Economic growth
Economic growth expands the resources available to households, firms and governments, but its social significance depends on productivity, population, distribution, resilience and environmental constraints.
Definition
Economic growth is a sustained increase in an economy's inflation-adjusted production of goods and services, commonly measured by the change in real gross domestic product or real GDP per person.
Measurement
Real GDP removes measured price changes from nominal output. Total GDP indicates economic scale, while GDP per person better approximates average material resources. Neither directly measures household welfare, distribution, unpaid work, environmental depletion or the quality of public services. Cross-country comparisons also require purchasing-power and statistical adjustments.
Sources of growth
Labour
- Population and participation
- Education and skills
- Health and labour allocation
Capital
- Equipment and infrastructure
- Software and intangible assets
- Financial intermediation
Productivity
- Technology and innovation
- Management and organization
- Competition and reallocation
Productivity and institutions
| Concept | Meaning | Limitation |
|---|---|---|
| Labour productivity | Output per worker or hour | Depends partly on capital available to workers |
| Capital deepening | More capital per worker | Faces diminishing returns without innovation |
| Total factor productivity | Output not explained by measured labour and capital | Includes technology, efficiency and measurement error |
| Potential growth | Sustainable expansion of productive capacity | Must be estimated and is revised |
Property rights, capable government, macroeconomic stability, education, competition, research systems and access to finance influence whether resources are accumulated and used productively. Institutions also shape who can participate in growth and whether innovation diffuses beyond leading firms.
Growth quality
Growth can be intensive, through higher productivity, or extensive, through additional labour and capital. Per-capita gains may diverge from aggregate growth when population changes rapidly. Evaluation should therefore consider income distribution, employment, resilience, natural capital and whether present output is financed by unsustainable debt or depletion.
Related concepts
Sources and further reading
View sources and editorial notes
- World Bank, productivity and long-term growth resources.
- OECD, productivity statistics and economic-growth analysis.
- International Monetary Fund, growth and macroeconomic surveillance research.
Editorial note: GDP is an essential production measure but not a complete measure of welfare or sustainability. Growth comparisons depend on definitions, time periods and data revisions.