Economic growth is important to individuals, companies, and countries. When the economy grows, people earn more and spend more money—and are generally happier. If it slows or stops, businesses may cut jobs and people will earn less and feel worse off. Governments and non-governmental economic research organizations track and measure economic growth.
The economists who study economic growth have developed a range of theories to explain how and why economies grow. Some have stressed the resemblance between growth and human development. For example, the economist Colin Clark argued that an economy moves through different stages of development and modernization: from traditional society, through transitional, or “take-off,” to mature society. Others have focused on factors such as entrepreneurship and investment.
Two main sources of economic growth are increases in the workforce and increases in labor productivity. Both can increase overall GDP, but only strong productivity growth can raise per capita GDP and income. Workers can produce more output in a given time period if they have better tools or work more hours, and higher productivity means that more goods and services can be produced with the same number of workers.
Economists often use a measure called gross domestic product, or GDP, to gauge economic growth. GDP measures the market value of all goods and services produced in a country during a specified time period. It includes the sale of raw materials and the manufacture, repair, and maintenance of finished products. It also includes the value of income from foreign sources, such as money sent back by citizens who live abroad.
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