Final answer:
Growth accounting studies conclude that determinants of economic growth include physical capital deepening, human capital development, and technological progress, with their combination being more important. Governments can stimulate growth through policies that support these determinants and create an environment conducive to economic advancement.
Step-by-step explanation:
Growth accounting studies have determined that significant determinants of economic growth include physical capital deepening, human capital development, and advancements in technology. When assessing the contribution of these factors, the residual growth unaccounted for by physical and human capital is typically attributed to technological progress. This finding emphasizes that while each determinant plays a crucial role, how they are combined and effectively integrated yields the actual growth outcome. In essence, the synergistic interaction between these elements is deemed more vital for sustainable economic growth.
To stimulate economic growth, the government of a free-market economy can implement policies focused on improving physical infrastructure, investing in education and skills development, promoting technological innovation, and ensuring stable macroeconomic conditions. Encouraging entrepreneurship, providing tax incentives for investments, and facilitating trade are other areas where governance can foster an environment conducive to economic advancement.
Over time, even modest improvements in annual economic growth rates can have profound impacts on a nation's GDP per capita. Thus, government policy that supports the growth determinants — capital, human capital, and technology — can significantly contribute to a country's economic trajectory. These policies, combined with a favorable business environment, can lead to the accumulation of wealth and raise the living standards of the country's population.