Economic growth is a goal for politicians, business leaders, and citizens alike. If an economy is growing, people spend more and earn more, and feel better off than they would if the economy was stagnating. If economic growth is slowing, however, companies may cut jobs and reduce spending, leaving citizens feeling worse off.
There are many ways to measure economic growth, but one of the most common is gross domestic product (GDP), which is a measure of a country’s total output. GDP is calculated by adding together four factors of production: land and natural resources, labor, capital equipment, and entrepreneurship. It is important to note, though, that GDP does not account for everything that adds value to the economy. For example, raising and caring for children is not included in GDP but is counted as income if done by paid childcare workers.
One of the most important drivers of economic growth is technological advance, which improves the use of existing materials and labor to generate more output. This can include the invention of new goods and services like computers, as well as the ability to do things faster or cheaper with existing resources. Economies of scale and improved resource allocation can also boost productivity, reducing the amount of input required to produce a given output.
Achieving and sustaining high levels of economic growth is a top priority for elected officials, both in advanced economies and emerging markets. Despite the recent slowdown in global GDP growth due to the COVID-19 pandemic, many economists see signs that economic growth will continue to accelerate in the years ahead.