ABSTRACT
According to the traditional view point, economic growth depends to a large extent on capital accumulation. When productive capacity is generated by investing capital, it constitutes the essential ingredient for increased production and incomes. We see that other factors like labour, skills and technology are also important. Unskilled labour is usually available, but skills and technology must be acquired by education and training or, in the short run, by importing them, just like capital goods that are imported when they are not available locally. Indeed, highly skilled workers and managers are often hired from abroad by firms in developing countries, and technologies are purchased or otherwise transferred. This means that, to a large extent, the short-run problem of generating economic growth is equivalent to the problem of financing it. But even if a country can produce every input necessary for economic growth, it still needs to finance the required investments. The question is then how to increase the financial means available for investment and growth. We address this question in the present chapter by focusing on domestic sources of finance before we consider external sources in the next chapter. After a brief discussion of the determinants of growth in the short and medium run in section 3.1, we examine the possibilities of raising the propensity to save (in 3.2), the relationship between fiscal policy and saving (3.3), the role of financial intermediation (3.4), and the role of monetary policy and inflation (3.5).
