Economic Growth Essay

Custom Student Mr. Teacher ENG 1001-04 12 January 2017

Economic Growth

There are different drivers of economic growth into country and research has to some extent also demonstrated that it can be associated with typical characteristics of the country too. Explaining economic growth through a relatively new theory of endogenous growth suggest that policy measures, if taken properly, can result into long term benefits for the country and that the country does not necessarily need to rely on the external or exogenous factors such as technological innovation.

The neo-classical models of growth advocated that in order to attain a consistent long term economic growth, a consistent change into the technological advances such as new processes, new goods and new markets etc must take place. (Aghion et. al, 1998).

It has always been believed that high investment and saving rates in any country tend to sustain high economic growth in that country and that coupled with relatively stable economic outlook, a higher saving rate can significantly result into greater economic growth because a larger pool of funds will be available to the firms, in the shape of household savings, that can be utilized to the best possible efficiency.

It is also imperative to discuss here that the trends of saving markedly differ in developing as well as developed countries as developing countries tend to have high saving rates due to relatively smaller propensity to consume of the general masses. Since developing countries do no possess the strong manufacturing base therefore consumption tends to be relatively low as compared to the developed countries and people prefer to save rather than spend. (Aghevli, at. al, 1990)

One of the most important aspects of economic growth is how the saving rates in a country shape and how they with respect to the different economic variables. However, over the period of time, research has also demonstrated that saving rates show a correlation with different economic variables in any given country. Though the same characteristics may be find over some regions however it is still believed that country’s individual characteristics such as demographics, rule of law, public finances, also show some relationship with the saving rates.

It has been also successfully demonstrated that the saving rates are uneven across the countries confirming to the argument that saving rates respond to certain characteristics which may be typical of that country or region however in a study conducted by Hondroyiannis (2006) suggested that “A long-run saving function sensitive to dependency ratio, old dependency ratio, liquidity, public finances, real disposable income growth, real interest rate and inflation is found to exist”(Hondroyiannis,2006) in European countries.

Thus, to some extent, it can be easily inferred that the saving rates in a particular country or a region show some related characteristics and tend to get affected by different so called country specific characteristics however the impact is in long run with little or no impact been witnessed on the short run saving rates within any country. One of the most interesting findings of the research also suggest that the government savings, in any particular country, are not particularly exogenous in nature and respond to the political as well as economic determinants of the country.

(Edwards,1996). This cross country analysis conducted by Edwards strongly suggested that public savings in countries with higher degree of political instability are lower than the countries with relatively stable political situation at hand.


1. Philippe Aghion, Peter Howitt, Maxine Brant-Collett, Cecilia Garcia-Penalosa (1998). Endogenous Growth Theory. New York: MIT Press. 694. 2. George Hondroyiannis. (2006).

Private saving determinants in European countries: A panel cointegration approach . The Social Science Journal. 43 (4), 553-569 . 3. Sebastian Edwards. (1996). Why are Latin America’s Savings Rates So Low? An International Comparative Analysis. Journal of Development Economics,. 51 (1), 5-44. 4. Bijan B. Aghevli, James M. Boughton, Peter J. Montiel, Del Villanueva (1990). The Role of National Saving in the World Economy. New York: International Monetary Fund. 64.

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