Economic growth is one of the goals of every society and it implies a notable increase in income and in the way of life of all individuals in a society.
There are many ways or points of view from which the growth of a society is measured. Investment, interest rates, the level of consumption, government policies, or policies to promote savings could be taken as measurement axes; All of these variables are tools used to measure this growth.
And this growth requires a measurement to establish how far or how close we are to development.
economic growthThe first value that we must take into account is who we compare ourselves to, or which society we will take as a point of reference for an ideal model of growth and development. For this we must consider that growth is not necessarily linked to development, since development includes immaterial aspects such as freedom of thought, religion, intellectual, cultural, access to information and public opinion. To get a clearer idea, for example, China has high rates of saving, per capita income and consumption, excellent access to education at all levels, but its own 1975 constitution describes it as “a socialist state of dictatorship of the proletariat” Thus, many of the normal freedoms in any western country are limited or prohibited for any Chinese citizen.
Also, to qualify a nation as developed, we must include material aspects of access to minimum levels of quality goods and services; a homogeneous measure that captures the well-being of a nation at least in terms of material aspects is the Gross Domestic Product, which measures the value of final goods and services produced within an economy in a given year. In per capita terms, GDP is considered the measure of economic development, and therefore its level and rate of growth are goals in themselves.
Although GDP per capita is a measure of development, care must be taken not to interpret it as development. Development requires that economic progress not reach only a minority. Poverty, malnutrition, health, life expectancy, illiteracy, corruption must be eliminated for proper development. However, these characteristics are generally obtained naturally when the per capita income increases.
It is also necessary to be clear about the concept that GDP per capita is a coefficient of GDP versus the number of inhabitants of a country, which clearly does not imply that if the GDP per capita of a country is USD 5,000, all the inhabitants of that country they receive that amount of wealth.
Regarding level, a low level per capita is an indicator of underdevelopment, and to facilitate comparison between countries, they are often converted to a common unit. Countries with a low level per capita in general have a large population, but to establish the aspects of a country's development it is necessary to consider some aspects related to the very measurement of income, which in underdeveloped countries tends to be underreported with the aim of avoid tax burdens, or tend to contain a large proportion of own consumption which is more difficult to measure.
Using a common unit as a method of comparison between countries brings with it a problem of estimating prices of goods and services not traded internationally, in general the prices of non-tradable goods and services are lower in underdeveloped countries. To explain it better we give the following example: In Ecuador you need USD 4.00 to pay for a haircut and a hamburger; and in Europe around USD 13.00 is required to satisfy the same needs.
The international distribution of income.-
When I study the income distribution of our country and many others, I discover that there is a great deal of inequality. Income differences within a country, even if they appear large, are insignificant when compared to differences between countries. In this way we observe how income is distributed among the nations:
- Poorer countries: Occasionally called underdeveloped, they are those where there is little industrialization, limited mechanization of the agricultural sector, little capital equipment and a low per capita income. In many underdeveloped countries many people live on the brink of hunger, they do not have a surplus to trade, to save or to invest. 27% of the world population earns only 6% of world income. Developing countries: Countries that, being poor, are accumulating capital and developing an industrial and commercial base. Developing countries have a large and growing urban population as well as constantly growing incomes. These countries are in all parts of the world, 17% of the world population lives in these countries and earns 11% of world income. Newly industrialized countries:These are countries where there is a broad industrial base that is developing rapidly and per capita income is growing at an accelerated rate. Some examples of these countries are Trinidad, Israel and South Korea. 3% of the world population lives in newly industrialized countries and earns 3% of world income. Industrial countries: Those that have a large amount of capital equipment and in which people carry out highly specialized activities, which makes them It allows you to earn high per capita income. These are the countries of Western Europe, the United States, Canada, Japan, Australia and New Zealand. 17% of the world population lives in these countries and earn 49% of world income. Rich oil countries: A small number of rich oil countries have very high per capita incomes, despite the fact that they are,in many other respects, similar to poorer or developing countries. These countries have little industry and sell exclusively oil to the world. 4% of the world population lives in these countries and earn 4% of world income. They have a very uneven distribution; Most of the population of those countries have incomes similar to the poorest countries, but a few are among the richest people in the world. Communist and ex-communist countries: About 33% of the world population lives in communist countries or countries. who are in transition to capitalism, the per capita income in these countries varies greatly. China for example is a developing country; Former Communists Romania, Yugoslavia and Bulgaria have incomes similar to those of newly industrialized countries.Thus we see that among these countries there is a great variety of income levels and degree of economic development.
The world Lorenz curve.-
This curve plots the accumulated percentage of income in relation to the accumulated percentage of the population.
LORENZ WORLD CURVE FOR 1985
(See PDF)
If the income is equally distributed, the Lorenz curve is a 45º line that starts from the origin. The extent to which the Lorenz curve moves away from the 45º line indicates the degree of inequality. As can be seen, the distribution of income among countries is more unequal than the distribution of income among families in the United States. 40% of the world population lives in countries whose income represents 55% of total world income. The Lorenz curve indicates only the degree of inequality of average income between countries, but does not reveal inequality within countries.
Strategies to achieve economic growth.-
Economic growth is the sum of many macroeconomic variables that converge to produce an effect of stability, well-being and development for the society that enjoys it. I can add that the union of a lot of work, investment, production, employment and consumption contributes to economic development and therefore to well-being.
At the Ecuador level, the issue of economic growth is part of the mission of our Central Bank, which in its institutional reason says: "Guarantee the operation of the dollarization monetary regime and promote the economic growth of the country," making a clear allusion to the importance for this state institution is the achievement of this variable and therefore its achievement.
In addition, the Central Bank of Ecuador has developed a strategic agenda that links and supports government actions, based on four pillars:
- Economic growth Productivity and Competitiveness New Ecuadorian financial architecture Insertion of the country into the globalized economy
The acceptance of these four pillars has been given because all must be closely intertwined, and that with dollarization, sustained economic growth is achieved with high productivity and competitiveness, applying an adequate financial architecture and an insertion of Ecuador into the globalized economy..
For approximately two centuries the topic of economic growth has become very important among thinkers and scholars of economics. The importance of its study lies in the great relationship it has with other macroeconomic variables, regarding the conduct of economic policies and its impact on the present and future well-being of people. Another matter of great implication is growth in real terms, which contributes to improving the population's living standards, growth standards and the rates that measure it vary from country to country, giving different living standards of a population to other.
These living standards are quantified by the growth rate of the product, which measures the development and wealth of a country from one period to another. In the same way, it allows the comparison between different periods and between several economies.
Growth rate and income levels.-
The growth rate is the way in which the progress or delay that a country experiences in a given period is quantified. It is generally taken in relation to real GDP, and real per capita income; and comparing it between countries.
Poor countries can become rich countries and in fact many countries have done so: examples such as Hong Kong, Singapore, Malaysia, Taiwan and China are clear. They did this by achieving high rates of real per capita income growth over long periods.
Currently rates of the type experienced by the United States are less than moderate. To understand this story, we will use the Harrod-Domar model, which starts by classifying goods into two types: Consumption, that is, those destined to satisfy human needs; and Capital assets, which are assets that produce other assets.
The income generated in production is spent on one of these two types of goods, since the income is paid to households and they only spend on consumer goods, the companies that buy capital goods (investment) also they are a part of income, the unspent part of households or consumed is converted into savings that should go to the financial system. Investment is what generates a future increase in production and this is only possible on the basis of abstinence from consuming by households, who in this way through savings make such investments possible. The figure shows a macroeconomic balance, in which investment demand is balanced with savings.
When the investment is above the levels necessary to replace the capital that is wasting away, then the economic growth is positive. Saving and investment are therefore determining factors for growth, and we will have to differentiate them between internal and external to understand their particular functioning.
The importance of economic growth and its effects on income levels are clearly illustrated, when poor countries have a low growth rate and rich countries have a high growth rate, the gap between the rich and poor widens. For a poor country to catch up with a rich country, it needs its growth rate to exceed the rate of the rich country. In the 1980s, China's per capita income was 14% of the United States, and the United States experienced an average growth rate of per capita income of 1.5% per year. If that growth rate is maintained and if China's per capita income also grows at 1.5% annually, the gap will remain constant. But if China could maintain an income growth rate of double that level, this is 3% per year,China would likely reach US per capita income levels around 2115.
High growth rates have already been reported, Japan grew above 10% per year on average, for 20 years after World War II. So the key to achieving a high per capita income is to achieve and maintain a high rate of economic growth. Today's poor countries will join tomorrow's rich countries only if they can find ways to achieve and maintain rapid growth.
Resources, technological progress and economic growth.-
Altogether, income equals the value of the product. So to increase the average income, a country has to increase its product. A country's product depends on its resources and the techniques it uses to transform those resources into products. This relationship between products and resources is the production function, which includes the three types of resources: Land, Labor and Capital.
- The production per capita (FP) function plots the variation of the product per capita when the capital stock per capita varies. If two countries use the same technology, but one of them has a larger capital stock, the latter country will also have a higher level of per capita income. By accumulating capital a country can grow and move along its production function per capita. The greater the amount of capital, the greater the product. But the basic law of diminishing returns applies to the per capita production function. In other words, by increasing capital per capita, the product per capita also increases, but in decreasing increments. So the extent to which a country can grow by simply accumulating capital has a limit. The technological change that rich countries employ,It makes a difference by using more productive technologies than poor countries, even if they have the same capital per capita, the rich country gets more product than the rich country. A farmer in a rich country could use a ten horsepower tractor, and a farmer in a poor country could literally use ten horses. Each one has the same amount of "horsepower", but the output achieved using the tractor is considerably greater than that produced using 10 horsepower. The combination of better technology and more capital per capita further deepens the difference between rich and poor countries.A farmer in a rich country could use a ten horsepower tractor, and a farmer in a poor country could literally use ten horses. Each one has the same amount of "horsepower", but the output achieved using the tractor is considerably greater than that produced using 10 horsepower. The combination of better technology and more capital per capita further deepens the difference between rich and poor countries.A farmer in a rich country could use a ten horsepower tractor, and a farmer in a poor country could literally use ten horses. Each one has the same amount of "horsepower", but the output achieved using the tractor is considerably greater than that produced using 10 horsepower. The combination of better technology and more capital per capita further deepens the difference between rich and poor countries.
In 1790 the United States and Ethiopia have the same production function. By 1990 technological change has shifted the production function upward in the United States. Per capita income in the United States has increased, in part due to an increase in the capital stock and in part to an increase in productivity that has its origin in the adoption of a new technology.
The faster the rate of technological progress, the faster the upward shift of the production function. The faster the rate of capital accumulation, the faster a country moves through its production function. Both forces lead to an increase in per capita output.
Gross domestic product.-
GDP is the value of all final goods and services produced in an economy in a year, final goods and services are those that are not used as inputs in the production of other goods and services, but are purchased by the end user. Such goods include consumer goods and services, and also new durable consumer goods. When we measure GDP, the value of intermediate goods and services produced is not included.
To quantify the increase or decrease in GDP, the prices of final goods and services that prevailed in some base period are used. An alternative name for real GDP is GDP in dollars or at constant prices.
The real GDP trend increases due to three reasons:
- Population growth Growth of capital equipment stock Technology advances
The rising trend of real GDP is the main cause of the improvement in the standard of living. The rhythm of this upward movement has a powerful effect on the standard of living of a generation compared to that which preceded it. If the trend of real GDP is ascending by 1% per year, it will take 70 years to double real GDP, but a growth trend of 10% per year will double real GDP in just 7 years.
| GDP and real variation of Ecuador | ||
| Year | GDP | Variation |
| 1994 | 18,572,835 | 4.7 |
| nineteen ninety five | 20,195,548 | 1.7 |
| nineteen ninety six | 21,267,868 | 2.4 |
| 1997 | 23,635,560 | 4.1 |
| 1998 | 23,255,136 | 2.1 |
| 1999 | 16,674,495 | -6.3 |
| 2000 | 15,933,666 | 2.8 |
| 2001 | 21,024,085 | 5.1 |
In the Ecuadorian case, to the extent that governments are changed, and whoever takes the reins do so without a clear outline of economic direction, any general policy planning and the agenda of specific problems and policies that it intends to execute, will not immediately resolve the numerous and complex economic-social situations in force; even more so if in four-year presidential terms it is very limited to achieve medium and long-term objectives that favor the growth and sustained development that a country requires. Not even with the good intentions of our rulers can the crisis deepen,What we have managed to do is increase the external debt and mistakenly believe that the only way to finance our eternal deficit is with more debt guaranteed by the International Monetary Fund.
Therefore, it is essential that the rate of growth of the economy be accelerated or increased and that the increase in GDP –which reflects this progress- be achieved at a level of annual rates more significant than the historical ones, from which they do not decrease, if not, on the contrary they are increasing year after year.
Virtuous circle of growth.-
Many economists and students of this social science have concluded that poor or developing countries that seek high growth, development, wealth and well-being of their population should seek or yearn for the so-called virtuous circle of development shown in the following graph:
| ↑ Growth | ||||||
| ↑ C and S | - ▲ | |||||
| ↑ Income | - ▲ | |||||
| ↑ Employment | - ▲ | |||||
| ↑ Production | - ▲ | |||||
| ↑ Royal Inv. | - ▲ | |||||
| ↓% Int. | - ▲ |
- A low interest rate makes it attractive to access credits that promote production and the reactivation of depressed sectors. In addition, low interest makes it possible to have more resources available for consumption, saving or investment. Real investment increases with more favorable rates for the start of resource-generating activities. When real investment increases, the production of economic resources increases. employed by the new capital stock. Therefore we have more employment sites generated because new labor is required to use in the new production. With more employment the income of the family units will increase. With an adequate income consumption will It stimulates, and in the same way if there are surpluses these will be destined to savings.This saving is channeled to the financial sector and in turn returns to the virtuous circle as a credit generating more investment, employment and consumption.
Economic policy and growth.-
The preliminary results of the case studies of the East Asian economies, Chile, the Dominican Republic and El Salvador, allow us to identify some elements that are crucial for the economic growth of Ecuador. The main policies focus on the following reforms, which are:
- Stick to transparent rules to support real fiscal discipline: It seeks to set limits on the public sector deficit and the level of indebtedness. Establish restrictions that prevent modifying the approved budgets of the public sector to avoid expenses without adequate financing. Manage the public sector budget with total transparency, providing the society with timely and disaggregated information regarding the obtaining and use of public funds. In addition to carrying out periodic and random audits of public entities, look for anti-cyclical stabilization mechanisms: Create fiscal stabilization funds to automatically save surpluses from favorable circumstances. Said savings would be used to: a) sustain public spending in times of low income,b) activate extraordinary expenses to deal with situations of catastrophe and / or linked to a recession, c) to pay debt. In the banking sector, establish provisioning policies tied to credit growth (the higher the growth, the greater the provision.) Additionally, it would be convenient to stimulate the participation of international banks in the local financial system to promote competition and enable the transfer of funds from the parent companies to the domestic market Create social protection networks: Grant direct transfers or subsidies to the population in extreme poverty. These payments could be made in the form of cash, nutritional supplements, free medical care, and school meals to incentivize children to stay in schools. In a recessionary situation,A debit from the resources of fiscal stabilization funds can be automatically activated to finance public work projects with a high labor component and / or certain direct transfers (unemployment insurance). Reform of the educational system: Decentralize public education at the primary level and secondary, giving parents and communities a voice in evaluating the quality of teachers and managing the public funds assigned to the campus. Intensify the use of computers and the Internet in public schools and colleges. Establish public nurseries for low-income children. In universities, establish a differentiated pension system and provide direct financial support to low-income students based on their performance.Increase the progressivity of the tax system: Promoting the concept of transparency as a key element, on the collection and expenses of the public sector. If you want to lend legitimacy to the collection, it is necessary that the taxpayers have a clear knowledge of their payments and the benefits they receive from them (what they are used for). Furthermore, it is necessary to make the system fairer by distributing the weight of the load. tax on the groups with the highest income / assets. It is important to make a good control of the taxation of independent workers and create incentives for the formalization of businesses that are not legally registered. As a complement is the redistribution of income through efficient management of public spending, in this sense the state must comply with a minimum of spending on health,support programs for children, education, infrastructure and transfers that benefit the low-income population strata. Support small businesses: Seek to channel credit to small and medium-sized businesses without access to banking resources. From the point of view of regulation and supervision, fewer requirements in terms of provisions and capital requirements, and different debtor rating methodology. Increase competitiveness: Competitiveness is based on improvements in productivity (real cost reductions) and in improving the quality and variety of the goods and services produced. Both cost reductions derived from increases in productivity and increases in the quality and variety of goods and services,They help generate greater consumer satisfaction and facilitate the insertion of a country into the world economy.Increase the productivity of the different productive sectors: The productivity levels of 40 branches of activity of the Ecuadorian economy reveal that the country's competitive advantage From the point of view of the levels of efficiency that currently exist, it would be in the sectors of forestry, extraction, production and processing of wood products, with which these sectors could constitute a gear of productivity. Other activities of high relative productivity are shrimp farming, other animal husbandry, production, processing and preservation of meat and meat products, as well as the processing and preservation of fish and fish products. Finally the cultivation of bananas, coffee and cocoa,It is another relatively more productive segment within the Ecuadorian economy. Seek alternative mechanisms of management of less efficient public companies through joint venture schemes. Give permanence to our international markets through commercial and financial activities: Giving added value. to what is produced in Ecuador, promoting the good name of products of Ecuadorian origin. Commercial activities would be increased with an efficient team of negotiators who support within the Ministry of Foreign Trade the business, craft and commercial activities of all Ecuadorians. Contribute to the creation of a solid financial system: With clear rules and the entrance of international banks,greater competitiveness and low interest rates would be sought to promote productive activities, always seeking support for those with high levels of competitiveness and productivity.
Sustainable human development.-
Seeking sustainable human development is an aspiration that many economists have pursued, and achieving it might seem like an utopia worthy of an epic, very difficult to achieve, but not impossible. Human development is cataloged or distributed in three large groups that are:
- High human development Medium human development Low human development
Ecuador belongs to the category of Medium Human Development, and to illustrate a little the top five places according to this index promoted by the United Nations Development Program in 2001 are:
- CanadaNorwayUnited StatesAustraliaIceland
Human development is closely linked to the individual, that is, to the extent that production, productivity and employment are taken as priorities, in addition to an adequate system of redistribution of state income to those with lower incomes, strengthening social security systems, basic services, health and education; the individual and the general population will have a greater benefit and assistance from the state, and consequently development and well-being.
Making it sustained implies that in the same way as the virtuous circle of the economy was explained, the same factors that contribute to development are prioritized in our economic cycles. That our leaders respect a plan for the social development of the population and the strengthening of the state designed for a 20 or 30-year term, and that any president stick to that plan respecting its basic principles, which should be:
- Prioritize social, educational and health spending. Promote policies to promote new companies and investment. Limit budgetary spending, promoting public investment. Access to new technologies. Creation of educational and technological innovation centers. Help to strengthen a real identity Ecuadorian culture. Being spokespersons for the real change we need, promoting the good choice of our rulers.
Conclusions.-
The new economy requires rapid adaptation to change. These take place very quickly and therefore we must be prepared to be able to grow as our own needs require.
As we previously analyzed the growth that we obtain through the production that we must increase, the fair and useful competition of our economy, the adequate redistribution of state income, the importance that the state gives to the population and the productive sectors, becoming aware that more debt will never bring us growth, and above all the change of attitude that we Ecuadorians need, must be aimed at achieving the development of our country and that of our children, together with adequate policies for the democratization of society we will get a better feeling of wellness.
The social aspect must be a priority for the government, changing the percentages destined for the Armed Forces and External Debt, and reverting them to Education, Health and Public Investment. In addition to strengthening the external sector with long-term policies and plans that encourage foreign investors to create sources of employment and increase income.
In Ecuador we must start by choosing our rulers better. On the path of our existence we have history and it must be a reference to the past, to achieve change we must change ourselves. Poor peoples are by nature poor in thought and aspiration.
In order to achieve the long-awaited stability that Ecuadorians seek, it is necessary that the institutions in charge of judicial control, politics, government, businessmen and all of us who feel involved in the issue of improving our country must achieve a point of theoretical balance where The best ideas of our compatriots converge without there being any interests for which personal benefits arise, seeking the well-being of all Ecuadorians and creating development plans for at least 20 to 30 years.
For this reason, the joint work of governments and those in charge of executing the laws is necessary, who together with the private sector, so that products can be implemented and developed in the appropriate environment that they provide to citizens, entrepreneurs and anyone who seeks development, sufficient guarantees regarding job and employment security, trade in all its forms, transfers of goods and services, and all financial transactions in general, leaving aside the lack of knowledge and application of the law, whose neglect, abuse, omission or lack of knowledge lead to the deterioration of the economy and society.
BIBLIOGRAPHY.-
- ECUADOR CRISIS AND GROWTH, Sierra Enrique and Padilla Oswaldo, 1996MACROECONOMICS, Parkin Michael, 1996MONTHLY STATISTICAL INFORMATION, Central Bank of Ecuador, 2002INTRODUCTION TO MICROECONOMICS, Sloman John, 1998MICROECONOMICS, Parkin Michael, 1997ADMINISTRATION AND FINANZAS, Rosenberg, Gates Bill, 1995.HARVARD BUSINESS REVIEW, Harvard Business School, 1998-1999.CONSULTORIAS, New Paradigm Learning Corporation, 1996.
According to Marx, a salaried class exploited by the capitalist, which allows it to obtain benefits and economic control of society.
GDP per capita is the division of GDP generated in one cycle for the total population of a country.
National income divided by the total population of a nation. It is frequently used as a measure of living standards in developed countries. In the underdeveloped, the national income is usually very poorly distributed, so the use of the measure of per capita income is practically meaningless.
This method is called the exchange rate. In this way, it can be seen that the income of Switzerland, for example, is 400 times that of Tanzania, the poorest country on the planet.
Use of goods and services for the satisfaction of human needs.
Heston and Summers in their Penn Tables correct this comparison problem for a group of countries using the concept of Purity Power Parity. The real exchange rate or PPP is defined as the ratio between the Price of Non-Tradable goods and services and the Price of Tradable goods and services.
A communist country is one in which there is limited private ownership of productive capital and companies; The economy relies to a limited extent on the market as a means of allocating resources, and government entities plan and direct the production of goods and services.
Total compensation received by a worker over a period of time, as compensation for services rendered or work performed.
Feeling of predictability, control and certainty in an economy or organization.
Production efficiency measure. Ratio between production and production factors (for example, ten units per man and hour of work).
It is the ability to produce high-quality goods and services efficiently. It is underpinned by improvements in productivity, and improvements in the quality and variety of goods and services produced.
The growth rate is a percentage coefficient of the increase or decrease in real GDP, comparing the last year versus the previous year. This comparison should always be made at actual values.
Acquisition of means of production. By extension, acquisition of capital to obtain an income.
Amount of income not spent on consumption.
Real assets, equipment, buildings, tools, and other manufactured goods, used in production and owned by a family, business, or government, are called.
So called the set of methods that help convert available resources into goods and services.
Technology usage information showing production that can be obtained with routine specific production factors.
Final goods can be soft drinks and cars, final services can be insurance or haircuts.
Goods and services to be transformed for the production of other goods and services.
A country's level of wealth as measured by per capita income.
In budgetary terms, when the total expenses and expenses are greater than the income, there is a deficit or gap to cover.
The amount received by the person or families is called as payment for the services rendered, or the profit received from the sale of a good or service.
Generally, the difference between Income and Consumption is called. In the National Income accounts, Savings are measured as Disposable Income (Income less taxes) less consumption expenditure.
With the approval of the Fiscal Responsibility, Stabilization and Transparency Law, a fund has already been established to distribute over time the oil revenues generated through the heavy crude oil pipeline (OCP) and the surplus oil revenues over budgeted revenues. Other sources of savings (not oil) would potentially serve to fuel other funds.
They are known as subsidies or social benefits, generally perceived by the poorest sectors of society.
Effective competitiveness is the ability to produce high-quality goods and services efficiently. This definition is consistent with the concept of "systemic competitiveness", according to which the national consensus regarding the development model to be followed, the stability of the macroeconomic environment, and the proper functioning of companies and their environment are the determining factors for achieving high levels of competitiveness.
English name that refers to a business association and joint venture. It is a commercial company made up of two or more people, which differs from a society in that it is carried out for the completion of a specific project.
Increased value of a product or service, experienced in its production or distribution process.
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