Final answer:
Economic volatility during fast growth includes inflation, financial instability, and balance of trade concerns, influenced by factors like foreign investment and the smaller size of economies. This volatility can lead to long-term detrimental effects such as real productivity distractions, and environmental and societal damages, indicating the need for a transition to sustainable economic models.
Step-by-step explanation:
Economic Volatility in Fast Growth
The economic volatility accompanying fast growth can be multifaceted, including both short-term and long-term effects. During periods of rapid economic expansion, sometimes fueled by substantial investment or technological advancements, economies can experience short-run fluctuations known as the business cycle. Countries may face inflation, balance of trade concerns, and damaging financial capital inflows and outflows.
For instance, high growth periods can attract significant foreign investment, which while beneficial, can lead to an overheated economy and potential for abrupt reversals if investor sentiment changes. This was evidently seen during the East Asian Tiger economies crisis in 1997-1998, where heavy foreign investments followed by rapid outflows caused severe economic disruptions. Moreover, smaller economies are often more susceptible to economic volatility due to their inability to absorb large shocks, which can be compounded by volatile inflation and external capital movements.
Furthermore, such volatility can result in businesses focusing less on real productivity improvements and more on short-term financial gains, leading to substantial long-term costs. A continuous presupposition and reliance on growth, without considering the limits and potential downsides, risk severe disruptions and necessitate a shift in economic models towards more sustainable, steady-state economies to avoid irrevocable damage to the environment and society at large.