Economic growth refers to the increase in the total amount of goods and services a country produces compared with a previous period. Normally, this is measured in terms of a country’s gross domestic product (GDP). It can be measured in nominal or real terms – the latter adjusts for inflation. In either case, the increase is considered a good sign, and countries aim to grow faster than their neighbors and the rest of the world.
The causes of economic growth are complex. The most common explanations point to improved productivity through investment in physical capital, such as better machinery and tools that allow workers to produce more over a given time. This also allows businesses to create new products and services by combining labor, capital, and raw materials.
Other economists have focused on the role of a country’s culture and institutions in its ability to foster economic growth. For example, many cultures prioritize savings and investing over consumption, which helps to promote long-term economic growth. Other cultural traits, like work ethic and trust, are also linked to economic growth.
Increasing the rate of economic growth is one of the world’s most important challenges. The results of our efforts to date have been astonishing: In the most successful countries, people can now access far more of the things that make life worth living than even the richest person in 1820 could dream of. For example, they have banished famine and starvation from much of the planet.
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