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Subject 4. Other Inputs of the Production Function PDF Download
Natural Resources

Natural resources are important but not necessary for growth. One of the surprising features of economic life is "resource curse" - resource-poor economies often vastly outperform resource-rich economies in economic growth. This is because commodity exporters face a decline over time in the relative prices of their products and also because of the "Dutch disease", whereby the resource sector drives up the value of the local currency, hurting the competitiveness of manufacturing exports.

Does depletion of essential non-renewable resources impose a drag on growth? This is an on-going debate between optimists and pessimists. According to the growth theory, economic growth is not limited by non-renewable resources due to three factors: technical change, substation of non-renewable resources by capital, and returns to scale.

Labor Supply

Labor supply is the quantity of work force. It is determined by population growth, labor force participation rate, net migration, and average hours worked.

Human Capital

Human capital is the quality of labor force. Human capital acquired through education, on-the-job training, and learning-by-doing is the most fundamental source of economic growth. It is the source of increased labor productivity and technological advance.

Capital: ICT and Non-ICT

Physical capital growth results from saving and investment decisions. The accumulation of new capital increases capital per worker and labor productivity. Although long-term sustainable growth cannot rely on pure capital deepening, there is a high correlation between economic growth and capital growth, especially in developing countries.

The composition of investment spending and the stock of physical capital does matter for productivity and growth. ICT (Information, computers and telecommunications equipment) investment has grown rapidly over the last decade. Through its network externality impacts such investment has made a significant contribution to increasing the rate of economic and productivity growth. High-levels of non-ICT capital spending should eventually lead to capital deepening.


Technological progress makes it possible to produce more or higher quality goods and services with the same resources or inputs. Technology is a major factor determining TFP. TFP is the main factor affecting long-term, sustainable economic growth rates in developed countries and also includes the cumulative effects of scientific advances, applied research and development, improvements in management methods, and ways of organizing production that raise the productive capacity of factories and offices.

Public Infrastructure

User Contributed Comments 3

User Comment
crazyman where's the info about public infrastructure?
davcer public infrastructure enhance total productivity fot the economy by complementing private investements.
ashish100 Only the rich may know the secrets of public infrastructure #AN Life
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I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz

Tamara Schultz

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