Economic Growth

In economics, economic growth is a broad term that refers to an increase in the production of economic products and services from one time period to the next. Statisticians commonly use the percentage rate of rising real gross domestic product (real GDP) to measure such growth. In today’s competitive economy, having an effective economic strategy is vital for a nation’s growth and development. A nation’s sustained economic growth favours the national income and employment levels, resulting in greater living standards for its people. 

Economic Growth: Explanation 

Economic growth directly affects the quality of people’s living standards. Incomes rise as the total production capacity rises, allowing consumers to purchase more commodities. With higher earnings and increased production, they operate together to boost productivity. This cycle continues since productivity increases at a rapid rate. More job opportunities may benefit consumers, and the government may be able to spend tax resources on public services.

Countries must enhance their production capacity to increase commodities and services. People in the nation can consume more with a rise in GDP or the value of products and services generated. In a broader sense, economic growth entails evaluating variables that increase production capacity over time.

Economic Growth: Types

Economic growth, in economics, can be classified into two types, namely, intensive growth and extensive growth. 

• Intensive growth: It is defined as economic growth resulting from more efficient utilisation of inputs (improved labour productivity, resources, physical capital, or energy).
• Extensive growth: It is defined as GDP growth produced solely by increases in the number of inputs readily available for utilisation (for example, increasing population or expanded territory).

Example of Economic Growth

A few years of rapid economic growth can change a developing nation into a developed one. Let’s understand the concept of economic growth with a simple example.

Let’s assume the following causes of economic growth as an example. Country X and Country Y are two distinct nations. The output capacity of Country X is 5 times that of Country Y. Only one-fourth of Country X’s resources are spent on capital accumulation. On the other hand, country Y spends a good amount of its resources on capital accumulation, say one-third of resources.   

While both countries enjoy economic growth, Country Y’s production capacity would expand more quickly than Country X’s. Country Y’s economy grows at a quicker rate than Country X’s.

This way, Country Y may be able to catch up to the production capacity of Country X. It is because Country Y continues to apply its resources for the accumulation of capital.

How is Economic Growth Rate Measured?

In Economics, the percentage change in real gross domestic product from one year to the next provides the economic growth rate. A formula is used to determine the growth rate, which is given below.

[(Real GDP in the current year – real GDP in the previous year)/ real GDP in previous year] x 100 = Real GDP growth rate.

Major Factors Stimulating the Economic Growth Rate of a Nation

The important factors that spur the economic growth of a nation include:

• Human resources

Based on how they’re utilised, a country’s human resources can be an asset or a scourge. Consider the scenario of a populous country like India. A significant share of people are of working age. In addition, the majority of them have a strong education and skill sets. This has allowed an otherwise impoverished country such as India to develop into the world’s fastest-expanding economy. Any country wishing to develop economically must guarantee that its residents have access to high-quality education at a reasonable cost. 

• Natural resources

It greatly facilitates economic progress. Locations with harbours grew tremendously at a period when shipping was strategic. Since energy now effectively dominates the world, any reserves of fossil fuels or other energy sources significantly boost a country’s economic strength. Consider the situation of Middle Eastern countries. The fact that these countries have an abundance of oil reserves has defined their economies. Other countries have natural resources such as coal, iron ore, and even arable land.

• Technology

Technology has always been critical to economic development. Technological advancements ushered in the industrial revolution. Since then, humanity has never looked back. Only the ways in which technology was used varied over time. Technology drives job and corporate growth, from production to services to social media. As a result, countries that grow their technological prowess develop far faster than others.

Conclusion

Economics aims to explain what motivates people’s actions, decisions, and reactions in the face of adversity or triumph. Good health, a home, education, proper nutrition, human rights, and social ties are also important determinants of economic growth. It raises a country’s actual gross domestic product (GDP). India is one of the fastest-growing economies and the fifth largest in the world, with a GDP of approximately $2.9 trillion. The rise in tax collection and the government’s budget support for states boosted India’s overall economic growth.