Within an

economic context, the concept of growth is extremely important. Extensive Growth is that which arises from adding new

factors of production: be they workers, machines, or factories. This kind of growth is driven by

capital accumulation or

labour accumulation and exists in contrast to

intensive growth, which occurs when existing

factors are used more efficiently. An example of this is taking a bunch of separate machines and making them into an

assembly line. No new machines are added, but the existing machines yield a higher

output than before.

Growth can be charted using the

Cobb-Douglass Production Function:

Y (Income) = T (Technology) * L (Labour) ^ (a) * K (Capital) ^ b where a+b=1

ln(Y) = ln(T) + a ln(L) + b ln(K)

Having a and b sum to one creates

constant returns to scale within the

model. In all developed economies, a is around .75 and b is around .25. Since

income is allocated to

factors according to their

marginal contributions, it makes sense that 75% of

national income (

GDP) is directed to labour.

Within this model, changes in L and K represent

extensive growth while changes in T represent

intensive growth. In

Canada, about 17% of

GDP growth is attributable to changes in L, 13% to changes in K, and the remainder to changes in T.