Chapter 12 Production and Growth Productivity Its Role and Determinants Crusoe s Productivity productivity quantity of goods services produced from each unit of labor input physical capital stock of equipment and structures that are used to produce goods services human capital knowledge and skills that workers acquire thru education training experience natural resources inputs into production of goods services that are provided by nature land rivers mineral deposits technological knowledge society s understanding of the best ways to produce goods services Economic Growth and Public Policy Diminishing Returns quantity of the input increases diminishing returns property whereby the benefit from an extra unit of an input declines as the In the long run the higher saving rate leads to a higher level of productivity and income but not to higher growth in these variables Catch up effect countries that start off poor tend to grow more rapidly than countries that start off rich Investment from Abroad foreign direct investment capital investment that is owned and operated by a foreign entity foreign portfolio investment investment that is financed with foreign money but operated by domestic residents brain drain the emigration of many of the most highly educated workers to rich countries where these workers can enjoy a higher standard of living Property Rights and Political Stability property rights ability of people to exercise authority over the resources they own inward oriented policies attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world outward oriented policies integrate poor countries into the world economy Education Free Trade
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