How to Express and to Measure Whether an Economic System Develops Intensively

Petr Wawrosz, Jiří Mihola, Jana Kotěšovcová
2018 Systems  
This article presents comprehensive typology of all possible relationships among inputs of an economic system, their productivity, and output. Each situation is given an exact name explaining how intensive and extensive factors contributes to the system development. The exact contributions of the factors can be counted by so-called dynamic intensity and extensity parameters. The article describes logic of the parameters, discusses their advantages and problems and assigns their values to the
more » ... sented nomenclature of the developments. The parameters are further compared with growth accounting methods and their use is demonstrated on the development of macroeconomic system on the national economy level when it is counted how intensive and extensive parameters contribute to the Czech and German GDP development in the period 1991-2017. The analysis confirms that the parameters can be used as an alternative methods to growth accounting and that managers of any economic system should pay attention whether a system achieves positive value of the dynamic intensive parameters in long run. Systems 2018, 6, 24 2 of 18 extensive development is also accompanied by intensive factors in some form. By contrast, technical progress in terms of new technologies makes it possible to use new inputs, which could not be used in the past, so that the production grows not only intensively, but also extensively. If both extensive and intensive factors contribute to the development of a system simultaneously, it is useful to quantify their share in the development in an appropriate manner. In addition, production growth is not the only real situation. The production of any system may also decrease or stagnate. Also, in those cases it is useful to examine how the different factors (i.e., extensive or intensive) contribute to that development, e.g., whether they support it or moderate it. An interesting (albeit probably hypothetical) situation may occur where the quantity of inputs used decreases, but the system continues producing the same production output. It is evident that the extensive decrease must be compensated by intensive growth. The first attempts to clearly quantify extensive and intensive factors in the national economic systems were made in the 1950s and 1960s when they gave rise to the growth accounting equation. However, this method has numerous limitations-for details see [4] [5] [6] . Consequently, this article, based on other literature [7-15] presents a new method of measuring the impact of both intensive and extensive factors on the development of economic systems. It is essential to emphasize [10, 16] that these systems can be at any hierarchical level of the economy-i.e., from systems of national economy (countries or group of countries) to systems of business economy (companies or their parts). A sophisticated typology of economic development, which includes all possible scenarios of growth, stagnation, and decrease of both the output and the intensive or extensive factors, is indispensable for a universal measurement method. This requires finding not only an appropriate mathematical apparatus, but also an adequate manner of expressing the different development scenarios of the output, intensive, and extensive factors, as well as suitable names for these development scenarios. The first goal of the article aims is to present all potential relations between the system inputs (i.e., the extensive factors) and their productivity (i.e., intensive factors) on one hand and the system outputs on the other hand. This issue is addressed in Section 2 of the article, which offers a typology of these relations; their graphical expression for pure and mixed developments; and names to describe all possible situations in the relations between the system inputs, their productivity, and the outputs. Another goal of the article is to show how the impact of intensive and extensive factors can be measured (quantified). This issue is the topic of Section 3, which presents dynamic parameters of intensity and extensity (the titles "dynamic intensity parameter" or "dynamic extensity parameter" are also used). At the same time, this section assigns parameter values to the different situations in the relations between the system inputs, their productivity, and the outputs. In addition, the section reflects on the questions which situations can be seen as a sign of a successful development of a system and which, contrarily, entail the risk of stagnation or downfall of the system. Section 4 compares the dynamic parameters of intensity and extensity with growth accounting. Section 5 presents specific parameter values for the national economic system-specifically for the GDP (output) development in the Czech Republic and Germany in the period 1991-2017. Section 6 discusses possible disadvantages of dynamic parameters of intensity and extensity. The conclusion summarizes the key findings. Comprehensive Analysis of Relations between Inputs, Productivity of Inputs, and Outputs of a System The initial expression of our analysis describes the relation between the system output (Y) as a product of the total factor productivity (TFP) and the total input factor (TIF), where TIF represents combination of a system input and TFP represents inputs productivity [5, [17] [18] [19] [20] [21] [22] The Equation (1) can be schematically illustrated with Figure 1 . Any system needs various inputs. These inputs are combined, organized, arranged, and transformed into outputs by the system itself. Consequently, its TFP is affected by the inputs themselves, as well as by their organization, knowledge Systems 2018, 6, 24 3 of 18
doi:10.3390/systems6020024 fatcat:3o7pf3z6jresnpdr7vjm54ylsi