Economic Growth

Economic growth refers to an increase in the aggregated production and market value of economic commodities and services in an economy over a specific period. Increased productivity translates to higher income, more consumption of goods, and improved quality of life across the country.

Factors like capital goods, labor force, technology improvement, and human capital increase production capacity. The improvement in market value adjusted for inflation takes precedence over the number of goods and services produced by a nation. Traditional metrics to quantify the growth of an economy are gross domestic product (GDP) or gross national product (GNP) over time.

• Economic growth means an increase in the aggregated production and inflation-adjusted market value of economic commodities and services in a given economy over a specific period. It reflects a percentage change in the gross domestic product (GDP) or gross national product (GNP).
• Increased economic output depends on factors, such as capital goods, labor force, technological advancements, and human capital.
• It is different from economic development in that the latter deals with the efficacy of measures used to balance an economy's social, economic, and political framework.
• Benefits of economic expansion include higher income, reduced poverty, better facilities, and improved quality of life.

Economic growth is no longer limited to a country's economic development. While increased financial activities reflect a gain in market value over time, economic expansion refers to a country's social and economic progress. In a nutshell, it is a measure of increased production and inflation-adjusted market value of economic goods and services. It also takes into account the number of hours spent working to produce the desired output. The percentage change in GNP or GDP over a period is a standard metric for gauging the economic growth rate.

A country’s real GDP covers all commodities and services produced for domestic or international consumption. This increased economic output leads to higher employment and incomes, allowing consumers to spend more on luxuries in addition to the necessities of life. It ultimately results in a growing consumption and a more productive economy. Therefore, a nation must analyze factors of production and boost its production capacity to achieve economic expansion.

The production capacity must improve as consumption of products and services increase. To achieve this, manufacturers employ better machinery and skilled workers. It aids in the production of more goods compared to the previously reported results. This rise in productivity contributes to economic expansion. The rate of inflation, however, rises in lockstep with the pace of GDP.

The price of goods also rises in tandem with increased productivity, resulting in a financial imbalance in an economy. As a result, a developed nation ensures that economic expansion is at least 2%, a relatively low figure even if inflation occurs.

Unlike in the past, economic progress is also determined by the quality of life in society. It means there will be no growth to measure if the populace of an economy is unsatisfied and unhappy.

The economy of a country benefits from increased consumption and financial activity. There are, however, several other factors that can spur economic expansion:

1. Physical Capital Goods – Increasing the amount of physical capital, such as machinery, equipment, factories, etc., in an economy raises labor productivity.
2. Technological Improvement – The increased adoption of sophisticated technology leads to efficient and cost-effective production. Furthermore, businesses can produce greater output with the same amount of physical capital.
3. Labor Force – When all other factors remain constant, more workers participate in the productivity of economic goods and services.
4. Human Capital – Providing skilled laborers with training or hiring experienced workers boosts their productivity.

China

Economic growth of China has remained prominent since 1978, resulting in an average annual increase of 10% in GDP. The government has been able to achieve this due to accelerated reforms and a growing worldwide footprint. China has successfully managed its economy over the last four decades, raising more than 800 million people out of poverty.

Besides improving its health, education, and commercial sectors, China has pushed its resource-intensive manufacturing by employing a lenient labor force. Even though the nation has achieved upper-middle-income status, it led to an unbalanced economic, social, and environmental structure.

Above all, China is the only country with positive economic development in 2020 amid the COVID-19 pandemic.

US

Despite many crises, including the COVID-19 phase, the United States has remained the economic force globally. According to the International Monetary Fund, the U.S. economy accounts for 20% of the global economy and has the sixth-largest per capita GDP.

Several banks failed after the Great Depression, but the government saved a few through a bailout program. Since then, the country has made tremendous progress in restoring employment rates and supporting other economic recovery procedures.

The technologically advanced services industry, efficient free market, business-friendly environment, and proper use of production variables have been the reasons behind the consistent U.S. economic growth.

UK

The manufacturing industry, which accounts for a large portion of the UK's GDP, is responsible for the country's economic expansion. However, during the coronavirus pandemic in 2020, the country's economy contracted by 9.8%.

The British economy experienced a dramatic downturn during the Great Depression, which resulted in a global recession. The UK is a significant trade partner with other members of the European Union and nations like the U.S. and Japan. Hence, it plays a crucial role in maintaining a balance in the global market economy.

Any multi-national venture wishing to enter the UK market frequently chooses the country as its European base. It allows the nation to reclaim and maintain its economic infrastructure. According to the Organization for Economic Co-operation and Development (OECD), the UK's GDP will grow at the fastest rate in the world in 2021, with a 7.2% increase.

Economic growth and economic development are two concepts that are frequently used interchangeably. However, their meanings and scopes are vastly different. Here are a few notable distinctions:

• The economic expansion marks the rate of increase in the market value of economic goods and services produced in the economy. Economic development is an improvement in the quality of life measured against poverty reduction and employment growth.
• Economic advancement reflects a percentage change in GNP or GDP. On the other hand, economic development measures the effectiveness of methods to balance an economy's social, economic, and political structure.
• Economic expansion refers to countries with rising per capita incomes, whereas economic development is limited to economies with per capita incomes below the poverty line.
• Economic progress considers the aggregated volume and value of goods and services produced. But economic development is determined by the volume of products and services produced and distributed all over.

Let us look at the benefits of economic expansion or growth:

• Higher Income: Initiatives of the government to boost economic progress lead to higher income levels. Only when people earn well can they afford to purchase various products and services.
• Reduced Poverty: As more individuals get employment and find a way to support themselves, they rise out of poverty and lead a satisfying life.
• Better Facilities: With the increase in the employment rate and income level, the people in an economy can earn the best education and enhance skills to fit suitable job opportunities.
• Improved Quality of Life: As every aspect of life improves, the quality of life automatically improves.

This has been a Guide to Economic Growth & its definition. Here we discuss how economic growth works & its benefits along with examples of China, US & UK. You may also have a look at finance articles –

• Development Economics
• Economics
• Mixed Economic System