Economic growth is the increase in the total market value of goods and services produced by an economy. This rise typically manifests as an increase in the purchasing power of consumers, inspiring them to open their wallets and drive growth in both consumer spending and business investment. Ultimately, this leads to more and better products and raises the standard of living for people around the world.
While a healthy rate of economic growth has the potential to alleviate many of the world’s problems, it can also cause significant negative externalities such as pollution, deforestation and climate change. It is also not always equally distributed. Rich investors and businessmen, for example, may benefit disproportionately from economic growth while the working class and poor are left behind.
The rate of economic growth is dependent on four factors: land and natural resources, labor, capital equipment and entrepreneurship. Each of these has a different impact on economic growth. For example, the discovery of oil or other natural resources has the ability to boost economic growth significantly. However, this does not necessarily mean that the economy will grow quickly because other factors such as entrepreneurship and a stable labour force are necessary for economic growth.
Currently, the most vexing issue is slowing gains in what economists call total factor productivity (which captures innovations and technology) which account for much of the slowing in growth since the financial crisis. To promote economic growth, government leaders should focus on expanding demand by cutting income taxes and indirect taxes on investment and interest rates. They should also invest in education and training centres to improve the skills of the workforce and foster new businesses.