When talking about macroeconomics, one often hears the term economic growth. It’s inextricably linked to the level of development of the country from an economic point of view, as well as the standard of living of each individual citizen.
What Is Economic Growth
Economic growth is the process of improving production, which increases the quantity and quality of goods and services that an economy is able to produce. In other words, economic growth shows how well a country’s economy is growing.
If we consider how rich a single person is, we can understand this primarily by the level of his income. The more money a person earns, the more public goods he can afford and the better quality of life he can provide for himself and his family. You can tell how rich a person is by what kind of car he drives, what kind of house he lives in, where he goes on vacation, how many bets he enjoys placing via a Casino Chan login, and even what sports he enjoys.
The situation with a country’s economy is similar. The more a country earns through the production of goods and services, the more its residents can afford. The difference is that a country’s income is measured in GDP. Accordingly, if GDP grows, there is economic growth in the country.
Types and Factors of Economic Growth
Economic science distinguishes two types of economic growth: extensive and intensive.
Extensive economic growth implies an increase in the quantity of produced goods and services while keeping the technical component of production at the same level. The tool in this approach can be hiring additional employees or increasing investments in production, purchase of raw materials and expansion of production. These methods can increase the production of the same good or service and raise the overall level of GDP.
Intensive economic growth is associated with qualitative improvements in production. For example, research is conducted to reduce the amount of raw materials consumed per unit of production, and production technology is improved. Thus, intensive economic growth is based on the use of more modern and progressive ways of producing goods and services.
It’s important to understand that in today’s world there are no examples where only one type of economic growth is observed. For example, there may be procedures for hiring additional workers and training old employees in new production technologies. According to research by American economists Campbell McConnell and Stanley Brew, a country’s economic growth is determined by 6 factors:
- The quantity and quality of natural resources. The ability to produce more goods and services depends on the availability of raw materials.
- The quantity and quality of the labor force. The quantity and quality of goods and services produced depends on this factor.
- The amount of fixed capital. This factor limits the amount of money that can be invested in the development of production.
- This factor determines how goods and services can be produced.
- The demand factor. Necessary for economic growth.
- The efficiency factor. This factor includes both natural and human resources. They must be used in a way that uses the resources at the lowest possible cost.
The Stages of Economic Growth: How Business Evolves
In 1959, Walt Rostow, an American economics professor, derived five stages of economic growth, and in 1971 he added a sixth in his work.
The first stage is the traditional society. It is characterized by the fact that most human resources are employed in agricultural production. Besides, the society was characterized by a hierarchical system, where power belonged to governments and landowners.
The second stage is the transitional society. In this stage, the prerequisites for the transition to a more developed type of production are created, which is accompanied by radical transformations in agriculture, foreign trade and transport.
The third stage is the rise. This stage is characterized by the growth of investment in production. It amounts to 5% to 10% of national income. Besides, there is the development of one or more new areas of industry, which leads to the spread of the development trend to the rest of the economy. A new class of society – entrepreneurs – emerges. This stage lasts about 30 years, after which it becomes impossible to maintain such a rate of economic growth.
The fourth stage is rapid maturation. In this stage, urbanization develops and the quality of labor improves. Besides, there is a transition to better management of production.
The fifth stage is the era of high mass consumption. This stage is characterized by an increase in the demand for durable goods and services, because the population is already able to provide itself with basic necessities. The phenomenon of the welfare state is emerging, where the highest goal of society is security and social well-being.
The sixth stage is the search for quality of life. The last, for the time being, stage of development implies a transition from consumption to spiritual development. Under such conditions, the development of the information society takes place.
How a Country’s Economic Growth Is Measured
Quantitative and qualitative indicators re used to measure a country’s economic growth.
Quantitative indicators include GDP, that is, the value of output in the country. The rate of GDP growth per year is expressed as a percentage and shows how much a country’s economy grows each year. By itself, this indicator can speak about the economic growth of the country within the global economy, but it doesn’t show how well the population of the country lives. GDP per capita is used for this purpose. It’s obtained by dividing GDP by the number of people in the country. In this way, we can get information about the average well-being of the citizens of a particular country compared to the population of other countries.
Qualitative indicators describe the social component of a country’s life. They include the amount of free time, the level of social protection, the level of education of the population, the amount of investment in the professional development of employees, etc.
How the Average Person Can Influence Economic Growth
It may seem that a country’s rate of economic growth depends on the actions of large companies and government regulators, who have significant resources and can influence the development of production capacity and GDP growth. But even within large economic entities, each individual worker contributes to the overall growth of the country’s economy. On this basis, each citizen can influence the growth rate of the economy, even if the contribution is imperceptible in the overall indicators.
For example, John sells meat. He works alone and sticks to the old ways of doing business: buying and reselling at a higher price, not investing much in advertising, and not thinking about innovations because they might harm the scheme that works. Soon John begins to realize that he wants more. He begins to develop his butcher store chain, involves family members in his business, and launches advertising for his chain of stores. Eventually he sets up his own butchery so that he doesn’t have to spend money buying goods from others, creates jobs, and pays wages to his workers. As a consequence of all this, he contributes further to the country’s GDP, stimulating the growth of the economy.
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