Economic growth

Economic growth is generally defined as the rise in the market value of goods and offerings after inflation adjustment produced in the economy within a positive period of time. It is conventionally measured by a share of the rate at which the real gross home product increases. The rise in the gross domestic product to populace ratio referred to either as GDP per capita or per capita income is additionally a very important measure of economic growth. Increasing growth as a result of increased effectivity in using inputs such as capital, labor, materials and power is known as intensive growth whilst extensive growth is the growth in GDP resulting only from growing the quantity of inputs that can be used such as increase in population. (Hubbard et al., 2015). Economics typically considers the economic growth theory or a growing economic as the rise in the potential output, and this represents production at full employment. Economic growth is however usually differentiated from development economics as a field of study. Economic growth theory is largely the studying of ways in which countries are able to move their economies forward while development economics refers to studying of the process of economic development particularly for countries that are still developing.

Per capita output is governed by labor productivity which is the output per unit of labor input, intensity represented by the hours worked, the participation rate or percent of the working age population who in reality are working and demography which refers to the ratio of the working-age population to the entire population. The rate at which a country’s GDP changes relative to population is the total of these four variables’ rates of change as well as their cross products. (Hubbard et al., 2015).

Countries take on the task of economic growth for several reasons, but perhaps the most significant of the reasons is the satisfaction of the country’s population. All countries want to grow economically so as to escape the lifestyles below a certain standard while experiencing every benefit of economic growth. After undertaking these challenges, many economies end up with results that are considerably different from the idealistic notions. Economic growth is apparently not always the same thing for all economies and it may have highly varied effects. (Kristal, 2010). At one end of the spectrum is a school of thought who holds that the economic problems encountered today is never-ending.

This school of thought posits that from the tiniest microcosm to the whole world, economic growth together with waste is gradually damaging all things around the earth. According to this line of thought, the negative effects of economic growth are all too evident within the industrialized countries’ economies. Without a doubt, economic growth has led to the destruction of the environment including the landscape, considerable pollution of the earth, the air and water which in turn has led to the degradation of habitats as well as the inability to experience the intrinsic benefits of the natural environment. Some of the outcomes of economic growth lead to the questioning of the prevailing notion that industrialization has brought more to the lives of people as compared to living in an undamaged and pleasant natural environment for instance. Economic growth requires great amounts of natural resources and this has lead to vast quantities of land ripped open and laid to waste in search of natural resources.

Over the last few decades, the predominant economic ideology worldwide has been the quest for economic growth. However, there has in recent been growing concerns about the concept of continual economic growth. It may be argued perhaps that, economic growth may be a good thing because of the material wealth economic growth brings. However, this substantial economic growth that society wants are in many instances produced more rapidly than the economic growth mechanism can fulfill. This results in to a constant and incessant cynical desire which rises above what can satisfy it at all times. This may probably just be human nature. It is demonstrated when one does not stop and be contented with that which that which one has, but is always yearning for more material possessions. Whatever one has is not adequate and must acquire more. Not only do we require a Royce and a BMW, but also a Mercedes and a Cadillac. The fact here though is that growth is not inexorably related to depletion of resources depletion. It is however true that in the 20th century, economic growth and the industrial development are strongly linked with the depletion of resources. For future growth to be sustainable, a different approach will have to be used. This may be determined by increasing productivity as opposed to the increase in extraction of resource.

Another fact which cannot be denied is that it is indeed in economic growth that future hope lies. In the absence significant improvements in areas such as energy efficiency, the future will be very bleak. With the increase in general energy efficiency, there is a proportional increase in growth. This paradox of economic growth often leaves a country’s population increasingly dissatisfied than when economic growth has been assigned lesser value. In the present day modern society, economic growth remains not only to meet consumer needs, but majorly to justify economic advancement. In addition to these aspects, the demands of great economic growth coupled consumerism places an immense burden as well as challenges on the cogs of the economic growth machine, the workers.

This immense pressure on workers within a greatly increasing economic growth model leads to many health disorders and antisocial tendencies such as depression and suicides in developed nations. It is a generally accepted fact that the levels of stress in the high-paced routine of countries with high levels of economic growth are typically much higher than what people in slowly developing countries or in the already developed and advanced countries are experiencing. Up to this point, mention has only been made of the problems and issues that countries which have already developed have encountered. In addition to these, there are even far greater and graver issues in countries where growth is still just beginning to take place. In addition to the environmental pollution, inequitable distribution of output and depletion of natural resources, there is also an immense social burden. In the countries that are growing economically, the negative social impact is all too evident.

Many of these countries that are growing economically are encountering these great proportions of negative social impact because the rapid and huge urbanization many times leave the authorities overwhelmed with regards to resources, meaning that the basic amenities such as education health-care, housing needs are typically never met, so in countries such as India, Pakistan, south Africa and Indonesia there are situation like these including disease outbreaks, the enormous slum towns as well as all kinds of the social decline which would not be found in an Agrarian society. The impacts of economic growth are fundamental to the characteristics of economic growth. Some recently economically growing countries have neither the capital nor the resources needed to initiate economic growth. They must therefore make use of the investment which is available from external sources. However, this has its a downside.

As a result of the great doubt and risk linked to loaning money to a country which is unstable politically, the lender will typically require returns that are in proportion to the risk taken. The debt in this case then grows and countries which take out these loans pay back the loans with very high interest rates which in one year could have been adequate to totally finance other expenditure such as healthcare. Such aspects coupled with poor application leads to crippling of nations. Although in both the short run as well as the long run economic growth has its disadvantages, it also has its advantages. And if the question were asked, “is it worth it?” it is evident that the answer would be very strong “yes” for both developing and developed nations.

As has been highlighted earlier, Economic growth refers to the increase in real GDP after adjustment for inflation. This rise in real GDP represents a rise in the value of national output as compared to national expenditure. Economic growth most certainly has its benefits. One of the reasons why economic growth is considered to be good for a country is that it leads to higher average incomes. This makes consumers able to have the benefit of more goods and services as well as better standards of living. Economic growth in a country also results in lower unemployment. Because of higher output together with positive economic growth, firms will employ additional workers thereby creating more employment.

Studies have demonstrated that unemployment generally increases during a recession and drops when there are periods of economic growth. (Lewis, 2013). With economic growth, there is much lower government borrowing. Economic growth results in higher tax revenues for the government and at the same time there is much less need to spend money on unemployment benefits. This means that economic growth assists the government in reducing its borrowing. Economic growth also has a major impact on the reduction of debt to GDP ratios because of its direct positive impact on GDP. Increase in tax revenues that arise from economic growth can be used by the government on provision of public services, such as national health schemes, and education and other public services.

A higher real GDP can enable a country to dedicate more resources to promoting positive environmental policies such as conservation, use of renewable resources and recycling as well as the promotion of research into this area. This means that more money can be allocated to protecting the environment. Evidence point to the fact that beyond a moderately low income level, other species will also benefit from economic growth. As a country becomes richer, there is tendency to behave more humanely towards other species. And as countries experience economic growth they, become more urban, organized, more peaceful, cleaner increasingly efficient as well as better-informed. People, the environment as well as other species gain from these effects and also from the scientific and technological advancement which accompanies growth. Economic growth in a country also promotes investment and as such supports a good cycle of economic growth. First of all, increase in real GDP means that there is production of more goods and services in the economy meaning that consumers are able to afford more goods and services. If the welfare is related to consumption then growth holds great benefit for the society.

Economic growth has a great deal of potential benefits although their desirability relies on certain factors such as the nature of growth, sustainability of the growth and its impact on the environment. Even though there are benefits related to economic growths, it also comes with certain potential costs. When average demand grows quicker than average supply, then the growth of country’s economy is not sustainable. The growth of an economy tends to raise inflation if the rate of economic growth goes beyond the rate of the long run trend of growth. This means that the demand for goods and services will increase so quickly such that a positive gap exists in total output with firms pushing up prices. Economic growth may at times also lead to boom and bust economic cycles. When a the economic growth of a country is not sustainable then what follows a high inflationary growth will be a recession.

The growth of an economy again mainly results in to increasing the spending on imported goods and services which in turn results in to a deficit of a country’s current account. This means that a country experiencing economic growth will tend to have an increasing deficit in the balance of goods and services because of the high marginal propensity to import. (Lewis, 2013). Increased economic growth will at times also without doubt lead to increased pollution as well as congestion due to the increase in. increased rates of economic growth in many cases leads to an increase in inequality as this economic growth can at times only benefit a certain section of society more than other sections.

For instance, people who own assets and wealthy individuals will experience a comparatively larger increase in the market value of rents as well as their wealth. While the unskilled and those who are not wealthy will benefit comparatively less from the economic growth. This however depends on factors such as rates of taxes as well as the nature of the growth. (Carbaugh, 2015). Economic growth can be a significant driver for reduction of absolute and relative poverty or an agent of creating it. All this is dependent on the characteristics and mode of the economic growth. When economic growth is sustainable as well as stable, it may go on and yet cause no rise in a country’s inflation. The environmental costs which may be incurred as a result of economic growth may also be reduced by using technology in better and efficient ways.


Baek, J., & Kim, H. S. (2013). Is Economic Growth Good or Bad for the Environment? Empirical Evidence from Korea. Energy Economics, 36, 744-749.

Carbaugh, R. J. (2015). International Economics (15th ed.). Boston, MA: Cengage Learning.

Cowen, T., & Tabbarrok, A. (2013). Modern Principles of Economics. New York: Worth.

Hubbard, G. R., Garnett, A. M., Lewis, P., & O’Brien, A. P. (2015). Macroeconomics. Frenchs Forest NSW: Pearson.

Kristal, T. (2010). Good Times, Bad Times Postwar Labor’s Share of National Income in Capitalist Democracies. American Sociological Review, 75(5), 729-763.

Lewis, A. W. (2013). Theory of Economic Growth. Abingdon: Routledge.

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