High economic growth is associated with developing economies, often due to increased capital availability and productivity. China’s growth is linked to legal and tax reforms, technology transfer, and job creation. Innovation in product, process, transport, and communication historically drives growth.
High economic growth is mainly associated with some developing economies. Economic history suggests that developed economies typically have lower growth rates, even during economic boom times. Double-digit or high single-digit growth rates are often associated with industrializing countries, those that are increasing productivity and making more use of their natural and human resources. High economic growth can be made possible by the increased availability of capital, often triggered by the attraction of foreign direct investment. Improving the health and education of a country’s population can also stimulate rapid economic growth by increasing productivity.
The high rates of economic growth achieved by China in the decades following the reforms approved in 1978 are closely linked to the productivity levels of the population. Legal reforms have increased the possibilities for starting private businesses, while regulatory and tax incentives have allowed rural collectives and private businesses to better retain their profits. The reforms allowed many foreign companies to set up equity or contractual joint ventures with Chinese companies, while some could trade through wholly owned companies in China. This has brought benefits to China in terms of technology transfer, infrastructure development and job creation, while Chinese companies have increased their productivity to international standards. Export-led growth has been stimulated by the creation of special economic zones with special incentives for high-tech companies and those manufacturing goods for export.
High economic growth is therefore stimulated by high capital investment and the introduction of reforms to encourage the development of private companies which are incentivized by the ability to keep most of their profits rather than pay them to the government. In developing countries with high levels of rural unemployment, job creation in urban areas and the transfer of workers from the countryside to the cities can increase employment and productivity levels. Investments in new businesses in both urban and rural areas can attract a surplus of labor from the agricultural sector, increasing employment and productivity.
Historically high growth rates have been achieved by product, process, transport and communication innovation. The inventions that propelled the industrial revolution in England led to increased productivity and the introduction of railways in the 19th century with the possibility of fast transport of raw materials and goods gave a further boost to economic growth. In the latter part of the 20th century, the world economy was stimulated by the information revolution and development was given more speed after the spread of the Internet. While this type of innovation does not abolish the business cycle or prevent recessions resulting from the failure of the financial system, the long-term effects of such wide-ranging innovations are to stimulate greater growth in the world economy.
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