August 02, 2015

A Year of Economics Express

As Mint's popular blog 'Economics Express' completes one year, Vivek Dehejia contributes two chapters to an e-book that the publication has released to mark it's first anniversary.


Vivek writes "First, though, for some basic economics: given that India’s economy is still a fraction of the size of China’s, it is entirely to be expected that Indian GDP growth will outpace China’s. The surprise, indeed, is that it has not happened sooner. The reason is what is known technically as the “diminishing marginal productivity” of capital, or, more loosely, diminishing returns to capital. In everyday language, this means that an increase in the capital stock creates more extra output when the capital stock is small, and that the additional output from each additional unit of capital declines as the capital stock increases.

This, in turn, generates what is known as the “convergence hypothesis” in the economics of growth: economies grow fastest when they are poor, and growth rates eventually taper down to a long run or “steady state” level as they get richer".



Topic : Transitions / In : OP-EDS
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