Economic growth has lifted billions of people out of poverty. It has reduced the share of the world’s population living in extreme poverty from over 70% in 1820 to less than 1% today. It has allowed more and more people to enjoy adequate nutrition, clean water, decent housing, and quality healthcare. And it’s also been linked to other improvements in life, such as longer telomeres and lower risk of heart disease and cancer (Coles et al, 2021; Jetter et al, 2019).
Measuring the economy’s growth requires looking at the total market value of everything that gets produced within a country’s borders. The macroeconomic statistic used to calculate this is called gross domestic product, or GDP. It’s important to measure GDP because it tells us the amount that a country has increased its production from one year to the next.
The most important factor for economic growth is an increase in the productivity of labor, meaning that workers produce more output per period of time. This can be achieved through two things:
The first is adding more physical capital to the economy, such as building more factories or investing in newer and better tools for workers to use. The second way is through technological improvements, such as developing more efficient fuels or finding ways to produce more energy from a given resource.