Economics Essay Example | Topics and Well Written Essays - 1500 words - 5

Economics - Essay Example The works by Prebisch (1947; 1949) and Singher (1950) attempted to explain economic growth based on the differences in products produced by different nations. The less developed nations according to these theories have to purchase the manufactured goods from the Northern nations at prices in excess of what of what they get for selling their primary goods (to the Northern nations). This ultimately adversely affects the economic growth of the less developed nations and thus they remain less developed (Todaro, 2003). These theories thus argue for promoting import-substituting policies for economic growth. Alternative theories by Harrod (1939) and advanced by Kregel (1980) capture the dynamics of economic growth by assuming that it is determined endogenously by the saving and investment decisions of firms. In this model, the growth rates put forward are actual, warranted and natural growth rates. Based on this approach, the long run growth rate is determined by the closed economy social saving rate rather than net exports. However, this model has been criticised for showing the possibility of unstable growth in a capitalist economy (Moudud, 2000). It has been shown that though there can be instability to some extent for the growth path, its extent is restricted by many endogenous factors in a capitalist economy (Moudud, 2000). 3. Conclusion In this essay, the discussion shows that low savings rate alone cannot explain the differences between developed and developing nations. By improving saving rates alone, developing nations cannot catch up with the West. Many other factors discussed above determine the differences between these nations. 1. Introduction The relationship between free trade and economic growth has been a topic of debate for the academicians and policy makers in the recent years. In this essay, the arguments for and against free trade are discussed. 2. Arguments for and Against Free Trade Greater availability of cheaper goods from abroad will lower t he domestic price level, since the consumption bundle used to compute broad inflation measures includes imported goods. The magnitude of this effect depends on the share of imports in the consumption bundle of the representative household.Also as the economy opens up the shocks to the price level due to the domestic farm sector; output fluctuations are likely to ease which may diminish the price fluctuations (Jin, 2000 etc). As per the Dutch disease hypothesis (Collier and Gunning, 1999) and the political economy models (Alesina and Perotti, 1994), trade openness can affect fiscal deficits through the instability of government revenue. First, countries with an outward-looking strategy have higher levels of competition, are less corrupt (Ades and Di Tella, 1999) and have higher fiscal balances and lower fiscal deficit. Second, trade openness increases income inequalities which enhances the demand of public goods (Alesina and Perotti, 1994) and, simultaneously, reduces the ability of governments to collect taxes. Third, trade policy could reduce government revenue in the short run (Bean, 1999), which could occur when increases in openness result from a reduction in tariffs. However, for a given level of tariffs, government revenue from taxes is an increasing function of trade openness. Thus, in the