Growth Rate Slow Model 1992 Is an Term Paper

Download this Term Paper in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Term Paper:

Growth Rate

Slow model (1992) is an economic tool used to analyze a country economic growth. The principal conclusion of Slow model is that the accumulation of capital could not only account for the growth rate per person. To address the central question of economic growth, it is critical to move beyond the Slow model. Mankiw et al. (1992) incorporate economic tools such as FDI growth rate, trade, inequality, institutional quality and other core variables such as labor and capital to analyze the growth rate across countries,.

Objective of this paper is to use the core economic variables and non-core economic variables to investigate their potential impacts on the United States growth rates.

Overview of the United States Growth Rates

The United States is the largest and most powerful economy in the world. Presently, the U.S. has the highest level of output with the country GDP valued more than U.S.$14 trillion. The United States is the world most advanced economies and is leading in the information technology and other technical innovation. The United States has a diverse economy and the leading industries include electronics, telecommunications, aerospace, chemicals and military equipment. Between 1991 and 2000, the United States enjoyed a robust growth making the United States to enjoy the largest economic expansion in the history of the country. Although, the U.S. economy recorded a slow growth between 2001 and 2002, however, the country recovered in 2003 and recorded a strong economic growth induced by robust household spending and a strong productivity.

After 2007, the United States recorded serious economic imbalances due to the collapse of housing markets, which led to the U.S. financial instability and culminated into the global financial crisis. In 2008, the U.S. GDP contracted to 0.3% and contracted to 3.5% in 2009. In 2010, the U.S. economy recovered and recorded a 3.0% growth rate, however, came down to 1.7% in 2011. (MarketLine, 2012). The paper uses variables such as FDI growth rate, trade, inequality, institutional quality and other core variables such as labor and capital to analyze their potential impacts on the growth rates of the United States

Potential Impact of Core and Non-Core Variables on the U.S. Growth Rates

This section incorporates the FDI growth rates, trade, inequality, institutional quality and other core variables such as labor and capital to measure the growth rates of the United States.

Foreign Direct Investment

FDI (Foreign Direct Investment) is the total capital inflow into a country. The theoretical literature reveals that FDI contributes to the economic growth and neoclassical growth theory reveals that FDI inflow contributes to the stock of capital in the host countries, which allows the higher growth rates that possibly enhanced domestic savings within the host countries. The endogenous growth theory also argues that technological development stimulates economic growth (Mankiw et al., 1992). Thus, FDI enhances the country's growth rate by allowing the host countries to tap the advanced technologies not available in their countries. More importantly, FDI leads to the increase in the competitions within domestic market, which consequently lead to the greater efficiency of domestic firms. Another area where FDI improve economic growth is the transmission of improved managerial practice from foreign firms to domestic firms. More importantly, FDI strengthens human capitals of the host countries. (Freckleton, Wright, & Craigwell, 2012).

"The U.S. government has maintained its openness toward foreign direct investment

(FDI) and is the world's largest recipient of such investment. According to the UN Conference on Trade and Development, the U.S. ranked in first position in 2010 in terms of FDI inflows. The country received $228bn in 2010 compared to $153bn in 2009." (MarketLine, 2012 P. 26).

Kornecki, et al. (2011) argues that the influx of FDI significantly influences the economic growth of the United States. The authors collected data between 1978 and 1997, which was the period the United States received major influx of foreign direct investment. In 1997, the FDI accounted to the 6.3% of the United States Gross Domestic Product (GDP), 20% of the U.S. export of goods, 4.9% of non-bank employment and 30% of the U.S. import.

Thus, "a rapid inflow of foreign investment paralleled the brisk productivity growth, suggesting a positive link between the growth of productivity and foreign capital. Applying a Cobb-Douglas production function to data from 1988 to 1999, it is found that foreign capital accounted for almost 16% of overall U.S. productivity growth and significant lead to the U.S. economic growth rates" (Kornecki, et al. 2011 P. 2).


Economic theory generally supports trade liberation and consequently has positive effect on economic growth. Typically, there is a positive linkage between a country's economic growth and openness of international trade. The traditional trade theory argues that trade between countries improves welfare of citizens due to specialization gains and increase the efficiency according to the comparative advantage theory. The dynamic trade theory also reveals that the trading countries enjoy the dynamic gains due to the reallocation of existing resources and trade specialization. The dynamic gains from trade are due to the accumulation of human and physical capital, which enhance the transmission of technology across countries. (Nowak-Lehmann, 2010).

However, the United States experienced trade deficits in last few years due to the U.S. financial crisis that started in 2008. The total trade of the United States fell due to the global financial crisis and shrank by approximately 15% in 2009 leading to a decline in the total trade from $4,332 Billion in 2008 to $3,472 in 2009. However, the country recovered in 2010 and recorded $4,119 billion of total trade and $4,225 billion in 2011. The trade deficit that the United States recorded in 2008 made the country growth rate to contract from 1.9% in 2007 to 0.3% in 2008. However, the U.S. economy recovered in 2010 and recorded the growth rate of 3.0%, however, the country growth rate came down to 1.7% in 2011. (MarketLine, 2012).


Economic inequality refers to the gap between the rich and the poor. On the other hand, income inequality refers to the wide disparity of the incomes of group of people within a country. Su, (2010) argues that inequality harms the economic growth of a country in four ways:

First, unequal distribution of income will lead tax distortion thereby reducing the growth rate. Second, inequality within a country could lead to the socio-political instability, which could reduce investment inflow into the county and consequently decline the growth rate. Additionally, the presence of imperfect capital market within a country could reduce human capital investment and consequently reduce the country growth rate. Finally, inequality will lead to a rise in fertility and leading to a fall in human capital and consequently lead to a decline in the growth rate. The growth model shows that inequality generally cause a decline in the aggregate production thereby lower the economic growth. (Su, 2010).

In the United States, recent financial crisis that the country has undergone has led to distribution of inequality of income, which has become a social concern. The CIA World factbook shows that U.S. ranks 43rd out of 140 countries sampled in term of income inequality and measured by Gini coefficient. In 2010, 46.2 million people in the United States lived below the poverty line.

Institutional Quality

The quality of country's institutions is generally linked to the economic development. The institutions define general conditions under which individuals and firms operate. The better the quality of institution arrangement of a country, the more confidence people will have in the country capital market. (Andrew, 2007). The U.S. has a strong legal framework with an independent judicial system. The sound legal framework of the country has been translated into positive investment climate. In 2012, the World Bank ranked the U.S. As the fourth best country to do business due to the quality of the country institutional framework. The country financial regulatory framework is well developed making the financial market open to competition. (MarketLine, 2012). Typically, high quality of the country institution has been a fundamental factor leading to the influx of foreign investment. Typically, foreign investors have a strong belief that their investments are being protected by law making the United States capital market to be well developed. (MarketLine, 2012).

Labor and Capital

Quality of labor is very critical to the country economic growth and the quality of labor is very critical to the country economic development. A country with well-educated citizen will enjoy better economic development than a country with low number of educated citizens. The United States has largest number of higher educational institutions in the world making the country to be among the well-educated country in the world. MarketLine (2012) report shows that the U.S. higher education system is the best in the world with literacy rate reaching 99.0%. Typically, the development of the country labor force makes the United States to be ranked fourth in the Global Human Development Index. The United States generally enjoys high labor productivity, and it is generally believed that the U.S. remains a leader in term of innovation…[continue]

Cite This Term Paper:

"Growth Rate Slow Model 1992 Is An" (2013, January 02) Retrieved December 7, 2016, from

"Growth Rate Slow Model 1992 Is An" 02 January 2013. Web.7 December. 2016. <>

"Growth Rate Slow Model 1992 Is An", 02 January 2013, Accessed.7 December. 2016,

Other Documents Pertaining To This Topic

  • Growth Theory

    Economics of New Ideas and Innovations This research paper discusses the economics of a new idea. Without new ideas and inventions, the economy might very well become stagnant or decline, as predicted by many early economists, who did not understand that impact that ideas and innovative technology had on global markets. Technology is endogenous in the new growth theory, which holds that technology is a function of the capital and labor used

  • Human Population Growth Long Gone

    At a most simplistic level, the growth of the human population generates higher levels of consumerism. And the higher levels of consumption place supplementary strains on the already scarce natural resources. Additionally, the incremental levels of consumption translate into higher levels of waste. This waste comes from both individual consumers, as well as from industrial agents and it directly impacts the quality of the water as well as the

  • Principal Agent Model in Economics and Political Science

    Principal-Agent Model in Economics and Political Science The international political perspectives of free trade A Global Analysis International Trade Impact on Tunisia The Export of agricultural products International trade and development of Tunisia Balance in the Trade Regime Imports and exports of Tunisia Exports Imports Coping With External and Internal Pressures The Common External Tariff (CET) Safeguard Measures Anti-Dumping Duties (ADDs) and Countervailing Duties (CVDs) Rules of origin The New Commercial Policy Instrument Sector Based Aspects GATT/WTO's Main Principles Non-discriminatory trade Multilateral negotiation and free trade The Trading Policies

  • Internal External Recruitment in the

    As shown in Appendix 2 these report gives a complete and detailed picture of candidate's personality type, classifying him to one of five main types: A-director, B - socializer, motivator, people person, C - thinker, analytic, D - supporter, X which means that personality has two types synergized. Interviewing as the most used employee screening skill Another very effective method of prospective employee evaluation is evaluation interview. Evaluation interview was a theme

  • Application of a Pedagogic Model to the Teaching of Technology to...

    Pedagogic Model to the Teaching of Technology to Special Education Students Almost thirty years ago, the American federal government passed an act mandating the availability of a free and appropriate public education for all handicapped children. In 1990, this act was updated and reformed as the Individuals with Disabilities Education Act, which itself was reformed in 1997. At each step, the goal was to make education more equitable and more

  • United States Has the Highest Rate of

    United States has the highest rate of confinement of prisoners per 100,000 population than any other Western country. Analyze this phenomena and discuss actions that you feel are necessary to combat this problem. The United States currently has the highest incarceration rate of any nation worldwide. For example, greater than 60% of nations have incarceration rates below 150 per 100,000 people (Walmsley, 2003). The United States makes up just about

  • Economic Model for Monopoly Analysis

    The deal was immediately criticized as anti-competitive by William Kennard, the chairman of the Federal Communications Commission, and by the Communications Workers of America, which represents some workers at both of the merged companies. But neither government regulators nor union bureaucrats will have the slightest impact on the latest merger. They have neither the power nor the desire to oppose the plans of the giant telecommunications monopolies. More substantial opposition

Read Full Term Paper
Copyright 2016 . All Rights Reserved