Chapter 19: Problem 25

Why do you think it is difficult for high-income countries to achieve high growth rates?

Short Answer

Expert verified

High-income countries face difficulties in achieving high growth rates due to several factors such as diminishing returns on investments and technology, sluggish productivity growth, an aging population, low fertility rates, the nature of advanced economies, global competition, and innovation barriers. These factors combined lead to slower economic growth as compared to emerging economies, which have greater potential for rapid advancements and a larger, younger workforce.

Step by step solution

1. Understand the concept of high-income countries #

High-income countries are nations with a high level of income as measured by their Gross National Income (GNI) per capita. These countries usually have well-established and stable economies, along with higher living standards, better education systems, and robust healthcare facilities.

2. Recognize the factors affecting growth rates in high-income countries #

There are multiple factors that impact the growth rates of high-income countries. These include diminishing returns, sluggish productivity, aging population, low fertility rates, advanced economies, global competition, and innovation barriers.

3. Explain how diminishing returns affect growth rates #

High-income countries face diminishing returns in terms of investments and technological advancements. As these countries are already highly developed, further investments in infrastructure and new technologies may only bring marginal improvements to the overall growth rate.

4. Discuss the impact of sluggish productivity on growth rates #

High-income countries may experience lower productivity growth compared to developing countries. As these countries have already achieved high productivity levels, it becomes harder for them to achieve significant growth in productivity and economic output.

5. Elaborate on the effect of an aging population on growth rates #

High-income countries usually have an aging population, which means a higher proportion of retired people compared to working-age individuals. A larger retired population implies a reduced labor force, leading to a decreased output in goods and services and contributing to lower growth rates.

6. Explain how low fertility rates can hinder growth rates #

Many high-income countries face low fertility rates, leading to a smaller workforce in the following generations. With fewer workers supporting a growing retired population, these countries may experience a decline in economic growth rates.

7. Describe the role of advanced economies in limiting growth rates #

Advanced economies, by nature, tend to have slower growth rates compared to emerging economies. This is primarily because emerging economies have more potential for rapid advancements in infrastructure, technology, and education, while advanced economies have already achieved many of these milestones.

8. Consider the influence of global competition on growth rates #

High-income countries face competition from emerging economies, which offer lower labor costs and resources. This may lead to a shift of companies and investments to countries with lower costs of production, thus affecting the growth rate of high-income countries.

9. Assess the impact of innovation barriers on growth rates #

Lastly, high-income countries often face innovation barriers, which make it difficult for them to achieve breakthroughs in technology or industries. As a result, their growth rates may be stunted due to a lack of transformative innovations.

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