Economic growth is an increase in the amount of goods and services produced by a country for a given period compared to a previous one. This is often measured in terms of GDP. Economic growth is important to both the people of a country and its businesses, since it usually indicates that they are earning more money and generally feeling better off. However, how widely the benefits of economic growth are shared is another key factor that determines whether it’s sustainable.
There are several different ways to achieve economic growth, but the most common involves a combination of labor, capital, and technology. A good example is Johannes Gutenberg’s printing press, which enabled a single worker to produce books that could previously only be made by hand in months or weeks.
Increasing the number of workers or the quality of their skills can also lead to increased productivity, which is a major contributor to economic growth. The quantity of available capital, or the amount of raw materials and equipment a company can purchase to produce its goods or services, is also an important factor in economic growth.
The benefits of economic growth are not without their costs, however. For example, growth can lead to environmental costs if the economy consumes more resources than it can replace (e.g., by building new power plants) or leads to higher living standards that come with a high cost to human health and the natural environment (e.g., by promoting a diet high in sugar and fat that increases the risk of heart disease).
Still, few would argue that maximizing wealth-plus economic growth isn’t an important societal goal. As my Cato colleague Brink Lindsey writes in a recent Policy Analysis, we can do more to foster economic growth by implementing policies that promote entrepreneurship and investment, encourage innovation, support decent job creation and development, and reduce the barriers that keep entrepreneurs from realizing their full potential.