Economic growth - What is it? characteristics, factors, and more.

Economic growth

Quantitative, observable, and measurable increases in production indicators and people's quality of life.

What is economic growth?

Economic growth is the quantitative, observable, and measurable increase in production indicators and the quality of life conditions of people, in a given territory and as a consequence of an improvement in the distribution of wealth and income.

Economic growth is reflected in the increase in the Gross Domestic Product per capita of each country in a given period of time, which generally corresponds to an annual measurement that allows it to be compared and measured with previous levels.

This measurement is made per capita or per person, so the measurement can be more reasonable between the different countries since it would not be reasonable if it were carried out only with the global GDP since the economic characteristics and the number of the population are very different between countries.

Characteristics of economic growth

The main characteristics that show the economic growth of territory are the following:

• Increased productivity levels.
• Continuous and sustained increase in industrialization processes.
• The high income per capita for most of the inhabitants.
• High levels of consumption of goods and services.
• The low percentage of the number of people active in the labor force occupying areas in the primary sectors.
• Diversification of productive sectors.
• High standard of living for most of the population.
• Significant advances in the areas of science and technology.
• Increase in exports.

How is economic growth measured?

The main indicator used to measure economic growth is the real Gross Domestic Product per capita. A steady increase in real GDP per capita over the long term is the result of gradual economic growth.

Some analysts also consider the Human Development Index (HDI) as a complementary indicator to analyze the economic growth of a country.

Factors affecting economic growth

The main factor influencing economic growth is increasing productivity. However, competitiveness must also be considered, as well as other factors that affect them, such as those detailed below:

• Productivity: is defined as the volume of production that a worker can achieve. Therefore, economic growth can be achieved when the amount produced by workers keeps increasing steadily. For the economy as a whole, productivity is obtained quantitatively by taking real GDP and dividing it by the number of economically active people in an economic territory. Some factors that determine productivity levels and therefore affect economic growth are:
  • Physical capital: corresponds to the physical assets that are used to develop the production process, such as buildings, constructions, machinery, and production equipment, among others. Physical capital is important because it can generate higher productivity in workers. For example, a worker who drives a bulldozer can work a greater number of meters in the earth, compared to one who only drives a shovel.
  • Human capital: corresponds to the improved capacity of workers, which is generated by studies, knowledge, training, education, and training.
  • Technology: corresponds to the investment made in innovation and development to have availability of technical means with which to produce goods and services.
• Competitiveness: corresponds to the level with which a country produces goods and services accepted by international markets within free and transparent market conditions, but simultaneously maintains and increases the real income of its population in the long term.

 

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