Running head: THEORY OF LONG-RUN ECONOMIC GROWTH

Theory of Long-run Economic Growth

APA

Number of words 784

11-7-2019
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Theory of Long-run Economic Growth

Measurement of economic growth is done based on attributes through which goods and

services grow in value over time in an economy. The theory of long-run economic growth

explains these financial changes with the determinants of economic growth, ranging from an

increase in productivity, the participation of the labor force, and changes in demographic factors.

In the article by Davis (2013, November 12) on the existence or absence of economic growth in

China based on the long-run theory, the author indirectly examines the attributes of this theory

without any direct link to positive changes in the increase in productivity, the participation of the

labor force and the demographic changes.

The author insists that China’s major problem emanates from the rule of law that a

change in would have a significant impact on its practice and economic landscape. According to

Davis (2013, November 12), the economic growth of China may not continue on a growth

trajectory as anticipated due to the effect of the rule of law and the political environment and

hence affecting the long-run economic growth. A link exists between the rule of law and the

participation of the labor force in economic growth. Implementation of laws that do not favor

workers and discouraging their involvement would reduce the existence of a skilled and

experienced workforce to contribute towards economic growth. However, the passage of laws

that facilitate the development of the workforce to increase its participation in economic

activities would lead to long-run economic growth. The link between the rule of law and

demographic changes also presents an indirect impact on long-run economic growth. Restriction

of childbirth rule affected demographic growth significantly and hence would have an impact on

long-run economic growth. However, the elimination of this presents an avenue through which

possible economic growth may occur continuously in line with the theory of long-run economic
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growth. In addition to the above, the rule of law also plays a role in affecting productivity and its

growth. A favorable legal environment provides an avenue through which economic

development occurs consistently, as in the long-run theory. An atmosphere of this nature creates

an attraction for both international and domestic engagement in productivity. Therefore, the rule

of law, as indicated by Davis, does not directly state the contribution it has to long-run economic

growth but indirectly emphasizes these factors.

The impact of a prominent political dust-up is also presented as a factor that would

possibly affect the economic growth of China, cutting the country short from its long-run

economic growth. A change in the political tone of the country could affect the confidence of the

investors directly affecting the increase in productivity (Davis, 2013, November 12). Investor

confidence assessed both at the domestic and foreign levels is a significant contributor to growth

in the richness of a country. Dampening the confidence of investors will lead to substantial levels

of withdrawal from the business environment leading to reduced productivity levels. Also, a

change in the political scene in China could significantly affect the labor workforce and their

willingness to participate in economic activities. Political tensions with precipitated tensions are

manifested in low levels of workforce turnup and increased exportation of skills, which has a

direct impact on the ability of a country to sustain participation domestically. In the long-run,

less skilled employees are left in China with affected productivity levels hence leading to lower

or short-run economic growth. The demographic changes may not directly benefit or suffer from

a difference in the political environment. However, this change may influence legislative

transformations that would limit demographic changes. The changes to a legal system that

discourages positive demographic growth will have an indirect impact on the long-run economic

growth of the country. Therefore, political differences may also indirectly affect the attainment
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of long-run economic growth. The ability of the change to influence the determinants of long-run

growth is a factor in determining the possibilities of China attaining long-run economic growth.

Long-run economic growth is attained through an increase in the market value of goods

and services as produced in the economy over a time frame. The determinants of this include the

demographic changes occurring, the active participation of the labor force, and the growth in

productivity. In the article presented, the emphasis is on the difference in the rule of law and the

political changes. The two may not have a direct impact on long-run economic growth but have

an indirect effect. Therefore, the article is indirectly consistent with the theory of long-run

growth due to the manner in which the writer presents the arguments. Further, the author fails to

give effective recommendations on how the issue in the market can be addressed.
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References

Davis, B. (2013, November 12). Larry Summers: In China and India, Beware of 'Asiaphoria.'

Retrieved from https://blogs.wsj.com/chinarealtime/2013/11/12/larry-summers-in-china-

and-india-beware-of-asiaphoria/