Economic Growth

Overview

Economic growth is the increase in a country’s productive potential over time.
It is typically measured by the annual rate of change in Gross Domestic Product (GDP).

Investment in Physical Capital: Increase in machinery, infrastructure, or other productive assets can lead to economic growth.
Investment in Human Capital: Investments in education, training, and healthcare can enhance workers’ productivity, enhancing economic growth.
Technological Progress: Advances in technology can enhance the production capacity of an economy, contributing to economic growth.
Institutions and Policies: Clear, fair, and reliable institutions and policies foster economic confidence, making economic growth more likely.
Natural Resources: The availability and efficient use of natural resources can also drive economic growth.

Classical Growth Theory: Proposes that economic growth will cease only when a country’s population growth depletes available resources.
Neoclassical Growth Theory: Suggests that it is technological progress, not capital accumulation, which drives economic growth in the long run.
Endogenous Growth Theory: Advocates that investment in human capital, innovation, and knowledge are significant contributors to economic growth.

Higher Living Standards: A growing economy usually translates into higher incomes and better quality of life for its residents.
Increases in Employment: Economic growth often leads to job creation.
Increase in Public Revenues: Economic growth can lead to higher tax revenues, allowing for increased public services and infrastructure.
Greater Business Confidence: Economic growth can lead to increased investment due to optimism about future economic prospects.

Income Inequality: Economic growth can lead to increased income inequality if the growth is not distributed equitably.
Environmental Degradation: Economic growth can lead to over-utilisation of natural resources, resulting in environmental harm.
Inflation: Rapid economic growth can lead to inflation if the growth of aggregate demand outpaces aggregate supply.
Infrastructural Strains: High levels of economic growth can strain infrastructure, such as roads and public services.