Economic growth

[14] Economic growth has traditionally been attributed to the accumulation of human and physical capital and the increase in productivity and creation of new goods arising from technological innovation.

[16] Before industrialization technological progress resulted in an increase in the population, which was kept in check by food supply and other resources, which acted to limit per capita income, a condition known as the Malthusian trap.

[23] Other major historical sources of productivity were automation, transportation infrastructures (canals, railroads, and highways),[24][25] new materials (steel) and power, which includes steam and internal combustion engines and electricity.

[28] Following the Great Depression, economic growth resumed, aided in part by increased demand for existing goods and services, such as automobiles, telephones, radios, electricity and household appliances.

[48] Many theoretical and empirical analyses of economic growth attribute a major role to a country's level of human capital, defined as the skills of the population or the work force.

The most commonly-used measure of human capital is the level (average years) of school attainment in a country, building upon the data development of Robert Barro and Jong-Wha Lee.

[55][56] Theodore Breton shows that the correlation between economic growth and students' average test scores in Hanushek and Wößmann's analyses is actually due to the relationship in countries with less than eight years of schooling.

Thus health in a broader sense is not the absence of illness, but the opportunity for people to biologically develop to their full potential their entire lives [59] It is established that human capital is an important asset for economic growth, however, it can only be so if that population is healthy and well-nourished.

Ultimately, when people live longer on average, human capital expenditures are more likely to pay off, and all of these mechanisms center around the complementarity of longevity, health, and education, for which there is ample empirical evidence.

[65][66] Much of the literature on economic growth refers to the success story of the British state after the Glorious Revolution of 1688, in which high fiscal capacity combined with constraints on the power of the king generated some respect for the rule of law.

Thanks to the underlying homogeneity of its land and people, England was able to achieve a unified legal and fiscal system since the Middle Ages that enabled it to substantially increase the taxes it raised after 1689.

[74] According to Hernando De Soto, unclear property rights limits economic growth, as people cannot use land as collateral to secure loans, depriving many poor countries of one of their most important potential sources of capital.

For instance, former colonies have inherited corrupt governments and geopolitical boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts that hinder development.

[77] In Why Nations Fail, Acemoglu and Robinson said that the English in North America started by trying to repeat the success of the Spanish Conquistadors in extracting wealth (especially gold and silver) from the countries they had conquered.

The Malthusian theory also 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.

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.

[15][99] This model was notable for its incorporation of human capital, which is interpreted from changes to investment patterns in education, training, and healthcare by private sector firms or governments.

Notwithstanding the implications this component has for policy, the endogenous perspective on human capital investment emphasizes the possibility for broad-based effects which can be realized by other firms in the economy.

[104] While intellectual property may be important, Baker (2016) cites multiple sources claiming that "stronger patent protection seems to be associated with slower growth".

In particular, Galor and Zeira argue that since credit markets are imperfect, inequality has an enduring impact on human capital formation, the level of income per capita, and the growth process.

In the initial phases of industrialization, when physical capital accumulation was the dominating source of economic growth, inequality boosted the development process by directing resources toward individuals with higher propensity to save.

The reduced form empirical relationship between inequality and growth was studied by Alberto Alesina and Dani Rodrik, and Torsten Persson and Guido Tabellini.

Andrew Berg and Jonathan Ostry of the International Monetary Fund, find that "lower net inequality is robustly correlated with faster and more durable growth, controlling for the level of redistribution".

"[138] Critics such as the Club of Rome argue that a narrow view of economic growth, combined with globalization, is creating a scenario where we could see a systemic collapse of our planet's natural resources.

The argument, as posited by commentator Julian Lincoln Simon, stated in 1981 that if these global-scale ecological effects exist, human ingenuity will find ways to adapt to them.

He says that major transformative changes will be needed "akin to, or even greater than, those of the Marshall Plan," including abandoning GDP as a measure of economic success and societal progress.

"[157] In 2019, a warning on climate change signed by 11,000 scientists from over 150 nations said economic growth is the driving force behind the "excessive extraction of materials and overexploitation of ecosystems" and that this "must be quickly curtailed to maintain long-term sustainability of the biosphere."

[165] As a consequence, growth-oriented environmental economists propose government intervention into switching sources of energy production, favouring wind, solar, hydroelectric, and nuclear.

[171][172] Resource quality is composed of a variety of factors including ore grades, location, altitude above or below sea level, proximity to railroads, highways, water supply and climate.

[182] 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.