Why do some countries grow and others stagnate?

Abstract

Why does some countries’ economy keep developing and why does some countries’ economy fall into stagnation? Actually the two situations are essentially “two sides of a coin”. People’s cognition of these questions has experienced a long developing history. There are many factors which have an impact on economic growth and development in terms of reality. Although economic growth and development are different, economic growth is undoubtedly the core of economic development. In terms of the relationship with economic growth, the factors that affect economic growth can be divided into total factors and structural factors. Total factors include savings, investment, human capital accumulation, technology progress, population and natural resources, etc. Structural factors include foreign trade, income distribution, institutional system and industrial policy, etc. It should be noted that factors mentioned above can affect a country’s economic growth and development, but they don’t work automatically or mechanically. A mechanism is necessary for these factors to work alone or interactively. Generally, human society could progress in three patterns, namely, revolution, evolution and involution. Looking back over the past few hundreds of years, it is found that these three patterns have appeared in both the West and the East and have performed completely different results. It is necessary to mention Chinese economy when it comes to economic development or economic stagnation. Since reform and opening up, Chinese economy has achieved rapid progress resulting from “open door policy” and “marketization and liberalization policy”. “Open door policy” means active communication with foreign countries. “Marketization and liberalization policy” generally refers to a variety of domestic economic reforms, including establishment of price incentives, institutional incentives and other incentives. “Marketization and liberalization policy” also encourages the market mechanism to play a leading role in resources distribution. Like many other countries, after several years of rapid growth, Chinese economy is also facing the constraint of “negative feedback mechanism” and its economic growth is going to pace into a “new normal”. Without firm reactions, China could fall into the “middle income trap”. Thus China should pay more attention to encouraging leading technology innovation, changing the economic growth, compensating the parity of income distribution and so on. In general, economic growth and development are a very complex issue. It is difficult to answer accurately that what factors determine the prosperity and decline of these countries. Each country should summarize experience of other countries and combine their own specified conditions with the experience so as to form a development pattern which is suited to their economy situation. At the same time, the countries should pay attention to adjustment and innovation of the development pattern during the process in order to move forward.