Defining economic growth
Economic growth refers to an increase in the value of goods and services produced by an economy over time. It is usually measured as the percentage change in real Gross Domestic Product (GDP). According to Our World in Data, economic growth is “the increase in the production of goods and services that people produce for each other”【234655749056916†L95-L97】. Growth can be short‑run (using spare capacity) or long‑run (expanding the productive potential through investment).
Benefits and costs of economic growth
| Benefits | Costs |
|---|---|
| Higher income and living standards; more employment opportunities; increased tax revenue for public services | Environmental degradation; depletion of non‑renewable resources; potential widening of income inequalities |
| Greater ability to reduce poverty and improve health and education | Inflationary pressure if growth is demand‑driven and exceeds productive capacity |
Determinants of growth
Long‑run economic growth depends on:
- Human capital – education and training improve the skills and productivity of workers.
- Physical capital – investment in machinery, infrastructure and technology increases productive capacity.
- Natural resources – access to land, minerals and energy sources can facilitate production.
- Technology and innovation – new ideas and processes boost efficiency.
- Political and economic stability – stable institutions and property rights encourage investment.
Economic growth over time
The following chart illustrates a typical upward trend in real GDP over time (simplified). Sustained growth requires investment and productivity improvements.
Sustainable growth
For growth to be sustainable it must meet present needs without compromising the ability of future generations to meet theirs. This involves balancing economic expansion with environmental protection and social equity, echoing the idea of sustainable development【423903566688180†L155-L157】.
Examples and applications
Rapid growth in East Asia provides a real‑world illustration of long‑run economic development. South Korea transformed from a low‑income agrarian economy in the 1960s into a high‑income industrial powerhouse by investing heavily in education, infrastructure and technology. Its companies, such as Samsung and Hyundai, compete globally and contribute to rising living standards.
Resource‑rich countries like Botswana have used diamond revenues to fund public services and education, maintaining high growth rates while managing the risk of overreliance on a single commodity. This contrasts with some oil‑exporting nations that have experienced the “resource curse,” where volatile revenues and poor governance hinder development.
To make growth sustainable, cities like Copenhagen are investing in renewable energy, cycle lanes and energy‑efficient buildings. Such initiatives demonstrate how economic expansion can be balanced with environmental protection and quality of life.
