NCPA - National Center for Policy Analysis

What Creates Long-Term Economic Growth?

June 14, 2000

Between the beginning of man and the Industrial Revolution, mankind's standard of living barely budged. Once the Industrial Revolution began, however, income and consumption surged and standards of living skyrocketed. A recent study tries to account for this by listing the necessary elements for long-term growth.

The study concludes that long-term growth is driven by new ideas. Consequently, any changes in a society that increase innovation and adaptation increase economic growth. The most important factors are:

  • Population size and growth -- 20 million people cannot produce the same number of new ideas as 6 billion.
  • The number of previous ideas -- new ideas build on old ideas, thus the more old ideas the more new ideas.
  • Property rights -- as people profit from new ideas, the economic incentive spurs more new ideas.

Of the stated reasons for economic growth, the study finds secure property rights have the greatest impact on generating new ideas and consequently, economic growth. It claims the Industrial Revolution occurred when it did because of the increase of property rights, and that it could have been delayed up to 300 years if new property rights had not been enacted.

Source: "What Drives Economic Growth In the Very Long Run?" Economic Intuition, Winter 2000. Based on: Charles I. Jones, "Was an Industrial Revolution Inevitable? Economic Growth Over the Very Long Run," Working Paper No. 7375, October 1999, National Bureau of Economic Research.


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