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Economic growth is a process that is formed at a stage of direct manufacturing, gets steady feature at other stages of social production, leads to quantitative and qualitative changes in productive forces, increase in public product for certain period of time and growth of national welfare. Economic growth as a criterion of the economic development is the main component in general trajectory of social development. In aggregate with other components (social, political, and demographic), it defines a direction of the movement of a society, by establishing the feature of social development in whole. Economic growth is characterized by increase in actual and potential Gross National Product (GNP), and increase of economic power of the nation, country, and region. It is possible to measure this increase by two interconnected indicators: growth GNP in the certain period of time or GNP growth per capita. In connection with this statistical indicator, economic growth is the annual rate of increase of GNP in percentage. Problems of economic growth are now the topical issue in economic discussions and disputes, conducted by representatives of different nations, people and their governments.
Since its independence from the former Soviet Union in 1991, the Republic of Kazakhstan has made remarkable progress in achieving market-oriented economic reforms and macroeconomic stabilization. Market-oriented reforms achieved by Kazakhstan include: a freely convertible, and now more stable, currency, the tenge; legal guarantees to workers of the rights to organize in trade unions and collectively bargain as well as the reality of rising real wage rates (and declining unemployment); price and interest rate liberalization; substantial privatization of small- and medium-scale enterprises and of many of the largest enterprises; the elimination of trade distortions such as quantitative restrictions and pronounced integration into the international trading and investment systems; the introduction of new laws, including a tax code based on international standards, an effective bankruptcy law, laws on competition and the securities market, and other components of the essential legal framework for a market economy.
Three pillars of productivity growth
Economic growth can be estimated by systems of interconnected indicators that reflect the changes in outcome of manufacturing and its factors. A number of indicators are used for description of economic growth, which helps to measure the productivity of application of separate production factors. In economic theory it is accepted to mark out the factors belonging both to aggregate demand and aggregate supply. The latter includes: (1) quality and quantity of natural resources; (2) quality and quantity of human resources; and (3) volume of fixed capital.
- Quality and quantity of natural resources
- Quality and quantity of human resources
- Volume of fixed capital
It is hard to make a quantitative estimation of this factor, though it considerably influences the rate of economic growth. Land includes the natural resources that are available without alteration or effort on the part of humans. Land as a resource includes only original fertility and mineral deposits, topography, climate, water and vegetation (Hornby, Gammie & Wall 1997, p.268). The world's land area is limited, as are its raw materials (Sloman & Hinde 2007, p.20).
Education and professional training increase labor productivity, and as a result provides an opportunity to have higher earnings. According to Hornby, Gammie & Wall (1997, p.267) labor is productive contributions of humans who work, which involve both thinking and doing. The labor force is limited both in number and in skills (Sloman & Hinde 2007, p.20). Along with quantitative factors, quality of a labor plays an important role, and accordingly labor inputs in production process. There is an increase of labor productivity while education and qualification of workers rises, and that promotes increase of level and rates of economic growth.
Factory buildings and offices with their equipment are production factors, because workers armed with a considerable quantity of equipment will make more goods. Capital includes all manufactured resources, including buildings, equipment, machines, and improvements to land (Hornby, Gammie & Wall 1997, p.267). The world has a limited stock of capital: a limited supply of factories, machine, transportation, and other equipment (Sloman & Hinde 2007, p.20)
Determinants of economic performance
Macroeconomics is the movement and trends in the economy as a whole, which is influenced and in turn influences the microeconomic factors found at business and individual levels. The overall macroeconomic framework plays a role in determining the conditions under which these micro-level decisions are made. Broadly speaking, the macroeconomic conditions are: (1) inflationary stability, (2) openness to trade and investment, (3) good governance, and (4) unemployment.
- Inflationary stability
- Openness to trade and investment
- Good governance
Economic decision-making benefits from a stable general economic environment. This means that a stable inflationary environment is incredibly important. Low rates of predictable inflation are easily managed, whereas a substantial change in the rate of inflation will be more problematic, not least because inflation is difficult to forecast in such a situation.
Openness to international trade and investment is also important to promote economic growth. It has also long been recognized that specialization of labor makes for increased productivity. Since a larger market allows for more specialization, productivity gains should be expected from international trade as well. Openness affects economic growth through several channels such as exploitation of comparative advantage, technology transfer and diffusion of knowledge, increasing scale economies and exposure to competition (Barro 2008, p.39). Foreign Direct Investment (FDI) has recently played a crucial role of internationalizing economic activity and it is a primary source of technology transfer and economic growth (McEachern 2009, p.116).
A stable, well-regulated macroeconomic environment depends on the quality of governance. An appropriate degree of regulation will aim to ensure fairness, and protects the economic system from potentially reckless business practices. This will enable the smooth running of business transactions and thereby contribute to growth. Good economic governance is the result of strong public institutions, with an important role for individuals, civil society organizations, and business and interest groups (McEachern 2009, p.118). Sound economic governance encourages private individuals and groups to engage in economic activities such as taking risks, investing capital and, ultimately, exporting goods and services (Baumol & Blinder 2009, p.134).
Some unemployment is likely to occur in any economy in the course of short term fluctuations around the long run growth trend. Where unemployment persists for long periods, not all available productive resources are being used. Growth will therefore be slower than it could have been.
Countries experience marked differences in the development of their productive capacities and in the improvement of their standards of living. While some countries achieve rapid growth of income and high standards of living, others remain mired at a level of development that does not assure the subsistence needs of the population. In general, a stable macroeconomic environment may favor growth, especially, through reduction of uncertainty, whereas macroeconomic instability may have a negative impact on growth through its effects on productivity and investment.
economic growth strategies
Kazakhstan is geographically the largest country in Central Asia with more than 2.7 million square kilometers of land and with a relatively small population of 16 million people. The vast landlocked country shares its border with five independent states such as Russia, China, Kyrgyzstan, Uzbekistan, and Turkmenistan. High oil and commodity prices have been a key factor in Kazakhstan's impressive growth, but growth has also followed post-independence reforms in economic system. Economic reform in Kazakhstan has been more comprehensive than in some other countries in the region. Underlying reform in Kazakhstan is a desire to integrate more deeply with the global economy and to establish Kazakhstan as a significant player in global markets (Hindley 2008, p.6). Government officials have expressly relied upon the promised wealth of Kazakhstan's immense oil and gas reserves as the solution to the most acute social and economic problems, and the key to future development (Luong 2000, p.30). Kazakhstan's energy wealth, relatively small population and market reforms have ensured development towards a middle-income country (Von Gumppenberg 2007, p.2).
The period of 1991 - 1995, from independence until the adoption of new Constitution, can be characterized as the first stage in the formation of Kazakhstan's statehood, and the phase of economic instability and decline. The overriding emphasis was to tackle economic recession and build a solid foundation for recovery by exploiting the country's considerable mineral wealth. The second stage in Kazakhstan's development was the period of 1995 - 2000 which witnessed not only significant economic transformation but also political improvements. Kazakhstan launched strategies such as "Kazakhstan 2030: Prosperity, security and improvement of welfare of the citizens of Kazakhstan". The most recent phase in the country's development from 2001 onwards has consolidated Kazakhstan's strong economic performance as a regional leader. Economic reform has substantially eased the economic pressures that the government of Kazakhstan was facing in the 1990s.