Prof. Ing. Jiří Tvrdoň CSc.

Agricultural Economics

Theory of Economic Development

(i) Economic Development in reality means growth of potential product. Its growth is influenced mainly by factors on supply side

(ii) Main resource of economic growth is capital in broad sense including technologies as well as human capital. By capital accumulation we understand not only production of capital goods, but investment into research and into education

Pure Supply - Side Policy

The Sources of Growth

•The Quantity of Labor

•The Quantity of Capital

•The Quantity of Land

•Education

•Technology

•Other Factors

(iii) Technology progress isn’t rooted in itself. Technology progress requires investment into education and facilities of scientific and research institutions. Therefore technology progress itself is a result of capital accumulation

(iv) Economic growths isn’t against nature resources. Exhausting of some nature resources increase their scarcity which results in their prices and it leads to their substitution by less scarce of nature resources and by capital.

(v) Capital accumulation in a form of buildings, machines and classical communications leads step by step to decreasing returns on capital. But even in the most developed country – USA is still large space for investment into human capital and research.

(vi) Larger market forms better conditions for specialization and exchange. International trade is a huge power supporting economic growth.

(vii)Vicious ring of poverty sees reason of low economic performance of less developed countries in limited domestic capital amount due to restricted possibility to save and accumulate capital. Lack of capital consequently doesn’t enable to increase product and therefore these countries remain poor. But „vicious ring” isn’t results of poverty but it is output of economy system which doesn’t motivate people.

Why Many Countries Are Poor

•Low-Quality Labor Force

•Inadequate Natural Resources

•Insufficient Capital

•Lack of Modern Technical Know-How

•Institutional Factors

•The Population Explosion

Strategies for Development

•The Inward-Looking Approach

•The Foreign Trade Approach

•The Role of Foreign Borrowing

•The Role of Foreign Aid

(viii)The key to economy growth of poor countries isn’t so foreign aid and FDI such as own economy system based on private ownership, its respecting and depending which forms strong incentives for people to increase essentially their labor and business activities.