Economic growth is the positive evolution of the living standards of a territory, usually countries, measured in terms of the productive capacity of its economy and its income within a specific period.

The strictest definition of economic growth is the one that indicates that there is an increase in terms of income or goods and services that the economy of a territory produces in a given time, generally measured in years.

The concept of income can include many other economic indicators of the well-being of any country or region within this definition. Aspects such as the level of savings or investment of its citizens and its trade balance are commonly considered when studying economic growth. The most used meter to measure the economic evolution is usually the fluctuations of the  GDP  (Gross Domestic Product)  of the analyzed country.

Economic Growth Theory

The economic studies that have tried to define this phenomenon are included in the theory of economic growth and focus on studying the improvements experienced by economies in a given number of years, which normally tends to extend over the long term. For a short time, there is the business cycle theory.

Through the study of economic growth, many other aspects of the productive life of an economy observe, focusing on its effectiveness level, the quality of education provided to its citizens, its mortality and birth rates or life expectancy in its population. Region.

On the other pointer, this type of growth is usually identified with success or not, as in the case of economic recessions (where there is a decrease in economic activity for some time) and the economic policies practised by countries of the world, based on the assumption that if the income of a country increases, so will the well-being of its citizens.

However, the distribution of a country’s wealth or the specific characteristics of its production system can hide aspects that measurement in terms of income fails to explain in detail. Using GDP as a measure helps simplify reality when analyzing growth, although it does not fully explain the real improvement in living conditions.

Economic growth factors

In centuries of economic study, different models of economic growth and its causes have developed. These are useful simplifications of reality to seek explanations about how economies grow and the reason for their changes. The general idea that draw from them identifies certain factors as key to economic growth:

  • Investment in the capital: Key for workers to carry out their productive work in better conditions and with the help of more tools.
  • Education: Or the same, the investment in human capital that provides the participants in the production process with a preparation that helps them increase their production with the same resources and be more effective.
  • Technology: is important because it facilitates the evolution of work models, tools and means of production and research.

The short and long term growth

The short and long term growth Economic Growth

The short-term variation in economic growth is known as the business cycle. Almost all economies go through periods of recession periodically. The process can remain confused since the fluctuations are not always regular. The explanation of these fluctuations is one of the main tasks of macroeconomics.

There are different schools of thought dealing with the causes of recessions. However, a certain consensus has reached (see Keynesianism, monetarism, neoclassical economics and neo-Keynesian economics). Rises in oil price, wars and crop failures are obvious causes of a recession.

Short-term variation in economic growth has minimized in higher-income countries since the early 1990s. That is partly attributed to better macroeconomic management.

The long-term path for economic growth is a fundamental issue in economics. The increase in the GDP of a country usually considered an increase in its inhabitants’ standard of living. Over long periods, even small annual growth rates can significantly affect. Thanks to its conjugation with other factors.

A growth rate of 2.5% per year would lead to GDP doubling within 30 years. At the same time, a growth rate of 8% per year would lead to the same phenomenon in only ten years—for example, Some countries like Asian tigers. When a population increases to see improvements in living standards, GDP grows faster than that population. This analysis seeks to understand why there are very different economic growth rates in some regions of the world.

Sustained economic growth:

It is a relatively new concept within human history. GDP growth for years was very low, so it not considered by the thinkers of the time. Only after 1800 GDP per capita could change the standard of living in one or two generations.

Growth rates differ between nations. And a variation in it in one year greatly impacts the level of income per capita in a prolonged period.

“Rule of 70”

When a country has a GDP growth rate of X% per year, it takes 70/X years to double income.

Revenue growth can remain divided into two main categories:

  • Change due to increased rents
  • and productivity gains

In the long term, technological progress is necessary to improve living standards. Since it is impossible to increase income indefinitely through work. The attempt to constantly add capital to the production process will necessarily diminish marginal amortizations.

Conclusion

Economic growth can define as the increase or improvement in the inflation-adjusted market value of the goods. And facilities produced by an economy over time. Statisticians conventionally measure such change as the percentage increase in the real gross domestic product or real GDP.

 

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