Theory of Economic Growth

Abstract

The economic theories developed in the last two centuries to explain country growth are mainly influenced by the paradigm introduced by Adam Smith theory [1]. According to Adam Smith [1] the wealth and the richness of a country are linked to division of labour. We can say that he supported the idea that the economic efficiency is proportional to the specialization. The more a country is specialized in a productive sector, the more this country can be efficient in that production. The consequence of such an equation between specialization and efficiency is that the development and the total wealth of countries increase as the the specialization increases. However, the degree of specialization that can be reached by the global market is intimately limited by the the size of the market itself. The second consequence of Adam Smith’s theory is that market with increasing size would produce an increase in the total wealth of countries since a deeper degree of specialization is reachable. In Adam Smith’s theory the increasing wealth of the nations derives from the emergence of new activities (specialization) and the interaction between them at all scales. Both ingredients increase the economic complexity of the productive system of countries and according to Adam Smith the nations’ wealth too.