Economic Growth: Qualitative Measure of Progress - Essay Sample

Introduction

According to the business dictionary, economic growth is "Qualitative measure of progress in an economy." Ivic defines economic growth as" an annual increase of material production expressed in value, the rate of growth of GDP or national income (Ivic, 56). Measuring the rate of growth of national income is after a short period, usually one year (Ivic, 55). Factors such as; physical and human capital, legislation, market competition, infrastructure, trade, and investment, have an influence on economic growth in a country (Blecker, 204). The purpose of the paper is to examine the causes, consequences, and solutions to the low economic growth in Latin America.

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Causes of Low Economic Growth

First, the global recession causes low economic growth in Latin America. The economy of other nations plays a significant role in the slow economic growth in Latin American nations (Park and Shin, 2799). Countries that are tremendous trade partners of Latin American nations are also facing hard times; this has resulted in a drop in imports by these nation get from Latin American nations (Van den Berg, 268). A consequence of this action is that Latin American countries have to reduce the number of exports; hence the governments earn very little at the end of the year.

Second, increased prices of essential commodities for industries like oil prices (Petras and Veltmeyer, 311). When oil prices all over the world increase, many nations who depend on this commodity for their sector suffer. Increased costs force governments to stake measures that will reduce the pressure by reducing the amount of oil they import (Petras and Veltmeyer, 312). Reducing the amount of oil means that nations will have to reduce their production and thus a reduction of revenue (Park and Shin, 2814). Small revenue implies that governments cannot invest in other projects that generate revenue for the economy and hence a slow growth of the economy.

Third, a drop in wages of the people in Latin American nations makes it hard for the economy to grow (Ivic, 58). Due to hard economic times, firms and organizations reduce the salaries and benefits that they give their employees so that they can keep on operating (Blecker, 207). A cut in wages results in the low investment by the people, which affects the growth of the economy (de La Grandville, 27). People cannot invest in real estate or other projects which generate revenue for the nations' GDP.

Fourth, unfavorable government legislation and taxation on foreign investment cause the slow growth of a nations' economy (Alvarado et al., 182). Some Latin American nations have policies that make foreign investors rethink their decisions to invest in these countries. Some governments employ different taxations policies to foreign investments and these make international firms to limit the number of investments in these nations.

Consequences of Low Economic Growth

Low economic growth will result in a drop in the living standards of people (Lange et al, 86). Reduction in wages means that people have to change the way they were living so that the amount of finance they have will sustain them. Households have to reduce their expenditure so that they can be able to care for the most important of needs (Lange et al., 89). Low economic growth results in little or no investment by the people; people have little to spare for things like investments. People abandon any projects that they were doing in the past because they lack the funds to continue with them (Lange et al., 89). Another consequence of low economic growth is the increased unemployment rate since there are no new investments; no new jobs are available for those joining the job market (Pelinescu, 186). Unemployment means an increase in social vices like robbery and prostitution among the population since people try to survive during hard times.

Solutions and Their Applications

Encourage investments in human capital/ human resources (Goldin, 4). Investing in the public is vital for any nation to realize economic growth. Investing in the education of the people and their skills will result in the availability of a skilled workforce that is innovative and creative (Goldin, 14). These people start up their investments, which not only provide employment but contribute to the national income of the nation through taxes (Lange et al., 86).

Ensuring macroeconomic stability is another way in which Latin American countries can improve their economic growth (Van den Berg, 2721. The governments can develop taxation schemes under fiscal policies that will encourage investment in the economy by the public and private sector (Van den Berg, 287). Also, nations can adopt monetary policies that will ensure the protection of investments against inflation and improving demand from the population.

Passing legislation that will encourage investment by foreigners and locals so that they can contribute to the growth of the economy (Petras and Veltmeyer, 317). Governments should make it cost-effective for investors to get documents and other requirements for them to start their businesses (Alvarado et al., 186). Making it easy for the public to get the necessary permits encourages people to invest. The law should safeguard investors against losing their property rights (Petras and Veltmeyer, 326). People should have confidence in the law to protect their investments when the need arises.

Governments need to ensure that investing in physical capital is well managed (de La Grandville, 53). When nations provide quality investment takes place, resources are well utilized, which discourages misappropriation (Ivic, 61). Knowing where to spend will help governments to improve those sections that need the boost to realize economic growth (de La Grandville, 71). Ensuring that capital for investment is managed accordingly by mechanisms in the financial sector that is well accountable for its actions.

Recommendations

For a rise in economic growth, Latin America nations have to:

• Latin American governments should encourage a stable economic environment that will ensure that people are encouraged to invest in the economy, which will result in economic growth.
• Ensure that the legislation passed favors investment by the public and the private sector so that many people will be able to start their investments in these nations.
• Proper utilization of resources is vital for achieving economic growth in a nation. Hence Latin American governments must ensure that there are in place appropriate systems that evaluate and allocate resources to improve the economy.
• Latin American nations should focus on investing in human capital in their population. Investing in people will help in reducing unemployment when people with skills start their investments and thereby hiring others to work in these businesses.

Conclusion

Understanding the causes, consequences, and solutions to the low economic growth in Latin America are essential. Factors such as global recession, increased oil prices, a reduction/drop in the wages of the people, and unfavorable legislation on investment contribute to low economic growth. Weak economic growth will result in a decline in the living standards of people, a drop in finance, and an increased unemployment rate in the population. Encouraging investment in human capital, ensuring economic stability, proper legislation, and adequate management of physical capital are some of the solutions to low economic growth. Economists need to understand aspects of the economy, its growth, and decline to be able to manage each situation accordingly.

Works Cited

Alvarado, Rafael, Maria Iniguez, and Pablo Ponce. "Foreign direct investment and economic growth in Latin America." Economic Analysis and Policy 56 (2017): 176-187. https://www.researchgate.net/profile/Rafael_Alvarado5/publication/320028255_Foreign_direct_investment_and_economic_growth_in_Latin_America/links/5b5aa42da6fdccf0b2f91446/Foreign-direct-investment-and-economic-growth-in-Latin-America.pdf

Blecker, Robert A. "The US economy since the crisis: slow recovery and secular stagnation." European Journal of Economics and Economic Policies: Intervention 13.2 (2016): 203-214. https://pdfs.semanticscholar.org/60c1/e7f104844fdfe9a14f1a83ebdc447b633514.pdfde La Grandville, Olivier. Economic Growth. Cambridge University Press, 2016.https://books.google.co.ke/books?hl=en&lr=&id=GddsDQAAQBAJ&oi=fnd&pg=PR13&dq=solutions+to+low+economic+growth+book+2016&ots=S3Jek7f3ew&sig=aEMYObcq0aNIykerDr9LgAIgScQ&redir_esc=y#v=onepage&q=solutions%20to%20low%20economic%20growth%20book%202016&f=false

Goldin, Claudia D. "Human capital." (2016). https://dash.harvard.edu/bitstream/handle/1/34309590/human_capital_handbook_of_cliometrics_0.pdf?sequence=1&isAllowed=yIvic, Mladen M. "Economic Growth and development." Journal of Process Management. New Technologies 3.1 (2015): 55-62.https://scindeks-clanci.ceon.rs/data/pdf/2334-735X/2015/2334-735X1501055I.pdf

Lange, Glenn-Marie, Quentin Wodon, and Kevin Carey, eds. The changing wealth of nations 2018: Building a sustainable future. The World Bank, 2018.https://openknowledge.worldbank.org/bitstream/handle/10986/29001/9781464810466.pdf?sequence=4isAllowed=y

Park, Donghyun, and Kwanho Shin. "Economic growth, financial development, and income inequality." Emerging Markets Finance and Trade 53.12 (2017): 2794-2825.https://www.econstor.eu/bitstream/10419/128563/1/ewp-441.pdf

Pelinescu, Elena. "The impact of human capital on economic growth." Procedia Economics and Finance 22.1 (2015): 184-190. https://www.researchgate.net/profile/Elena_Pelinescu/publication/278742989_The_Impact_of_Human_Capital_on_Economic_Growth/links/5624b41008ae93a5c92cc0da.pdf

Petras, James, and Henry Veltmeyer. What's left in Latin America?: Regime change in new times. Routledge, 2016. https://books.google.co.ke/books?hl=en&lr=&id=8_mfCwAAQBAJ&oi=fnd&pg=PP1&dq=low+economic+growth+in+latin+americaa+2016&ots=Qpckg2He_-&sig=fzxxpbyqIcLS52dqXPGjoCfRFAk&redir_esc=y#v=onepage&q=low%20economic%20growth%20in%20latin%20americaa%202016&f=false

Van den Berg, Hendrik. Economic growth and development. World Scientific Publishing Company, 2016.https://books.google.co.ke/books?hl=en&lr=&id=kWQyDwAAQBAJ&oi=fnd&pg=PR5&dq=economic+growth+and+development++2017&ots=2I8epRVO6Z&sig=Jz7rfATigM9TDNLRlSMVZP0aIrE&redir_esc=y#v=onepage&q=economic%20growth%20and%20development%20%202017&f=false