Understanding Economic Growth: A Comprehensive Guide

 

Understanding Economic Growth: A Comprehensive Guide

Economic growth has been of interest to economists, policy makers, and scholars for the last few centuries. They are relative to the amount of the total goods and services that an economy producers within a given period of time. Analysis of economic growth is significant in case if one has to identify right policies that are needed for improving the living standard of the people and decreasing the level of poverty. The current guide will explore of economic growth by focusing on the concepts, factors, and theories associated with it.

    What is Economic a Growth?

In its simplest terms, economic growth is the process of adding to a country’s production capacity for goods and services. This growth is normally defined in terms of increase in Gross Domestic Product (GDP) or Gross National Product (GNP). There is are two main types of economic growth:

1. Short-term Economic Growth: This is however usually cyclic and depends with the economic cycles and is usually determined in few years.

2. Long-term Economic Growth: Long run economic growth is an enduring improvement in an economy productive potential over a long time possibly measured in decades.

    Measuring Economic Growth

    GDP and GNP

Gross Domestic Product GDP and Gross National Product GNP are the two economic growth measurements extensively used. 

>Gross domestic product; is used to define the value of all products and services within a country’s economic territory. This is normally used to assess the economic health of a country.

GNP, that evaluates the value of all that has been produced by a country’s residents irrespective of the geographical location. 

    Real vs. Nominal GDP

It is important to distinguish between nominal and real GDP:

- Nominal GDP; captures the current market value, which processes the element of inflation.

Deflator; is an index of increase in the general price level and real GDP reflects actual growth of an economy using the value of a base year.

Determinants of Economic Growth

There are many causes of economic growth and knowledge of these is useful in the attainment of growth in the economy.

     Physical Capital

Maybe it’s the infrastructure, the machinery, the technology and so on that pile up investments in order to from productivity for the purpose of enhancing economic development. For instance, there is more efficiency in the transport systems since this can lower on the cost of operation in the movement of goods and services.

   Human Capital

I was learning that training and education improves the efficiency level of the human capital means. Education and health are correlated with growth because a well educated and healthy population is productive.

       Innovation and Technology

Recent technological improvements are instrumental in business growth because they enhance productivity and result in new product/market offerings. The development of internet as an example brought changes and improvements to the world trade and communication as well as the economy.

     Natural Resources

That is why the countries having the potential of oil, minerals, fertile soil can have a better pace of economy development. That is why people stress that it can work just as effectively, but management of resources is a decisive factor, and its improper use can lead to stagnation in the development of the economy.

Institutional Factors

To obtain sound political environment and institutions that support the foregoing tenets of stable politics, protection of property rights and efficiency of delivery of public good for economic development of ASIA Pacific region. Those institutions that encourage accountability, fight against corruption as well as enshrine the principle of the rule of law assist in the determination of investment friendly environments for growth of the economy.

     Trade and Globalization

Countries that participate in the foreign business are often disposed to higher levels of economic growth. It enables nations to focus in products that they can produce most efficiently an effectively hence speaking of comparative advantage in nations.

   Theories of Economic Growth

    Classical Theories

There are two prime growth theories in the beginning; they are the classical growth theory by Adam Smith and the Harrod-Domar model by David Ricardo which aimed at explaining their effects on economic growth. Earlier Smith talked about what he termed as the invisible hand; market forces on their own could do the work of an efficient resource allocation, efficiency and growth.

     Neoclassical Growth Model

Neoclassical growth theory that emerged in the 1950s on Solow’s work had its base in Solow Swan model. It emphasizes the role of technological change, capital formation and increase in labour supply. In the context of this model it is argued that after some time economies get locked into a long-run growth path, propelled primarily by technology.

    Endogenous Growth Theory

Endogenous growth theory was propounded in 1980 s therefore differing with neoclassical theorem that posited growth to be induced by external factors within the economy such as knowledge, innovation and human capital. This theory pays a lot of attention to policies and institutions, as agents of innovation and knowledge production.

   Challenges to Economic Growth

However, there are several which may be considered as impediments, or factors that may slow down change in the new economy.

    Inequality

What this brings out is that it comes with such disastrous consequences like for example the economic development occurring in a way that intensifies polarization of wealth. That is why the process of income equalization is very important for further sustainable development since the use of policies such as the progressive taxation system, social protection policies, etc. can be realized only within the framework of this goal.

    Environmental Sustainability

As people demanded for faster and efficient improvement of the economy some of the impacts which has been noticed are pollute environment and depletion of natural resources. Environmental stewariship is an essential component of efficient consumer response that entails incorporation of green technologies or renewable energy so as to help the economy evolve to the next level without having to pollute the environment.

    Political Instability

Civilian insecurity can de-stabalise business, dissuade investors and erase fixes, Toye says. Hence it can be said that the strong institutions, peace making are essential for the economic sustainable development.

   Global Economic Shocks

As indicated in the paper, financial oscillations including crises and big pandemics can slow down economic growth. These are some of the critical approach to the management of such shocks; interconnection globally as well as shocks developing strong and many financial institutions.

    Technological Displacement

Technologically Social skills are considered to enable growth but existence bring about skill distortion via mechanized entails. Therefore, retraining and measures of social safeguarding are appropriate.

ON THE ECONOMIC GROWTH: Case Studies

  The Asian Tigers

The Asian tigers include South Korea, Taiwan, Hong Kong, and Singapore experienced a remarkable economy from the 1960 to the 1990s. They supported by export orientation policies, investments in human resources and improvements, as well as, preparations of macroeconomic stability. They all graduated from low-income per capita to high income in a matter of just three or four decades.

   China

Maybe the most striking mutation in the last couple of decades is the change of China’s economic landscape. This had been precipitated by advancement in liberalized markets, enhancement of infrastructure and liberalizing the market for overseas markets. But China has problems like income disparities, pollution, and the problem of aging population.

    India

India has witnessed liberalization since the early 1990s, investment on information technology and service industry has torn through the country according to the world bank. However, India for instance has social issues including; poverty, inequality, poor infrastructure, which are still key issues that require to be enhanced if the country is to move to the next level.

            Conclusion

Comprehending economic growth is the key to specifying policies that may help raise standards of living and reduce the poverty level. Recognizing what causes growth, the theories that underpin the growth, and the policies that spur it, provides us with benchmarks on how to encourage sustained and sustainable economic growth. This is only possible if growth is accompanied by efforts to address the difficulties that affect it and that are observed in inequality, the environment, and political instability. Only if the process will be scrutinitelyzed again and again to ensure that every policy process as well as action is fully understood, then assuredly economic growth points towards a better future.