Introduction
Ways of Thinking about Economic Growth
Author: Roger Procter (Ministry of Economic Development)
In February and March 2004, the Ministry of Economic Development ran a series of seminars on a number of different ways that economists have of thinking about economic growth. Each paper of this Occasional Paper presents the paper associated with one of the seminars. The presentation in this Occasional Paper is non-technical and non-mathematical, so it should be accessible to someone without much economics training.
The purpose of the seminar series was to expose analysts to a range of ways of thinking about the processes underlying economic growth. This purpose implicitly admits that there is no single "right" model, or way of thinking, about the factors driving growth. The growth process is context dependent, reflecting each country's institutions, endowments, individuals, firms, geography, and interactions with others beyond the country. The reason that there are different ways of thinking about economic growth is that the economy is a complex system, and part of a broader and even more complex world-wide socio-economic system. For example, what you and I choose to do tomorrow will have a (probably minute) impact on how the economy behaves. As a result, to understand a particular economic phenomenon, we must abstract from irrelevant details, so we can better focus on issues that are most relevant to the phenomenon that we are interested in. That is, any way of viewing the economy that is tractable and useful is inevitably a simplification or a "model" of the real system that we are dealing with. As the famous industrial statistician, George Box, is supposed to have said, "all models are wrong, some are useful".
In this sense, none of the views of economic growth presented here are "right", but they are all useful. Each is useful in different circumstances. By understanding them all, we can form a richer view of how the economy behaves and how economic growth occurs. This allows us to form a judgement about which is most useful to the policy problem we have at hand.
This set of papers is being published now to form a companion piece to MED Occasional Paper 08/08 which outlines how the editor thinks about economic growth and policy for influencing economic growth.
The first paper, by Brian Easton, presents an historical overview of the New Zealand economy outlining key developments from the perspective of economic growth. The following three papers present three different models of, or ways of thinking about, economic growth. In the final paper Arthur Grimes summarises how he interprets these four papers. In the companion MED Occasional Paper 08/08, I have outlined how I think about economic growth and policy for influencing economic growth.
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