Recognizing the need for infrastructure in Canada, Advisory Council on Economic Growth was formed by Canada’s Ministry of Finance. The main goal of the council is to escalate Canada’s long-term economic growth. An important idea proposed by the council is to create the Canadian Infrastructure Development Bank (CIDB) in order to increase infrastructure investment. The CIDB has a capital of $40 billon in federal funds and aims to attract private capital institutional investors like banks, hedge funds and investment companies. Over the course of ten years, the council predicts that CIDB can raise enough capital “to deliver projects worth $200 billion in infrastructure “ while minimizing the use of tax dollars and burden on tax payers in the long run.
…show more content…
One of the most effective models in explaining Canada’s short-term growth rate is the Solow Model. It states that accumulation of capital drives an economy of a country towards economic growth. The CIDB aims to increase the amount of investment towards infrastructure development leading to the accumulation of capital for the future. There is also a certain amount of depreciation each year, which offsets the investment. The Solow Model is successful in giving us two important insights about capital accumulation and economic growth:
i) It explains that capital to output ratio is equal to the ratio of the investment rate to the depreciation rate. Hence, a higher amount of investment in infrastructure will increase the amount of capital to output ratio. ii) It is successful in explaining the transition dynamics of an economy. The far below an economy is from its steady state (investment rate = depreciation rate) the faster it will grow.
Growth eventually stops according to the Solow Model because investment and capital have diminishing
One of the most effective models in explaining Canada’s short-term growth rate is the Solow Model. It states that accumulation of capital drives an economy of a country towards economic growth. The CIDB aims to increase the amount of investment towards infrastructure development leading to the accumulation of capital for the future. There is also a certain amount of depreciation each year, which offsets the investment. The Solow Model is successful in giving us two important insights about capital accumulation and economic growth:
i) It explains that capital to output ratio is equal to the ratio of the investment rate to the depreciation rate. Hence, a higher amount of investment in infrastructure will increase the amount of capital to output ratio. ii) It is successful in explaining the transition dynamics of an economy. The far below an economy is from its steady state (investment rate = depreciation rate) the faster it will grow.
Growth eventually stops according to the Solow Model because investment and capital have diminishing