Economic growth is good for individuals, families and countries alike. It brings greater wealth, health and quality of life to all. However, measuring economic growth is a tricky business.
GDP, or gross domestic product, is the most popular measure of economic growth and can be calculated as a sum of consumer spending, business investment, government spending, and net exports. GDP growth is the primary goal of national governments and is a key driver of global economic trends.
While there are many factors that contribute to economic growth, one of the most important is increased labor productivity. Technology, for example, can help workers do more work with less effort. Better tools can also make a difference — a fisherman with a better net is likely to catch more fish than one with a poorer one.
Increased capital also drives productivity growth as businesses invest more and build new facilities that help them produce more goods and services. Economies of scale, improved resource allocation and lower trade barriers all contribute to productivity growth as well.
Economic growth is a big deal, and that’s why many economists spend their careers studying the question of how countries grow and why they don’t. While there are many complex and competing theories of economic growth, a few themes have emerged. One is that major macroeconomic policy shifts often accompany growth accelerations, while other factors, such as structural reforms, play smaller roles.