What is economic growth? – ForTrader.org financial magazine


The economic growth – This is a long-term trend of increase in real GDP (less often GNP, NNP, or ND) per capita. The economic growth Is a quantitative indicator that depends on the well-being of the people: life expectancy, medical care, education level and quality of life, etc.

What types of economic growth are there?

  • Sustainable, long-term economic growth. The American economist W. Rostow, who studied this type of economic growth, noted that it is often observed in countries that have just started the process of economic development from a low level. At the same time, GDP per capita is consistently growing, new jobs are being created, investments are increasing and the well-being of the population is increasing.
  • Zero growth. The concept of zero economic growth arose as a reaction to the aggravated environmental problems in the twentieth century associated with anthropogenic pollution of the human environment and the deepening depletion of the Earth’s resources. A number of ecologists, economists and politicians (mostly European) have put forward the idea of ​​zero growth, in which, in their opinion, these problems can be solved. If in developed countries this concept finds a definite response, then, naturally, the population of “young” developing countries does not accept it.
  • Equilibrium balanced growth. Such economic growth, in which the growth rate of stocks of all products over the period under consideration is constant (according to another definition, in which the rates of development of industries or sectors of the economy are internally consistent).
  • Extensive economic growth. With extensive growth, an increase in the indicator is the reason for an increase in the resources used without an increase in returns.
  • Intense economic growth. With intensive economic growth, the indicator increases due to qualitative changes in the factors of production.

What are the factors of economic growth?

The factors of economic growth are:

  • quantity and quality of natural resources;
  • quantity and quality of labor resources – labor productivity, education and training;
  • the amount of fixed capital;
  • new technologies.

These factors contribute to the physical growth of production, but it is also necessary for the use or consumption of the increased GDP to occur. Therefore, growth also depends on demand factors (higher aggregate spending) and distribution factors (efficient use of scarce resources in various industries).

Economic growth is driven by investment in production… An important feature of investments should be noted: at the time of their implementation, they increase aggregate demand, and in subsequent periods – aggregate supply, as they increase the volume of production capacity.

Scientific and technological progress is an important factor for economic growth, since it allows the use of available resources more efficiently and contributes to an increase in labor productivity.

What stages of economic growth are there?

American scientist W. Rostow in the early 60s. the concept of “five stages of growth” was developed, which is recognized but not indisputable and is currently used.

  • The first stage is traditional society (agriculture, routine machinery, land tenure, land rent).
  • The second stage is a transitional society, a period of creating the prerequisites for a “take-off”: an increase in capital investment per capita, an increase in agricultural productivity, the emergence of “entrepreneurs”.
  • The third stage is the “shift”, the industrial revolution, the accumulation of capital, the rapid growth of industry, a radical change in production methods.
  • The fourth stage is the “maturity” of industrial society: the rapid development of industry, the emergence of new industries, an increase in the share of skilled labor.
  • The fifth stage is the era of “mass consumption”, the main problems of society are the problems of consumption, not production, the main industries are services and the production of consumer goods, and not traditional industries.

What are the indicators of economic growth?

It is necessary to distinguish between both quantitative and qualitative indicators of economic growth.

Quantitative indicators of economic growth

The generally accepted quantitative measure of economic growth is the indicators of absolute growth or growth rates of the real volume of output as a whole or per capita.

The dynamics and growth rates of real GDP characterize the overall scale of the national economy, the change in its share in the world economy, but they say nothing about the living standards of the population. The indicator of real GDP divided by the population (GDP per capita) will give an idea of ​​both the rate of economic growth and the change in the well-being of the population in this regard. Information on the dynamics of production per capita is used to characterize the standard of living and compare it with the standard of living in other countries.

In addition to general indicators of economic growth (GDP and GDP per capita), a number of private indicators are used. The most important private indicator of economic growth is labor productivity, most often measured as production per hour. Labor productivity in general is characterized by the ratio of the volume of products produced and the cost of labor resources.

To characterize economic growth, the rate of return on assets is also used, which characterizes the productivity of capital. Return on assets – the ratio of the product produced to the cost of capital.

Qualitative indicators of economic growth

In addition to quantitative, qualitative indicators of economic growth are also used, which characterize its social orientation. These are indicators of the dynamics of the population’s free time, the degree of social protection of the population, the development of social infrastructure, the growth of investment in human capital, etc.

It should be borne in mind that there are certain contradictions between the rate of economic growth and an increase in its quality. So, for example, the growth rate will be higher if the length of the working day or working week is increased. But at the same time the resources of the population’s free time are reduced.

On the other hand, for example, improving working conditions requires additional expenditures on improving the ergonomic characteristics of workplaces, installing means for cleaning air in industrial premises from dust and gas, reducing excessive noise and vibration, etc. And although such measures tend to contribute to some increase in labor productivity, in general, the costs associated with this do not give an immediate economic return and constrain the rate of economic growth.
In the meantime, there is no need to worry about it. ”

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