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[MUSIC]
Regarding the third factor in growth, capital formation, a
modern economy requires a vast array of capital goods.
However, the only way countries can rapidly deepen
their capital stock is by abstaining from current consumption.
And that's the catch for many developing countries that are poor to begin with.
Because reducing current consumption to provide
for future consumption often seems impossible.
Nonetheless, the role of capital formation in economic growth cannot be understated.
Consider that the leaders in the growth race
invest at least 20% of output in capital formation.
By contrast, the poorest agrarian countries are often able
to save and invest only 5% of their national income.
Moreover, much of the low level of savings goes to provide the growing
population with housing and simple tools. Little is left over for development.
The result is too little investment in the
productive capital so indispensable for rapid economic progress.
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Turning to the fourth supply factor
of economic growth, technological change, developing countries
have one potential advantage here, they
can benefit by relying on the technological
progress of more advanced nations.
In this regard, poor countries do not need to
find modern Newtons to discover the law of gravity.
They can read about it in any physics book.
Nor do they have to repeat the
slow, meandering inventions of the Industrial Revolution.
They can buy tractors, computers and power looms.
Undreamed of by the great merchants of the past.
Japan and the United States,
clearly illustrate this pattern in their historical developments.
Japan joined the industrial race late, and only at the end of
the 19th century did it send students abroad to study Western technology.
Same time, the Japanese government has taken an active role in stimulating
the pace of development and in
building infrastructure such as railroads and utilities.
The case of the United States likewise provides
a hopeful example to the rest of the world.
The key inventions involved in
the automobile originated almost exclusively abroad.
Nevertheless, Ford and General Motors applied foreign inventions and
rapidly became the world leaders in the automotive industry.
From the histories of Japan and the United States, it might
appear that adaptation of foreign technology
is an easy recipe for development.
You might say, just go abroad, copy more efficient methods, put them into effect
at home, and sit back and wait for the extra output to roll in.
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Last, technological change is not that simple.
You can send a textbook on chemical engineering to Bangladesh or Somalia.
Without adequate human resources, skilled
scientists, engineers and entrepreneurs, these countries
can't even begin to think about building a working petrochemical plant.
Dr. Peter NavarroProfessor
