Extensive Growth and Intensive Growth
Growth in the quantity of labor, capital inputs, and productivity, in accordance with the growth accounting technique, may result in economic growth. Growth is no longer gauged by the number of laborers’ hours worked in recent years. The increase in productivity is the result of technological developments and a corresponding decrease in hours spent. In the 1950s, productivity made possible by technology resulted in a growth pace that had never been seen before.
The growth accounting approach contends that increasing outputs of labor, capital, and productivity may spur economic expansion. The number of hours that workers put in has changed recently, and this has affected how we assess growth.
Technological breakthroughs and a corresponding drop in labor hours are the root causes of productivity development. A growth rate never before seen was achieved in the 1950s thanks to productivity-enhancing technologies. The expansion of labor and capital inputs alone was unable to fully explain the rates.
Again, considerable increases in the supply of the components of production—capital stock and labor force hours—are what lead to extensive expansion. A unit increase in capital stock will result in a commensurate rise in production, which is equal to the marginal product of capital (MPK) multiplied by the increase in capital stock (dK).
Economists defined the overall rise as the sum of these two and stated this in the following formula: On the other hand, if the labor force expands by dL, there will be a consequent increase equivalent to the marginal product of labor (MPL) multiplied by dL. (MPK x dK) + dY (MPL x dL)
The neoclassical theory of production also explains significant economic development. According to both theories, the real rental price of capital equals the marginal product of capital. This suggests that the overall return on capital is equal to the marginal product of capital times the growth in capital stock (MPK x K), whereas the capital’s contribution to production may be calculated as (MPK x K)/Y.
In a similar line, the real pay is the same as the marginal output of labor. The overall remuneration of the workforce in this situation is represented by the marginal product of labor multiplied by the labor increase (MPL * L). As a result, the following equation is employed to calculate labor’s contribution to output: MPL x L)/Y.
Intensive growth, on the other hand, is primarily defined by an increase in the total elements of production, an increase in capital per hour of labor, and a pace of technological advancement. Capital per hour of labor and productivity have a strong relationship. More production is produced per hour with more capital per hour.
Additionally, increased productivity for a given amount of capital per hour of work might result from technical complexity and improvements (Colombatto, 2006).
A further argument for intensive growth is that in this instance, economic expansion is not brought on by increased resource use. Instead, it results from the most efficient use of previously present and useful manufacturing resources.
Particularly, technical developments have made it considerably simpler and quicker to remove land and other natural resources. With advancements in technology, it is now possible to use land from remote locations, even those that are farther away, for development activities. Resources from underutilized or neglected forms in the past can now be employed with the help of modern technology to increase production.
When it comes to the labor element of the production, it is claimed that growth is classified as intensive if it is increased by training and upgrading of skill levels as opposed to being primarily triggered by adding more people or hours worked. The combination of technical advancements, which result in the more effective use of natural resources, and improved personnel training and equipment may lead to a more effective production process or better use of capital.