Economic Growth

Introduction

• Economic growth is the increase in the level of output of goods and services in an economy. 
• Economic growth is a quantitative measure.  It  is the positive change in the real output of the country in a particular span of time.
• Economic growth can easily be estimated by real GDP or Real Per Capita income. 
• Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports

Significance of Economic Growth

• Economic growth gives us freedom to enjoy greater leisure or more material wealth in the form of goods and services or some combination of the both.
• Rapid economic growth is one of the important instruments to resolve social tensions which tend to result from different segments of populations trying to extract more and more than they already have, e.g. workers asking for higher wages, better housing, education, health and other amenities.
• Economic growth process has been found to be the most effective tool to alleviate poverty. 
• Economic growth also permits mankind to indulge in the luxury of greater humanitarianism as at higher level of income they can afford to forgo part of their income to uplift others who have not been so fortunate
• Economic growth has the potential to bring gender equality in various fronts.

Determinants of Economic Growth

• Natural Resources:  For economic growth, the existence of natural resources in abundance is essential. A country deficient in natural resources may not be in a position to develop rapidly. In fact natural resources are a necessary condition for economic growth but not a sufficient one.
• Capital Formation: Among several economic factors, capital formation is another important factor for the growth of an economy. Capital formation increases sectoral productivity in the economy on the one hand and ultimately enhances national output by raising effective demand, on the other.  
• Technological Progress:  Technological progress is a very important factor in determining the rate of economic growth. In fact, even capital accumulation is not possible without technical progress. Technical progress is nothing but widening of capital. It generally results in an increase in productivity and it  adds greatly to our ability to make a fuller use of the natural resources.
• Human Resources: A good quality of population is very important in determining the rate of economic progress. Instead of a large population, a small but high quality of the human race in a country is better for economic growth. Thus, for economic growth, investment in human capital in the form of educational and medical and such other social schemes is very much desirable. 
• Social Overheads: Another important determinant of economic growth is the provision of social overheads like schools, colleges, technical institutions, medical colleges, hospitals and public health facilities. Such facilities make the working population healthy, efficient and responsible. Such people can well take their country economically forward.
• Population Growth: Labour supply comes from population growth. But the population growth should be normal. A galloping rise in population retards economic progress. Population growth is desirable only in an under-populated country. 
• Capital Output Ratio: Another determinant of economic growth is the capital output ratio. The term ‘capital-output ratio’ refers to the number of units of capital that are required in order to produce one unit of output. 

Limitations of Economic Growth

• Inequality of income: Growth rarely delivers its benefits evenly. So the issue of distribution of the fruits of the growth process becomes the first important limitation of the process of economic growth.
• Loss of non-renewable resources: The more we want to produce, the more resources we need to do that. The faster we use these resources, the less time they will last. This invariably leads to loss of non-renewable resources like oil, and other minerals, forests etc.
• Pollution and other negative externalities: The drive for increased output tends to put more and more pressure on the environment and the result will often be increased pollution.