Achieving economic growth is a crucial goal for governments, business leaders and individuals. When it’s stalled or contracting, people earn less and spend less, often leaving them feeling worse off. When it’s robust, they can feel more secure and prosperous.
Economic growth is the measure of a nation’s ability to produce more goods and services than it consumes in a given period of time. It is the key driver of prosperity, and it depends on many factors, including a government’s structure and policies, the quality of its human capital, and the availability of raw materials and technology.
There are three ways to achieve economic growth: More capital, more labor or better use of existing capital and labor. Each has limits, but all three can lead to sustainable long-term growth.
The most popular metric for measuring economic growth is real gross domestic product (GDP). GDP includes the production of all goods and services produced in a country, excluding those whose primary purpose isn’t to provide income or wealth, such as food, housing and entertainment.
While GDP is a useful and important metric, it doesn’t tell us everything we need to know about economic growth. One obvious limitation is that it doesn’t tell us how evenly national income is distributed. Another is that it doesn’t account for activities such as caring for children, which aren’t included in GDP if done by the parents themselves but are counted if they are paid to do so.