Economic growth is a key goal of many elected officials in advanced countries and emerging economies. It is also a major priority for international development organizations and corporations. But understanding the causes of growth is challenging and, despite decades of research, there are no widely agreed upon results.
Economic Growth: The Basics
Economic output, measured in terms of market value (GDP), rises when people and businesses earn more and spend more. That is why a growing economy is good news for businesses and governments, which rely on growth to raise wages, reduce taxes and build assets. It is also good news for individuals, as growth usually means that they are making more money and feeling better off.
The factors that determine the rate of economic growth are complex and variable. The biggest contributor is consumption, which makes up roughly half of GDP. Consumer spending rose at a healthy pace last quarter, buoyed by strong job creation and savings built up during the COVID-19 lockdowns. Business investment and inventories also made contributions to growth. However, a surge in imports and a drop in business inventories dragged on the overall growth rate.
Other factors influencing growth include the availability of workers and the technology required to do the work. Increasing the number of workers and the productivity of those workers is another factor that can lead to faster growth. Health, safety and environmental regulations may impose costs on businesses that are not captured in GDP, but that must be weighed against the benefits of higher standards of health and safety and cleaner environments that also benefit individuals and society as a whole.
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