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How does international trade, human capital, and physical capital can lead to economic growth.

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An economy grows when it has the capacity to produce more. Production is based on how much capital, labor, natural resources, and technology it has to produce. Policies that encourage the accumulation of any of these lead to economic growth.

Economic growth is an increase in the capacity to produce. Therefore anything that increases that capacity is economic growth.

The ability to produce depends on:

The stock of capital per worker: All else equal an economy with more physical capital can produce more than an economy with less physical capital. Because savings and investment add to the stock of capital, more investment in capital leads to more economic growth.

The amount and quality of labor: As long as the capital per worker does not decrease, more labor leads to more production. For example, 4 people who each have a waffle maker make fewer waffles than 10 people that each have a waffle maker. Also, improvements in human capital, such as education and health, improve the productivity of that labor.

The level of technology

the knowledge of how to combine labor, capital, and natural resources to produce is an important aspect of production. Improvements in technology increase productivity.

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User JDunkerley
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