It is a steady increase in an economy´s ability to produce. Growth can happen by using resources more effectively, and increase the productive capacity of a nation.
- Increased labour force - employ more women
- Improved worker productivity - improving education and training of people
- Advances in technology - use of more efficient equipment and machinery is essential
- Increased business investment - government can encourage businesses by changing the tax laws, reducing interest rates or reducing the threat of inflation
- Foreign investment - allow foreign investors to establish business operations in the country
- Increasing foreign trade - engaging in foreign trade allows the country to obtain things it cannot produce or produces insufficiently
The benefits and costs of economic growth
- Higher level of consumption for all to enjoy
- Higher level of output can be achieved using less labour. People benefit from shorter working weeks and longer holidays.
- Rising incomes means more tax revenues for the government. They can use this money to spend on schools, hospitals, roads.
- Economic growth may mean we use up scarce resources more quickly.
- An increase in the number of factories will mean less land available for parks and other recreational activities, pollution may increase.
- Technical progress may replace workers with machines so that many people may be unemployed.
Economic growth indicators
Gross domestic product (GDP) - represents the total value of goods and services produced by a given country in a single year, within the country´s borders.
GDP per capita is the total output of a country divided by the number of people living there.
When prices are rising during periods of inflation, GDP may increase even though the production of goods and services is unchanged. This is because GDP is measured in current prices. To avoid this, economists adjust the GDP, and the result is called the real GDP. It is expressed in constant euros.
GDP = C + I + G + (EX – IM)
C – consumers' expenses on consumers goods and services. (It makes about 65% of GDP)
I – investments and all business spendings. (It makes about 20% of GDP)
G – the government spending and investments including transfer payments.
EX – IM means net export.
Gross national product (GNP) represents the total value of final goods and services produced by resources owned by the nation within and outside its borders.
Prosperity can also be measured in terms of Gross National Income (GNI). This is money coming into a country from investments abroad, minus money leaving the country to go to investors from abroad.
GDP does not include the following:
- A black market or underground economy is the market in which goods or services are traded illegally or exchanges go unreported. An example is drugs being imported into nearby wealthier nations where the drug manufacturer charges a higher price for a similar or equivalent product. The key distinction of a black market trade is that the transaction itself is illegal. The goods or services may or may not themselves be illegal to own, or to trade through other, legal channels. Because the transactions are illegal, the market itself is forced to operate outside the formal economy, supported by the established state power. Two common motives for operating in black markets are to trade contraband, or to avoid taxes or price controls.
- Grey market is the trade of a things through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. The most common type of grey market is the sale of imported goods brought by small import companies or individuals, not authorized by the manufacturer. It refers to workers being paid under the table (it is an employment not reported to the state often done for tax evasion, or circumvention of other laws), without paying income taxes.
- Non-market production means earning some extra money by baking cakes, mowing someone's lawn, or tailoring a dress for a friend
- Harmful goods and services such as cigarettes, are called negative externalities, and they should lower GDP. Positive externality is the value of free time, however, it is not possible to state value of free time, so it cannot be added to GDP, even though it should be.
The Organisation for Economic Co-operation and Development
OECD is an international economic organisation founded in 1961 to stimulate economic progress and world trade. It is a group of countries committed to democracy and market economy, they seek answers to common problems and co-ordinate domestic and international policies. Most OECD members are developed countries with high-income economies. Slovakia became a member of OECD in 2000.
Goals of OECD:
- Achieve the highest sustainable economic growth and employment
- To contribute to good economic expansion
- To contribute to the expansion of world trade on a multilateral, nondiscriminatory basis