GD vs SED

Economic development involves structural
change and growth.

In the tradition of neoclassical one-good
growth model which assumes identical individuals and perfectly competitive
markets, economic structure does not matter. Growth regressions and growth
accounting practices based on this approach attribute per capita income growth
to capital deepening and exogenous technological progress. According to the
approach, low per capita income growth is due to low factor accumulation or
slow technological progress or both. Or, higher productivity of an individual
in advanced country than one in developing country is attributed to more
capital or better technology that he or she is equipped with. Or, an economy’s
slow (fast) growth is attributed to slow (fast) factor accumulation or slow (fast)
technological progress or both.

Before 1600, U.K’s GDP per capita growth
was more or less similar with Africa whereas, during the period over 1600 to
2001, U.K’s per capita growth picked up while that of Africa remained more or
less remained similar to the previous period. Accordingly, the discrepancy of annual
GDP per capita growth between U.K. and Africa, which was 0.05%p over the period
from 1 to 1600 A.D., increased to 0.45%p over the period from 1600 to 2001 (Maddison
2003). The same people living in two different places realized different
performance in technological progress during the latter period. How come this
happen? Given the assumption of identical individuals, factor accumulation per
person would be similar between the two places. Then difference in exogenous
technological progress is to explain differences in growth performance. It
remains in black box.

Characteristics of economic systems
matters. It is not only the difference of individual propensity to save and
individual company's willingness to take risks that determine the growth
performance of an economy. But, systemic characteristics which include not only
institutions such as ownership of land and demographic feature such as longevity
but also of the size of markets matter. Market size matters because division of
labor is limited by the extent of markets as Adam Smith has explained.
Individual choices regarding savings, the number of children they would like to
give birth to affects the sizes of factor markets. Interaction between
individual actions and aggregate sizes of markets, i.e., spillover effects, causes
non-linearity of the relationship between aggregate inputs and outputs. One of
the outcomes of such non-linear relationship is stages of economic development.
New division of labor at th