ECO 1
Why do they grow at
Reviewer
ADAM SMITH – Father of modern Economics
SOLOW – proposed the “re-discovery” in 1950s
QUALIFIED LABOR – laborer that are considered
to have creative mental labor.
CREATIVE MENTAL LABOR - has an unlimited
ability to introduce new technologies which
secure the introduction of “new products”
and/or “new methods of production”.
- The higher the quality of labor, the
higher the potential to produce new
technologies.
- Technological progress is product of
creative mental labor.
- Growth is a continuous process because
of creative labor
CLASSIFICATION OF COUNTRIES
- Well-developed counties
- Developed countries
- Developing Countries
- Underdeveloped countries
*growth that are produces internally –
exogenous
*growth that are produced externally -
endogenous
SUMMARY:
- Technologies are produced by
“creatively” QUALIFIED LABORERS
- Technologies are used by QUALIFIED
LABORERS
- Long-run growth cannot be sustained
without QUALIFIED LABORERS.
Why do countries grow?
different rate?
-
TWO TYPES OF ECONOMIC GOODS
Consumers good - no need for further
production, readily consumable
Producers goods – goods used in further
production or used in making new and finish
products.
Due to “new” technologies, the
productivity per laborer and societal wealth has
been continuously growing. In spite of many
serious environmental problems, nature still
provides us with various raw materials which
qualified labor can turn into new products and
new production methods. As long as the
creative mental labor ability of human brain and
natural resources do not exhaust, growth and
development will continue.
ALL ABOUNT GROWTH
Definitions of Growth
I. Parasiz – Growth implies an increase in the
political full employment output in time.
Hatipuglo – growth means an increase in the
national Income of the developed countries.
Ustunel – described growth as an increase in
the productive capacity of a country
Lipsey – growth implies long-run changes in the
per capita factor productivity.
Minasali – growth means an annual increase in
the Gross Domestic Product.
GROWTH DOMESTIC PRODUCT – are those
products & services produced within the
particular country regardless of the citizens of
that country.
GROSS NATIONAL PRODUCT – Product and
services produced inside the Philippines,
regardless of the citizens and products and
services produces outside of the by a Filipino
Citizen.
GROSS DOMESTIC INCOME – Income earned
within the Philippines regardless of the
Citizenship.
GROSS NATIONAL INCOME – Income earned
within the Philippines and Filipinos abroad.
PANACEAS OF GROWTH IN PER-CAPITA
INCOME:
1. High Rates of Physical Capital
Investment
2. Human rapid capital accumulation – If
the person or human will accumulate
either on form of physical or facilities it
will help the growth process
3. Low-income inequality – The gap of rich
and poor must not be very wide. If
kaunti ang yayaman, the economy will
grow slowly.
4. Low fertility – if there is low fertility, the
rate of population growth will slow “less
population, the faster the economy will
grow,”
5. Being located far from equator
6. A low incidence of tropical diseases
7. Access to the see
8. Favorable weather pattern
9. Hands-off governments
10. Trade-policy openness
11. Capital-Market development
12. Political freedom
13. Economic freedom
14. Ethnic homogeneity
“SAVINGS = INVESTMENT” PARADOX
Two kinds of Production:
- Production of consumers goods
(consumption)
- Production of Investment goods
(savings)
Adam Smith suggested, the amount of
investment was determined by the amount of
savings. In order to obtain a greater income, the
capitalist should invest his/her savings and
acquire more profits.
S=I
According to contemporary understanding total
savings in a country ewauls the sum of total
public and private savings. In other words, total
savings (S) is equal to a nation’s income (Y),
minus consumption (C) and government
expenditures (G) S= Y – C – G =I
The source of technological progress which is
the major determinant for long-run growth is a
product of “creative mental labor”. In the
absence of “creative mental labor” there would
be no innovations at all. In other words, the
origin of the long run growth is the creative
capability of the human mind endowed with
skills, talents, and education which are referred
to, mistakenly, by some economist as “human
capital”.
RELATIONSHIP BETWEEN THE LABORER –
TECHNOLOGICAL PROGRESS AND GROWTH
Two types of labor:
- Intellectual/mental labor
- Simple physical
Physical labor – has a limited contribution to
growth process or to adding value.
Simple Physical labor – merely a response to
orders from the brain.
Intellectual/Mental labor – use of brain.
When we consider the result of this
aspect of brain’s activity in regard to economics,
we can say that the brain produces “productive
knowledge”, and this happens continuously.
*Productive knowledge produces technology.
*Technology came from mental labor.
If “mental labor” had not led to a continuous
technological progress over the past millennia,
we would be fireless, wheel-less, car-less and
any other less you want to add.
WHAT ROLE DOES INVESTMENR PLAY IN
REGARD TO TECHNOLOGY AND LONG-RUN
GROWTH?
Considering technology and investment
as independent factors is bound to lead to
problems. In the absence of new technologies,
the growth process would stop in the long run;
simply because the new investment
opportunities which lead to new and increased
profit opportunities would become exhausted.
To Sum up:
 The source of long-run growth is
technological progress
 The source of technological progress is
“qualified labor”.
ACCESS TO AND THE USE OF TECHNOLOGY
It is assumed that everybody can access this
technology without restrictions, but in reality,
technology is not everyone can access
technology and with restrictions.
Technology is a non-rival good which can be
used by anyone.
Once new technology is produced, the marginal
cost of re-using it is zero.
Technology – is a body of knowledge related to
production.
Marginal cost – cost from surplus.
Patent law – giving recognition and protection
to anybody who invented a particular invention,
and anyone cannot use it without approval from
the government.
Monopoly – when only one seller is producing
and selling a particular product.
After new technology comes on the scene, two
things can happen:
 Some competitors will develop a similar
but slightly different new technology.
 They purchase or lease the right to the
patent technology.
Who has the potential to compete in the open
market?
- Only those who has money for
investment.
- The producers or entrepreneur with
money because these producers have
access to qualified labor and advance
and scientific technological
infrastructure.
LABORER, KNOWLEDGE AND GROWTH
Labor inputs have been basic resource
in long-run economic growth and in the
increase of wealth in communities for aeonian.
The rate of growth and accumulation of
knowledge accelerate during the industrial
revolution.
Today the advent of new communication
technologies, both production and availability
of information and knowledge have
accelerated.
QUALIFIED LABOR OR “HUMAN CAPITAL”
What is qualified labor?
-the basic qualification that the laborer gains by
means of formal, informal education or training,
enhanced by experience.
Human capital – refers to humans, or more
precisely, labor force.
- Refers to knowledge, skills, and
experience of the laborer.
CREATIVE LABOR AND GROWTH
The existence of qualified labor is not sufficient 1. Mental labor – most important
to secure long-run growth. factor.
2. Natural talents – talents that an
Long-run growth can only be sustained by
individual possess.
introducing new technologies, to introduce new
3. “general” knowledge level –
technology, we need creative laborers.
4. formal- informal education and
“for the long-run growth, the most important training –
factor is creative qualified laborers. 5. Learning by doing experience –

UNQUALIFIED LABOR OTHER FACTORS HAVING AN IMPACT ON

GROWTH
- It refers to the uneducated, unskilled,
and inexperienced laborers.
TECHNOLOGICAL PROGRESS AND GLOBAL
ECONOMY
We can divide firms into:
- The creators and owners of technology
- The users of available technology.
Firm capable of creating new technology are,
generally based in the developed countries.
1. The institutional infrastructure – the
governance, regulation, banking
system, competition, etc.
2. The cultural Infrastructure –
entrepreneurship, tradition, societal
expectation, etc.
3. Competitive condition –
4. Economic and Political stability –
5. Financial resources -
6. Natural resources -

The reasons are:

- Availability of qualified laborers

- Appropriate scientific-technological
infrastructure
- Convenient institutional-cultural setting.

The users of available technology are those

enterprise in the developing countries.

The reason for these developmental

differences:

- Insufficient number of qualified

laborers.
- The way technology can be used in the
global market.

IS IT POSSIBLE TO MEASURE THE

“QUALIFICATION LEVEL OF QUALIFIED
LABORER” ACCURATELY?

5 Factors that can affect the level of

qualification of the labor force.