In the last chapter, we mentioned a question posed to me by a Ghanaian student concerning the role of his country in the world economy. He said, “Professor, what does all this really mean for my country? We are going nowhere!” Indeed, although in the 1960s, per capita gross domestic product (GDP) in Ghana exceeded those of Malaysia and Thailand, by the 1990s, it had fallen significantly behind these countries. In 2000, around the time when this student asked me his question, per capita GDP in Ghana was only US$225, whereas those in Malaysia and Thailand were $4,030 and $1,968, respectively. Furthermore, Ghana's 2000 human development index (HDI) was only approximately 0.56, reflecting a relatively low life expectancy and unsatisfactory educational attainment. How could Ghana “get somewhere” rather than “go nowhere?” What insights can we obtain into this possibility using the development as growth perspective? Finally, what roles might human capital, trade, and institutions play in this process? This chapter will help you answer these questions.

Economists are increasingly concerned with explanations of per capita GDP levels and their rates of growth. For such explanations, economists turn to what is known as growth theory. In this chapter, we consider two variants of growth theory: “old” growth theory and “new” growth theory. In the case of new growth theory, we make an explicit link to the human development framework we discussed in Chapter 20. Next, we consider the inter-relationships among human capital, trade, institutions, and growth. For the interested reader, an appendix to the chapter presents some of the algebraic details of growth theory.