i)

Capital mobilization investment

ii)

Foreign direct

The mobilization of capital requires good institutions and the use of intermediaries (money bills). In the early history there were a few barriers which prevented capital mobilization. When two areas have different interest rates on returns the market should come to an equilibrium if capital can flow between areas easily. A few troubles with capital mobilization are: 1. transaction costs 2. risks how likely is the return? 3. uncertainty, imperfect communication The initial capital markets started in the time of the staples trade. The staples traded relied a lot on their large capital stock of inventories (though in timber trade also in producers equipment (axes)). The creation of financial institutions which more efficiently marshaled savings and directed them as financial capital in what is known as the capital market, and the process called the mobilization of capital eased strains in trading markets. The function of these markets was to direct the savings to the most appropriate method of forming real capital. - Gross national capital formation additions to capital stock undertaken by Canadians - Gross domestic capital formation includes foreign investment in Canada and additions to capital stock undertaken by Canadians - For most of its history Canada is a gross importer of capital GDFC > GNFC Major categories of capital investment from abroad: 1. plants 2. residential dwellings houses and apartments (assoc. with pop. Growth) 3. publicly owned institutions government buildings, schools, hospitals etc. 4. inventories 5. producers equipment and machineries After the first world war capital markets became better and more reliable and of a national scope. One major group of people who had an important role in the creation of these capital markets are the Entrepreneurs (who were active before the first world war already) Entrepreneurs are defines as those who mobilize capital, producing real output or provide a service. They reduce the barriers to capital mobilization. Reducing risks, improving information equality There were three types of entrepreneurs 1. Old Canadian and industrial families 2. Foreign born members of entrepreneurial families (Scots, British, Germans and Americans) horizontal mobilization 3. Scottish or native born Canadians

The major developments in Canadian banking. Three issues which are central to long-run economic growth and change The contribution of the banking system to capital formation by the provision of intermediary services; 2. The influence of the banking system on the money supply and in turn its economic development; and 3. The banks role in the creation of an increasingly efficient capital market Because the increased dependency on banking and the bank as a more reliable entity money supply was regulated better. Unstable money supply might limit the growth of real output from the M x V = P x Q. When money supply M is limited then accumulation of P x Q is limited as well. ii) Degree of Concentration 1.

If a few large firms account for a large proportion of an entire industrys output the industry is said to be concentrated. Concentration is an indicator for the potential use of market power (collusion). Factors that can cause concentration: 1. government regulations 2. firm goals 3. barriers to entry 4. types of products being produced and 5. the desire of a foreign firm to establish a superior market position abroad by monopolizing a source of natural resource inputs in Canada. Evidence states that during the late 19th century concentration in Canada increased. Between the two world wars concentration stayed the same but in the second world war it increased due to demand for war related goods as airplanes and shipbuilding. In 1948 plant concentration was lower than in 1922. Since the end of WWII there are still some fluctuations. These fluctuations rely on market demand of different types of goods. When the market demand for televisions rise all of a sudden and there is only one manufacturer (example) than because of this rise in demand the overall concentration within industries increases. For an economy to develop well, a government might be considered with concentrated industries. When firms collude and create market power this might influence total social efficiency negatively. In the long run there has been an increasing trend in concentration. Though this high concentration the implementation and enhancement of laws to prevent concentration has been sporadic. In part this is due to the weaker constitutional power of the federal government in Canada to enact

laws affecting commerce than in the US. But two other factors are of greater importance. 1. anti-combines prosecution has never been given a high priority by the federal government few resources were devoted to investigation and prosecution 2. Canada has always been a small, open economy with the result that it has been unwilling to sacrifice the apparent economic gains brought about by large scale production units for other end such as greater competition. iv) Portfolio Investment

Portfolio investments = The purchase of stocks, bonds, and money market instruments by foreigners for the purpose of realizing a financial return, which does not result in foreign management, ownership, or legal control In Canada the portfolio investment started around 1840 with the explosion of railway construction. The Guarantee Act was signed in 1849 and revisited a few years later. This act ensured up to 6 % guaranteed interest payment for investors through which the risks decreased. The Grant Trunk Fiasco: A railway company which took care of a lot of railway construction was bankrupt in 1859. British investors lost a lot of opportunity costs with this fiasco and it took a long time until the foreign investment market was re-established. Between 1865 and 1914 Canada depended for 85 % of the foreign portfolio investments in Britain. The investment had some cyclical fluctuation during this time period. As interest payment raised and risks decreased Canada became more attractive to British investors. When the opposite happened it was more reliable for the British investors to invest in their home country. There were three investment booms in Canada during this period: 1873 U.S. westward expansion in the aftermath of the Civil War 1889 opening of the South African goldfields, expansion in Latin America and Australia and building of Canadian Pacific Railway 1913 Canadian prairie settlement, wheat boom, and industrial expansion and South American expansion. v) Solow Argument: That the amount of output produced by a given K(t) and L(t) increases over time as technology A(t) grows. It is clear that technological improvement is an important factor in standards of living. According to Solow the increase in population grow can be appointed to technological growth. Technological change

Solow further argues that 7/8 of the increase in GDP and output growth can be assigned to the technological change during the period in the period between 1909 and 1949.

Rostows five stages of economic growth: The traditional society agricultural basis and families and hierarchy as constitution Pre-conditional period social and political changes Take-off intensive growth rises to new level because of technological change Drive to maturity better social en political institutions and self-sustainability Age of high mass consumption high GDP and increased demand for goods