ECONOMIC GROWTH Determinants of the Economic Growth of UK

Introduction

The research whether theoretical or applies has been attracted over the last two decades towards the determination of the factors that impact the economic growth and determine the changes in it. Still the understanding of this economic concept is poor and inadequately conceptualized. This issue is partly attributed to the lack of unifying or generalized theory. Another big constraint to the advancement in this area of study is the myopic way in which this issue is approached by the conventional economics (Artelaris et al, 2007).

In determining economic growth, the role of various factors is discussed in several partial theories despite the lack of unifying theory.Two main strands can be distinguished: the neoclassical, based on Solow's growth model, has emphasised the importance of investment and, the more recent, theory of endogenous growth developed by Romer and Lucas has drawn attention to human capital and innovation capacity. Furthermore, important contributions on economic growth have been provided by Myrdal's cumulative causation theory, and by the New Economic Geography school. In addition, other explanations have highlighted the significant role non-economic (in the conventional sense) factors play on economic performance. These developments gave rise to a discussion that distinguishes between 'proximate' and 'fundamental' (or 'ultimate') sources of growth. The former refers to issues such as accumulation of capital, labour and technology while the latter to institutions, legal and political systems, socio-cultural factors, demography and geography.

Theoretical developments have been accompanied by a growing number of empirical studies. Initially, research focused on the issue of economic convergence/divergence since this could provide a test of validity between the main growth theories (i.e. the neoclassical and the endogenous growth theory). Eventually, focus shifted to factors determining economic growth. Seminal studies in this field are conducted by Kormendi and Meguire (1985), Grier and Tullock (1989) and, especially, Barro (1991). This second 'wave' of empirical studies has been facilitated by the development of larger and richer databases (such as the Penn World Tables - PWT) and more advanced statistical and econometric techniques (mainly cross-sectional and panel-data ones), which enabled the identification of determinants of economic growth with higher precision and confidence. Finally, it is worth emphasising that due to the lack of a unifying theory on economic growth, a substantial volume of empirical research has multi-theoretical bases. This means that studies draw on several theoretical frameworks and examine factors that are taken from several sources. As a result findings are often contradictory and conclusions far from safe.

The data used in this report include the values of Percentage change of Gross Domestic Product (GDP), Total investment (Units: Percent of GDP), General government total expenditure (Units: Percent of GDP), and Annual inflation rate (%) for the time period 2013-2017. Following is the graph of these values.

The above described graph depict that economy of UK grew faster during 1980-1985 and then the fall in the growth remained till early 1990s. During this period of increase and decrease in the GDP growth, total investment kept increasing ...