BROWSE

Economic Growth

Definition

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

What is 'Economic Growth'

Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used.

Explaining 'Economic Growth'

In simplest terms, economic growth refers to an increase in aggregate productivity. Often, but not necessarily, aggregate gains in productivity correlate with increased average marginal productivity. This means the average laborer in a given economy becomes, on average, more productive. It is also possible to achieve aggregate economic growth without an increased average marginal productivity through extra immigration or higher birth rates.

Measured in Dollars, Not Goods and Services

A growing or more productive economy can make more goods and provide more services than before. However, some goods and services are considered more valuable than others. For example, a smartphone is considered more valuable than a pair of socks or a glass of water. Growth has to be measured in the value of goods and services, not only the quantity.

Causes of Economic Growth

There are only a few ways to generate economic growth. The first is a discovery of new or better economic resources. An example of this is the discovery of gasoline fuel; prior to the discovery of the energy-generating power of gasoline, the economic value of petroleum was relatively low. Gasoline became a "better" and more productive economic resource after this discovery.


Further Reading


The direction of causality between financial development and economic growth
www.sciencedirect.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

International financial liberalization and economic growthInternational financial liberalization and economic growth
onlinelibrary.wiley.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Does too much finance harm economic growth?Does too much finance harm economic growth?
www.sciencedirect.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Does financial development 'lead'economic growth? A vector auto-regression appraisalDoes financial development 'lead'economic growth? A vector auto-regression appraisal
www.tandfonline.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Financial development and economic growth: evidence from panel unit root and cointegration testsFinancial development and economic growth: evidence from panel unit root and cointegration tests
www.sciencedirect.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Innovation and economic growthInnovation and economic growth
www.oxfordhandbooks.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Prosperity without growth: Economics for a finite planetProsperity without growth: Economics for a finite planet
journals.sagepub.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Financial development and economic growth: the case of TaiwanFinancial development and economic growth: the case of Taiwan
www.tandfonline.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

Financial development and economic growth: assessing the evidenceFinancial development and economic growth: assessing the evidence
academic.oup.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …

FDI and economic growth: the role of local financial marketsFDI and economic growth: the role of local financial markets
www.sciencedirect.com [PDF]
This paper employs the Geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth. The paper finds that (1) financial development …



Q&A About Economic Growth


What does it mean for a resource to become more valuable after discovery?

The value of the resource increases because it becomes more productive. For example, gasoline was not considered very valuable before its discovery as a source of energy; however, after its discovery it became much more useful and therefore had greater value. Petroleum has also increased in value since its discovery as a source of energy and other products such as plastics and pharmaceuticals. Natural gas has also increased in value since its discovery as a source of energy; however, this resource was already being used prior to its official "discovery". This shows that even though something may already be being used by people, if there is an increase in the productivity or usefulness then the value will rise accordingly.

How can economic growth be measured?

It can be measured in nominal or real terms.

Is economic growth always positive?

No, sometimes there are negative rates of economic growth called recessions or depressions which occur when there is less production than before over time due to decreased demand for goods and services or loss of production capability (e.g., factories closing). A recession can lead to deflation where prices fall over time instead of rising with inflation (e.g., falling wages). Inflation occurs when prices rise over time while deflation occurs when prices fall over time (i.e., supply exceeds demand). Deflation can lead to depression where debt becomes increasingly difficult to pay off due to lower wages and higher costs (i.e., paying back loans becomes harder) leading people into

Who was Amartya Sen?

Amartya Sen was an economist who described economic growth as but "one aspect" of the process of economic development.

How does economic growth differ from economic development?

While both aim to improve the well-being and quality of life, they differ in their approaches. Economic growth focuses on increasing GDP while economic development focuses on improving quality of life for all citizens.

What is economic development?

Economic development is the process of improving the well-being and quality of life of a nation, region, local community or an individual.

What are some terms used to describe economic development?

Modernization, Westernization and industrialization are other terms often used while discussing economic development.

What is economic growth?

Economic growth is an increase in the capacity of an economy to produce goods and services.

What are some examples of economic resources that have been discovered?

Gasoline fuel, petroleum, and natural gas. These were all previously undiscovered resources.

Leave a Reply

Your email address will not be published. Required fields are marked *