Economic growth is a complex phenomenon and a result of interaction between several causal forces. For our purpose, we may take particular note of the following:
1. Availability of Factors of Production
Modern economies are characterised by a long-term increase in their factor endowments. Thus, most of them are experiencing an increase in population and labour supply.
Similarly, in most of them, there is an uninterrupted accumulation of capital in diverse forms, including that of human capital.
ttnewsflash.com
2. Productivity
Most countries are experiencing varying degrees of growth in their labour-productivity which, in turn, can be attributed to several causes.
These causes include additions to human capital, accumulation of physical capital (including infrastructure), and technological innovations.
3. Technology
Modern economies are experiencing an exponential growth of technological applications. New forms and sources of natural inputs are being discovered and additional uses of known natural inputs are being identified.
Possibilities also exist of increasing productivity of existing factors of Production through improved institutions and legal provisions etc.
4. Consumer Preferences
Economic growth is closely linked with an increase per capita income and associated possible changes in tastes and preferences of the consumers.
ADVERTISEMENTS:
In other words, economic growth of a country causes shifts in production and demand functions which, in turn, may affect the volume and composition of its international trade.
In what follows, we shall take up the impact of some growth features identified above on the volume and pattern of trade of a country experiencing growth.
For the sake of simplicity, we shall mostly confine ourselves to just one country which happens to be labour-abundant (as before, CI). We shall also assume that CI has only two factors of production, labour (L) and capital (K), and can produce only two goods, labour-intensive commodity X and capital- intensive commodity Y.