Economic growth is the increase in the total value of an economy’s output over a period of time, usually measured as gross domestic product (GDP). The primary driver of economic growth is the production of goods and services by labor and capital equipment. It can also be driven by a change in the structure of production such as a switch to manufacturing from agriculture, or by an increase in productivity.
Various economists have tried to pinpoint the causes of economic growth. One theory is that economic growth can be caused by increasing the productive potential of human capital, which includes education, skills training and work experience. Another theory is that economic growth is a result of improving technology and resource allocation.
A key feature of economic growth is that it leads to a larger market for the products produced. This creates more competition, which helps to lower prices and improve quality. Another way that economic growth can occur is by saving and investing in capital equipment, which increases the amount of output per worker. Finally, technological advances can help produce more output, which is why it’s important to invest in research and development.
Economic growth is important to economists and to public- and private-sector leaders, because it can mean higher wages, more jobs, and a general feeling of well-being. Conversely, when an economy is stalled or slowing down, people will earn less, companies will cut back on investment and may lay off workers, and consumers will spend less money, leading to reduced spending overall.