Economic Growth :Importance of Education and Technological Development

FOREWORD The purpose of this paper is to examine the lessons economists have learned about economic growth and development, particularly the lessons from crosscountry comparisons. The paper then asks how these lessons can be applied to regional/state growth and development within the United States. As it turns out, the similarities between countries and regions are many. Definitions of growth, as defined in the jargon of economics, are important because terminology should be consistent with common usage in the profession. From there, key conclusions are drawn and applied to regional growth. The rate of change of real gross domestic product (GDP) per capita, or real GDP per employee when data are available, is always used by economists as the proper unit of measurement when comparing the growth rate of an economy over significant spans of time or across locations. It is important that GDP be measured in " real " terms to eliminate the influence of inflation. And it is important to measure growth in per capita terms to eliminate the influence of differential population growth across time or locations. Growth used in this context is a measure of the productivity of the economy and it is the driver of real living standards. Although it is sometimes used as a unit of measurement in the popular press, increases in nominal GDP or personal income, without controlling for the effect of inflation and population growth, actually have no meaningful interpretation in these regards. Improvements in real GDP per employee have a corresponding interpretation as improvements in real living standards and are tightly correlated with improvements in real wages. Indeed, without productivity improvement, there are no improvements in living standards, on average. A comparison of growth rates across countries over a long historical span reveals that small differences in growth rates can have a very large impact on achieving high standards of living. As with countries, regional growth (real output per capita of the region or the state) leads to increases in regional real wages and income. Quite obviously, understanding the determinants of growth has great purpose. Why do some countries remain trapped in poverty? How do countries " catch up " to the economic leaders? How can economic leaders maintain leadership? Growth and development occur in stages. Countries can persist in poverty for decades, even centuries. Once development begins, however, it proceeds in similar ways across countries: • In the pre-growth period, …