LEO-Irabor Joshua Consequences of Economic Growth

Learning Goals I will be able to know the difference between short term economic changes and economic growth. I will be able to identify the positive and negative consequences of economic growth. I will be able to understand market incentives. I will be able to understand regulation. I will be able to evaluate and analyze the proposals (market incentives and regulation) to reduce the negative consequences of growth. I will be able to pick a side between regulation and deregulation.

What is economic growth? Economic Growth can be referred to as the long term increase in the production potential of a country. It is the increase in the number of goods and services produced in a country over a period of time. Growth rate is usually measured in real terms i.e inflation – adjusted terms.

Long run Economic growth is different from Short run economic changes.

Consequences of Economic Growth A consequence is anything that follows as a result. The consequences of economic growth can be divided onto the positives and the negatives. Positives Employment Increases Higher Incomes and Welfare Higher Government Revenues Improved H.D.I Negatives Unequal distribution of income Resource Depletion Negative Externalities

High Employment Rate and Income income labour D1 D2 S As result of economic growth, Companies in the macro economy enjoy economies to scale More of goods and services are being produced so companies begin to employ more workers More workers mean more pay (the demand curve shifts to the right)

Higher Government Revenue “Higher economic growth leads to higher income per capita and thus higher tax revenues for government while holding everything else equal. Increased tax revenues make it easier for government to maintain and to build social capitals that enhances welfare of society. Higher tax revenues also enable government to provide free or heavily subsidized education, healthcare, community facilities (libraries, sport halls, swimming pools, parks, etc.), clean running water, sanitary public toilets, public transportation, roads and irrigation system.

Improved H.D.I Economic growth goes a long way to improve the standard of living of individuals in a macro economy. It leads to High life expectancy It leads to high literacy levels Creates higher standards of living In total economic growth leads to an improvement in the Human Development Index of a macro economy

NEGATIVES

Unequal Income Distribution The trickle down effect is used to describe this negative consequence of economic growth. The trickle down effect of economic growth describes growth in the economy as rain drops. It will get to the top first before the bottom. At times, the rain drops may not even get to the bottom. Practically, the rich enjoy more from the growth in the economy leaving the poorer few helpless. The capture more from the growth and leave very little from it to the poor. This continually increases the divide between the rich and the poor.

Resource Depletion. One of the major factors that promote economic growth is the presence of natural non – renewable resources such as oil, gold, iron et al. In the far future, there will be no more non renewable natural resources for the production of good and services.

Negative Externalities We understand negative externalities to be the side effects or some cost of a productive process that is experienced or paid by a third party who does not participate as either a consumer or a producer in a business activity. Examples of negative externalities include: Oil Spills Traffic Congestion Toxic Waste Dumping Greenhouse gas emissions Noise generation

Sustainable economic growth Macro economies understand that economic growth is important and must be achieved efficiently. Macro economies also understand that economic growth has disadvantages but also understand that they could be prevented. Continually accumulating negative consequences of economic growth will only hinder the future growth of the country. This is the reason why macro economies try to have ensure sustainable economic growth. Sustainable economic growth is the long term increase in the production potential of a country along with a diligent effort to reduce the negative consequences of economic growth.

Market Incentives and Regulations These are the tools that macro economies use to promote stable economic growth. Incentives are anything that motivate you to perform an action. There are different types of incentives such as renumarative or financial incentive (market incentive), moral incentive, coercive incentive and natural incentive. Market incentives are used to promote economic growth. Examples of such include Tax holiday Reduction in tax rates. Increased grants and loans by government to young industries and entrepreneurs. Tax reforms Market Incentives

Regulations are polices which are imposed by the government of a country to check the negative effects of economic growth.Regulations Some examples of regulations include: TargetRegulation To check over population Restriction on the amount of foreign skilled labour that comes into the economy To check Pollution Complete ban on the use of certain chemicals for production (e.g Chlorine in bleaching pulp for paper) Setting emission standards for automobile companies (e.g Ontario’s Drive Clean program To check resource depletion Putting a limit to the number of fish that can be caught Putting a limit to the lumbering activities in a country

Other measures to promote sustainable economic growth include: Technological Policies Human Capital Development Increasing competitiveness and Contestability Infrastructure Deregulation

Class Activity Regulation Deregulation VS

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