consequences+of+growth


 * 1. externalities**

Externalities are the consequence of an economic activity that spills over to affect third parties. As economic growth occurs, this can also lead to an increase in manufacturing industries, depending on what the country is focusing on. Increases in manufacturing, such as steel and chemicals is known have harmful waste products, which are more than often poorly disposed and contaminate the environment. Contamination of environment creates a marginal social cost which is higher than the marginal private cost, as society must pay in the form of increased illness, and contaminated food. Thus, here is an example of a product of increased economic growth resulting in a loss of economic development. (sameet) (source: textbook)

I think that as a country develops, there are three stages of the negative externality of pollution (this is just me thinking about it). First, a country with no development would be pretty rural with not much technology, right? So they wouldn’t have much of an externality in the beginning, they wouldn’t produce much pollution, as there wouldn’t be that many cars or anything- bikes would be more popular. Electricity wouldn’t be available everywhere. But then, as a country develops, they would create lots of factories and introduce all this electricity and car stuff- the things that create pollution. They would probably make them as cheaply as they can, or with a lower quality than ones that would run quite efficiently or more environmentally friendly. So then a country in the progress of developing would have a large negative externality. Finally, as a country develops further, they stop trying to expand a lot and focus on an increased efficiency, and so they lower their negative externality a bit. Yeah… (Adrienne)

I agree with Adrienne, it seems that with economic growth comes a cost to economic development; this is particularly prevalent in countries that are beginning the implementation of heavily polluting refining or manufacturing businesses. Ideally, countries that are beginning to develop rapidly in the 21st century should observe current MEDCs, and the problems they face regarding pollution etc, to avoid these issues. This may mean a slower initial development, but I think that sustainability (in terms of energy amongst other things) is going to be the key for a country’s survival in the next fifty years. (Jonathan)

Kavya: Monique: The //Kuznets Curve// formulated by Simon Kuznets in the mid 1950’s resembles an upside down “U”. Personally I believe that the //Kuznets Curve// is a better proxy of income inequality because it takes into account the other factors that are affected. Say perhaps more people transition from low-productivity agriculture to the more productive industrial sector. If this occurs and continues, Kuznets is sure to mention that the “urban-rural gap is reduced and old age pensions, unemployment benefits and other social transfers” reduces inequality.
 * 2. Income distribution**
 * Critical determinant of growth duration
 * o More inequality seems associated with less sustained growth
 * Some inequality is essential to the effective functioning of a market economy and the incentives needed for investment and growth
 * o But too much destroys growth
 * Inequality can amplify the financial crisis, bring political instability, which can discourage investment
 * o Make it harder for governments to make raise taxes or cut public spending to avoid a debt crisis.
 * o Reflect poor people’s access to financial services, which gives them fewer opportunities to invest in education and entrepreneurial activity.

The //Heckscher-Ohlin-Samuelson// theorem bases income inequality on the country’s involvement in international trade and uses the skilled-unskilled wage ratios to determine the rise or decline of income inequality. From this, I believe that one factor (wages from international trade) is not sufficient to determine a country’s income inequality. One must also think of an unrelated trade force that could be improving or harming the country’s income inequality. Perhaps, the trade union has less power in controlling the trade policies; this could definitely affect the ratio between skilled-unskilled wages.

A Lorenz curve can be used to graphically represent the distribution of income within a nation. The line of perfect equality is at 45 degrees, where all the income would be evenly distributed in a country. The Lorenz curve deals with percentiles and the Gini coefficient is the area between the line of perfect equality and the Lorenz curve that is observed in a nation. (Jonathan)

Source: []

Factors which can cause the gap between the rich and the poor to shift:
 * In rich countries, technological change increases the demand for highly skilled workers but it decreases the demand for less skilled workers. Thus the relatively rich skilled workers get richer, where as the poor less skilled workers get poorer.
 * The countries fiscal policy: Some countries use a progressive tax in an attempt to distribute wealth, the money gained from taxes is used for public facilities such as schools and hospitals which poorer people are more likely to use. Other countries may not use this tax system to encourage a private economic climate. This will have the opposite effect and increase the gap between rich and poor.


 * 3. Sustainability**

Sustainable development is development that meets the current need of the world without damaging the ability of future generations being able to meet their own needs. However needs can be defined differently for some needs are not rated as important by companies trying to improve development. For example living comfortably vs. living on the streets, needs are not considered to be things like iPods. (zoe)

I think sustainability is directly linked to long-term development. There is the current problem of oil- and if oil were to be completely depleted really soon, then a lot of companies would fall. All resources are depletable- so I’m not sure what the final solution would be- unless it was like Star Trek where they could just use the same energy to create a variety of goods. (Adrienne)

Certain countries may be developing at pleasingly rapid rates but the issue of non-renewable resources (being used up before they can naturally be replenished) remains due to the over-consumption that can be associated to economic growth. (Jonathan)

Samantha : Over consumption is depleting our renewable resources. Economic growth can be a threat to the environment and damage sustainability. Green National Income Account
 * Ex: destruction of rain forests, over-exploitation of fish stocks, loss of natural habitat
 * Reduce global resources
 * Global warming
 * Increase in waste production
 * Over-population
 * Pollution
 * Species extinction
 * National income accounts have just now made adjustments to take into consideration the environmental impact of economic growth.
 * Not taken into account in the GDP:
 * no explicit allowance is made for environmental depletion
 * correcting environmental damage

Economists working to develop a system that makes an allowance for the impact of the economy on the environment


 * (zoe)They are some methods to measure the sustainability
 * The Index of Sustainable Economic Welfare (ISEW) – this helps include special allowances to correctly adjust the official net growth. These allowances include money spent on clearing up environmental damage etc. These adjustments give a more realistic view of a country’s actual growth.