Theoretical Approaches to Economic Growth and Development: An Interdisciplinary Perspective

561 Pages·2020·8.786 MB·English

by  Panagiotis E. Petrakis

Panagiotis E. Petrakis
Theoretical
Approaches to
Economic Growth
and Development
An Interdisciplinary
Perspective
Theoretical Approaches to Economic Growth
and Development
Panagiotis E. Petrakis
Theoretical
Approaches
to Economic Growth
and Development
An Interdisciplinary Perspective
Panagiotis E. Petrakis
Department of Economics
National and Kapodistrian University of Athens
Athens, Greece
ISBN 978-3-030-50067-2 ISBN 978-3-030-50068-9 (eBook)
https://doi.org/10.1007/978-3-030-50068-9
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Acknowledgments
I wish to warmly thank the following people who contributed to the
completion of this book: a special thank you to my scientific research
team, Dr. K. Kafka, Dr. P. Kostis, and Researcher Mr. D. Valsamis whose
cooperation were invaluable and Mr. M. Skotoris and Mr. G. Vasilis who
untiringly contributed to the entire project. The mathematical formula-
tions of economic theories and models were done by Dr. K. Stratis and
Dr. I. Kostarakos. The language editing was done by Mr. K. Matsoukas.
The final responsibility for the presentation of this book lies with the
author. My scientific work would not have been completed without the
help of my colleagues at the National and Kapodistrian University of
Athens and, in particular, Mrs. E. Gkiouli, who contributed significantly
to the development of this project.
v
Introduction
The purpose of this book is to provide the reader with the theoretical
and analytical background needed to understand the process of develop-
ment and growth as it is conceptualized at the beginning of the twenty-
first century having now taken into account the effect of the Covid-19
outbreak that occurred in early 2020. To this end, we present the theo-
retical knowledge about development and growth up to and beyond the
2008 crisis until early 2017.
Since the beginning of economic thought, the focus has been on the
process of development and growth, regardless of whether individual
theoretical constructs were often more specifically targeted. Thus, in
almost all major scientific contributions to the economic science, conclu-
sionsaredrawnconcerningthisprocess.Suchcontributionscoverarange
of scientific areas and subfields, shaping the modern version of the scien-
tific field of development and growth. Sometimes, their significance was
such that they were perfectly identified with the concept of growth
(e.g., the neoclassical theory of endogenous growth). Most of the time,
however, partial identifications did not stand the test of time. In addi-
tion,itisextremelycommonforoldertheoreticalcontributionstoreclaim
power while newer ones fail to be widely accepted. Thus, the need for a
pluralistic perspective that subsumes key points of view is more urgent
than ever.
ShortlybeforeandespeciallyfollowingWorldWarII,therewasadeep-
eningofspecializationineconomicscience,asinalmostallothersciences,
vii
viii INTRODUCTION
and scientific subfields appeared such as microeconomics, macroeco-
nomics, international trade, economic history, growth, and development
economics. Thus, the original character of political economy that devel-
oped as a comprehensive method of handling economic problems, was
disrupted.Atthesametime,thefieldofeconomicsbecameisolatedfrom
its neighboring sciences: As a result, politics, psychology, anthropology,
and biology were not allowed to communicate with basic economic
thought even though the grid of human and social interactions made
such communication self-evident, especially when it comes to economic
developmental growth.
The dispersal in the use of analytical tools has tested the comprehen-
siveviewofthegrowthprocessandexacerbatedthedifficultyofdrawinga
deductive conclusion with strong diagnostic ability. Thus, when the crisis
of 2008 appeared, there was no ready response by economists and the
world community, even though the accumulated knowledge of dealing
with major crises, such as the Great Depression of the 1930s, had armed
them with a large amount of information and experience. At the same
time,itmaynothavebeenonlytheextraordinaryspecializationandisola-
tion of economic theory and thought that resulted in the absence of
general theories with strong predictive power. This may also be due to
fundamental weaknesses in the theoretical framework that may not be
known at present. Besides, the negative consequences of the fragmented
way of scientific thinking extend to the researcher’s ability to grasp the
issuesofdevelopmentandgrowthinawiderangeofsciences(psychology,
anthropology, sociology…) beyond economic theory.
Fortheforegoingreasons,thisbookadoptsageneralandcomprehen-
sive understanding of development and growth. In this context, scientific
subfields are allowed to communicate with the core of economic theory
and policy as well as with neighboring sciences. This allows for a more
in-depth treatment of the issues under discussion. The book consists of
four parts.
ThisapproachwasjustifiedwhentheCovid-19crisisbrokeout,which,
being exogenous in terms of economy and health, caused, like the older
greatpandemics(suchasInfluenzaof1918),averyacuteeconomiccrisis
that is almost touching all sectors of economic activity and the global
economy.
Part I consists of two introductory chapters that outline some essen-
tial methodology elements and an introduction to general and integrated
growth. More specifically, the first chapter covers issues that are critical
INTRODUCTION ix
to the structure and to how the book and economic thinking are orga-
nized.Thus,itendeavorstoillustratetheexpandedandselectiveviewthat
underpinsthemethodologicalscientificstructureofthisbook,whileatthe
same time looking at the feasibility of extending this particular approach
to issues of political growth. The second chapter presents basic questions
of growth, then describes how the study of the subject is organized by
specifying in particular the relationship between growth and prosperity,
along with a series of basic analytic concepts: the relationship between
the part and the aggregate, an analysis of stock against flow, and rele-
vant concepts that need to be clarified for the reader first. In addition,
through the issue of output gap and potential growth, it is clarified that
the phase of the economy under analysis determines the characteristics of
economic theory and policy that ought to be used, to make the study
of the subject more effective. If the economy is at the point where it
has not exhausted the available room of economic productivity, we are in
areas where theories of macroeconomics are applicable. On the contrary,
if it has exhausted the available room of economic capacity and the ques-
tion of capacity building is raised, we are in areas where growth theories
are relevant. This clarifies why this book favors the synthesis of macroe-
conomic thinking and growth thinking, as the discussion of enhancing
growthprospectsmakesnosensewithouttakingintoaccountthestarting
point of the economy, i.e., whether it is below or above the thresholds of
its capabilities.
Part II analyzes concepts that play a particular role in mobilizing the
economic activity of the individual and, hence, of society. These concepts
are not primarily economic but come from a range of sciences. The
following are analyzed: The cultural background, institutions, complex
systems, and the role of information, politics, uncertainty, expectations,
and entrepreneurship. The acceptance of the broader set of social and
economic interactions established in Part I requires a clearer reference to
theseconcepts.Intheiranalysis,theoreticalpursuitsarebroadenedmainly
toward the field of psychology, social psychology, anthropology, etc.
In Part III, an overview of the most important theoretical contri-
butions is made, in order to highlight the sources of growth identi-
fied in economic thought to date. The scientific subfields where sources
of growth have been sought and identified include development theo-
ries, economic history, macroeconomic theories, microeconomic theo-
ries, finance, and international finance. Neighboring sciences also include
x INTRODUCTION
history, psychology, sociology, social psychology, biology, and anthro-
pology. When searching for and identifying sources of growth and crisis
(Covid-19), we have chosen to consider the simultaneous evolution of
economic reality and that of economic development and growth in the
last two centuries. Thus, the reader becomes a partner in the dialec-
ticalrelationshipofeconomicrealityandtheoreticalanalysis,whichmakes
it easy for them to follow in a cognitively creative manner economic
developmental thought.
Part IV analyzes the international economic architecture and the inte-
grated framework of financial transactions. This is how global economic
relations evolve in a globalized environment and a multidimensional
world. The institutions, organizations, and international transnational
relations that define global economic relations are presented. The role of
central banks is made clear, while concepts directly related to the global
governance of the world are clarified as an outcome of globalization and
oftheopenfinancialsystem.Finally,intheannextothispart,theanalysis
concludes with the presentation of the consolidated financial transaction
framework, describing concepts such as covered and uncovered interest
rate parity, the International Fisher Effect, purchasing power parity, and
the real exchange rate.
Contents
Part I Methodology and Introduction
1 The Methodological Puzzle 3
1.1 Introduction 3
1.2 Navigating Between Theories 4
1.2.1 Theory Construction 4
1.2.2 PositivismVersusNormativisminEconomic
Theory 7
1.2.3 Expanded Approaches in Economic
Methodology 9
1.2.4 Models and Theories: The Role
of Mathematics 10
1.2.5 Criteria for Choosing Theory and Hypothesis 12
1.2.6 Predictionism and Operationalism 14
1.3 Time and Spatial Dimensions of Economic
Development 17
1.4 Concluding Thoughts: Methodological Pluralism 20
References 26
2 Introduction to General and Integrated Development
and Growth 29
2.1 Introduction 29
2.2 The Key Questions for Growth 29
xi