What are the theories of economical growth and development?

Question

What are the theories of economical growth and development?

Answer 1

Most theories come from keynesian models in which investment equals total savings. The idea is quite simple, a country has to save if they want to grow at a constant rate.

If we deal with a farmer, he has to collect a crop of Y, part of that crop, sY will be used to plant a new crop next year and it will saved. The rest will be used to make bread or feed animals (1-s)Y. We call c to (1-s).

What he saves or keeps for the next year is always what he invests.  

Y=Crop=Savings+Consumption

Y=Crop=Investment+Comsumption

S=I

sY=µ(K`-K)

K`=total capital obtained=total crop

K=crop used to feed animals and make bread

Taking into account that everything happens through periods of time t

sdY/dt=µdI/dt

dY/dt=Y*

dI/dt=I*

sY*=µI*

I*/Y*=s/µ

As for development you have to take into account the growth of population and include it in the model. The rate of population growth is a clue of development. Those born now over a determined rate will be unemployed in the future. Imagine that our farmer has got one child but the family grows this year.

Y/L=n   the first year

Y/L`=n´ the second year

n`<n

The crop divided by the number of people has decreased and we can think that they´re poorer than before, because the country as a whole will need a new and higher Y or a better crop to keep n constant. Of course this is only an introduction to the theories of economical growth so fascinating as complicated.