
triggered a fertility decline enabling economies to allocate a larger share of the fruits of technological
progress to a steady increase in income per capita, rather than towards the growth of population,
paving the way for the emergence of sustained economic growth. The theory further suggests that
variations in biogeographical characteristics, as well as cultural and institutional characteristics, have
generated a differential pace of transition from stagnation to growth across countries and
consequently divergence in their income per capita over the past two centuries.

8
Galor, Oded (2011). Unified Growth Theory. Princeton: Princeton University Press.

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6. ENVIRONMENTAL IMPACT

Global warming

Up to the present, there is a close correlation between economic growth and the rate of carbon
dioxide emissions across nations, although there is also a considerable divergence in carbon
intensity (carbon emissions per GDP). Up to the present, there is also a direct relation between
global economic wealth and the rate of global emissions.9 The Stern Review notes that the
prediction that, "Under business as usual, global emissions will be sufficient to propel
greenhouse gas concentrations to over a high margin by the end of this century is robust to a
wide range of changes in model assumptions." The scientific consensus is that planetary
ecosystem functioning without incurring dangerous risks requires stabilization at 450–550
ppm.10
As a consequence, growth-oriented environmental economists propose government intervention
into switching sources of energy production, favoring wind, solar, hydroelectric, and nuclear. This
would largely confine use of fossil fuels to either domestic cooking needs (such as for kerosene
burners) or where carbon capture and storage technology can be cost-effective and
reliable. The Stern Review, published by the United Kingdom Government in 2006, concluded
that an investment of 1% of GDP (later changed to 2%) would be sufficient to avoid the worst
effects of climate change, and that failure to do so could risk climate-related costs equal to 20%
of GDP. Because carbon capture and storage are as yet widely unproven, and its long term
effectiveness (such as in containing carbon dioxide 'leaks') unknown, and because of current
costs of alternative fuels, these policy responses largely rest on faith of technological change.
British conservative politician and journalist Nigel Lawson has deemed carbon emission
trading an 'inefficient system of rationing'. Instead, he favors carbon taxes to make full use of the
efficiency of the market. However, in order to avoid the migration of energy-intensive industries,
the whole world should impose such a tax, not just Britain, Lawson pointed out. There is no
point in taking the lead if nobody follows suit.

9
Jaccard, M. (2005). Sustainable Fossil Fuels. New York: Cambridge University Press. ISBN 978-0-521-67979-4.
10
Garrett, T. J. (2009). "Are there basic physical constraints on future anthropogenic emissions of carbon
dioxide?". Climatic Change.

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Resource constraint
Many earlier predictions of resource depletion, such as Thomas Malthus' 1798 predictions about
approaching famines in Europe, The Population Bomb,11 and the Simon–Ehrlich
wager (1980)[147] have not materialized. Diminished production of most resources has not
occurred so far, one reason being that advancements in technology and science have allowed
some previously unavailable resources to be produced. In some cases, substitution of more
abundant materials, such as plastics for cast metals, lowered growth of usage for some metals. In
the case of the limited resource of land, famine was relieved firstly by the revolution in
transportation caused by railroads and steam ships, and later by the Green Revolution and
chemical fertilizers, especially the Haber process for ammonia synthesis.12
Resource quality is composed of a variety of factors including ore grades, location, and altitude
above or below sea level, proximity to railroads, highways, water supply and climate. These
factors affect the capital and operating cost of extracting resources. In the case of minerals, lower
grades of mineral resources are being extracted, requiring higher inputs of capital and energy for
both extraction and processing. Copper ore grades have declined significantly over the last
century.13 Another example is natural gas from shale and other low permeability rock, whose
extraction requires much higher inputs of energy, capital, and materials than conventional gas in
previous decades. Offshore oil and gas have exponentially increased cost as water depth
increases.

11
Bailey, Ronald (2004-02-04). "Science and Public Policy". Reason.com. Retrieved 2010-12-22.
12
Wells, David A. (1891). Recent Economic Changes and Their Effect on Production and Distribution of Wealth
and Well-Being of Society. New York: D. Appleton and Co. ISBN 978-0-543-72474-8
13
Hall, Charles A.S.; Cleveland, Cutler J.; Kaufmann, Robert (1992). Energy and Resource Quality: The ecology
of the Economic Process. Niwot, Colorado: University Press of Colorado.

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Energy
Energy economic theories hold that rates of energy consumption and energy efficiency are linked
causally to economic growth. The Garrett Relation holds that there has been a fixed relationship
between current rates of global energy consumption and the historical accumulation of world
GDP, independent of the year considered. It follows that economic growth, as represented by
GDP growth, requires higher rates of energy consumption growth. Seemingly paradoxically,
these are sustained through increases in energy efficiency. Increases in energy efficiency were a
portion of the increase in Total factor productivity. Some of the most technologically important
innovations in history involved increases in energy efficiency. These include the great
improvements in efficiency of conversion of heat to work, the reuse of heat, the reduction in
friction and the transmission of power, especially through electrification.14

14
Landes, David. S. (1969). The Unbound Prometheus: Technological Change and Industrial Development in
Western Europe from 1750 to the Present. Cambridge, New York: Press Syndicate of the University of Cambridge.
pp. 289, 293. ISBN 978-0-521-09418-4.

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7. ECONOMIC CRISIS

An economic crisis refers to a major financial crisis in a country or across many countries that
impacts the banking system, the stock market and, often, even the stability of the government.
An economic crisis can occur due to many factors but it is often a combination of factors that
combine to create financial instability.

Main causes of economic crisis15

1. Liberal Lending Practices

In a growing economy with high employment rates, banks are more likely to lend to consumers
and businesses with reasonable rates and liberal repayment terms. When an economy begins to
contract, banks and other lending institutions will tighten up lending policies, making it
difficult to borrow for home buying purposes or to start or grow a business. Liberal lending
policies can tip off an economic crisis when borrowers cannot afford the terms of their loans
when the economy contracts. In the 2008 economic crisis, liberal lending in the United States
mortgage market found many homeowners in trouble when their teaser interest rates ended and
the rate adjusted. Many individuals could no longer afford to carry their homes and
foreclosures shot up, shaking the confidence of the entire United States economy.

2. Stock Market Bubbles

A stock market bubble occurs in a strong economy when demand for equity investments rises
and the prices of stocks are driven higher than an objective valuation would dictate. With no
true assets to back the lofty prices, the stock prices eventually cannot support themselves and
the entire market corrects back to a reasonable valuation. When this happens across a broad
spectrum of stocks, investors withdraw money out of the uncertain markets, which destabilizes
them further. Farther along in the cycle, confidence will slowly return once investors believe
that the stocks have hit their lowest possible point.

15
smallbusiness.chron.com/economic-crisis-factors-1720.html

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3. High Unemployment

High unemployment levels can result from an economic crisis in action or can be one of the
causes of it. An economic crisis can occur when high interest rates, tight lending and a
decrease in consumer spending results in companies letting go of employees to survive the
economic downturn. This turns into a nasty downward spiral as unemployed consumers do not
spend freely, impacting businesses further and leading to more layoffs. Increasing
unemployment can also be found when companies outsource jobs to other countries. This type
of unemployment is more permanent in nature and can lead to longer-term economic
instability.

4. Natural Disaster

An environmental crisis can also spark an economic crisis. Hurricanes, widespread flooding,
insect infestations and crop diseases can impact the food we eat and the prices we pay at the
grocery store. Rising food prices can impact consumer spending habits and begin the
downward cycle that reduces business income and results in unemployment.

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8. CONCLUSION

Economic growth is what every economy tries to achieve for the good of everyone as a whole.
Developing, producing more, increased wages, higher levels of education, better and better
technologies is what we strive for. But doing all that, does that mean that we are living a better
life? Or is it just the ideal of doing better, not really the result that keeps us following the dream
of a perfect world. The effects of economic growth are full of positives points such as boost in
infrastructures, urban development, higher education, globalization, creates employment, higher
wages for workers, better living standards for the population, and the list can go on and on. But
aren’t there any externalities to all of this? There are some of the negative externalities of
growing above what the economy can take, reaching the limits where growing is counter-
productive. Some of those disadvantages of growth are outlined in this report, such as health
problems arising, environmental issues, education issues as well, and how standard of living
doesn’t always mean better is getting more.

9. REFERENCES

WEBSITES
 intelligenteconomist.com/economic-growth/
 economicsdiscussion.net/economic-growth/5-factors-that-affect-the-economic-growth-of-a-
country
 smallbusiness.chron.com/factors-affecting-economic-development-growth
 en.wikipedia.org/wiki/Economic_growth#Environmental_impact
 smallbusiness.chron.com/economic-crisis-factors-1720.html

MISCELLANEOUS

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 Malthus, Thomas R. (1798). Gilbert, Geoffrey (ed.). An Essay on the Principle of

Population. Oxford: Oxford University Press (published 1999).
 Murphy, Kevin M.; Shleifer, Andrei; Vishny, Robert W. (1989). "Industrialization and
the Big Push". Journal of Political Economy.
 Swan, Trevor W. (1956). "Economic Growth and Capital Accumulation'". Economic
Record.
 Lucas, Robert E. (1990). "Why Doesn't Capital Flow from Rich to Poor
Countries?". American Economic Review.
 Romer, Paul (1986). "Increasing Returns and Long-Run Growth". Journal of Political
Economy.
 Helpman, Elhanah (2004). The Mystery of Economic Growth. Harvard University
Press. ISBN 978-0-674-01572-2.
 Aghion, Philippe (2002). "Schumpeterian Growth Theory and the Dynamics of Income
Inequality".
 Galor, Oded (2011). Unified Growth Theory. Princeton: Princeton University Press.
 Jaccard, M. (2005). Sustainable Fossil Fuels. New York: Cambridge University
Press. ISBN 978-0-521-67979-4.
 Garrett, T. J. (2009). "Are there basic physical constraints on future anthropogenic
emissions of carbon dioxide?". Climatic Change.
 Bailey, Ronald (2004-02-04). "Science and Public Policy". Reason.com. Retrieved 2010-
12-22.
 Wells, David A. (1891). Recent Economic Changes and Their Effect on Production and
Distribution of Wealth and Well-Being of Society. New York: D. Appleton and
Co. ISBN 978-0-543-72474-8
 Hall, Charles A.S.; Cleveland, Cutler J.; Kaufmann, Robert (1992). Energy and
Resource Quality: The ecology of the Economic Process. Niwot, Colorado: University
Press of Colorado.
 Landes, David. S. (1969). The Unbound Prometheus: Technological Change and
Industrial Development in Western Europe from 1750 to the Present. Cambridge, New
York: Press Syndicate of the University of Cambridge. pp. 289, 293. ISBN 978-0-521-

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09418-4.

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