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    capital accumulation versus capital deepening

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    Details: The World Bank is currently advising newly industrialized countries on how to encourage growth and they have asked for your help.

    Using the internet and other resources, research the factors behind economic growth in Hong Kong and Singapore. Which of these methods of encouraging growth would you suggest to a newly industrialized economy?

    Note that discussing which kind of products the nation selected to produce or which kind of government the nation selected does not address the issue of growth: how did the nation grow? Selecting the "best" product concerns choosing where the nation should be producing on the PPC and does not concern how to shift the PPC to the right. Selecting the products to produce is an issue for full employment. I suggest that you notice that the concept of capital deepening is a relevant term to use in the analysis.

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    Solution Preview

    First, let's examine what economists mean when they talk about economic output. Standard neoclassical economics ties economic growth to the increase of capital and labor input, and technological progress as measured by total factor productivity (TFP). Each economy is endowed with resources, which can be used to produce goods and services (GDP). The efficiency with which the economy can extract income from its resources is expressed in a production function such as:
    Y = F(K , E, L)a
    with a representing total factor productivity.

    Because Robert Solow is largely credited for developing the neoclassical growth model, the TFP is sometimes called the Solow residual. It is a "residual" because it remains after the effect of capital accumulation is taken into account.

    Capital deepening is the term used to describe an increasing concentration of capital. It occurs when capital per worker is increasing, which increases productivity. Output per worker is expanding, so economic output increases even though the population remains about the same. Your instructor indicates this is the reason why Hong Kong and Singapore have experienced great economic growth ...

    Solution Summary

    Similarities and differences in Hong Kong's and Singapore's economic development