ECONOMIC GROWTH— MEANING, ADVANTAGES, DISADVANTAGES AND SOURCES OF ECONOMIC GROWTH

Economic growth can be defined as a sustained and long term increase in the total national income of an economy that tends to raise the standard of living of the citizens.

It is the accumulation of capital and expansion in the production of final goods and services.

Economic growth

Economic growth can also be defined as a rise in aggregate output as measured by real GDP per capita.

Real GDP per capita is obtained by dividing real GDP by the total population.

Economic growth is defined by some economists as an increase in an economy's production capacity, as depicted by an outward shift in the production possibility curve.

In this sense, economic growth refers to an economy's ability to produce more commodities and services.

Factors Influencing Economic Growth

1. Human resources: The size and quality of the labour force are the most important determinants of economic growth.

The quality of the labour force may be increased through better education and training of the workforce in advanced technology.

Increasing the quality of the workforce not only enhances the value of human capital but also increases productivity and the workforce's ability to adapt to new challenges.

The size of the labour force, on the other hand, is mostly determined by the number of people of working age in the country

Generally, an increase in population growth results in economic growth.

This is because as the population grows, the ability to produce additional workers increases the amount of output produced. 

However, it is important to clarify here that real GDP per capita would decline if the population growth outweighs the growth in real output because real GDP per capita is real GDP divided by the total population.

Furthermore, the size of the labour force could also increase if the labour participation rate increases

The labour participation rate is the number of people in the labour force expressed as a percentage of the actual adult population.

The labour participation rate excludes voluntary unemployment, which refers to persons who choose not to work and hence remain unemployed.

To increase the labour participation rate and size of the labour force, the government may make policies aimed at reducing voluntary unemployment.

2. Natural resources: Natural resources are another important determinant of economic growth.

Natural resources consist of all the gifts of nature that can be used as inputs in the production of goods and services.

Natural resources include agricultural and non-agricultural land, surface water, minerals, forest water etc.

The availability of natural resources may not contribute to economic growth by itself, but it is the extent to which these natural resources are exploited that contributes to economic growth.

Countries that have successfully exploited the productive potential of their natural resources have seen economic growth.

It is important to mention though that the exploitation of natural resources should be done with caution, so as not to harm the ecosystem

The continuing exploitation of crude oil in Nigeria, for example, has continued to degrade the ecology in the Niger Delta region.

Government should, therefore, ensure that the exploitation of natural resources is sustainable while also maintaining a good quality of the environment.

3. Capital formation: It is generally believed by macroeconomists that the formation of capital is one of the main sources of economic growth.

Capital formation is the accumulation of capital stock so that there is a growth in the real capital stock of a country.

The growth in the real capital stock of a country is driven by the level of investment in new factories, machinery and equipment.

Capital formation is important for economic growth because it enables other factors of production, such as labour, to be used more efficiently.

For example, when a new factory is available, labour will be required. Similarly, the availability of machinery helps to make human work faster and more efficient.

When a new plant opens, for example, labour will be required. Similarly, the presence of machines aids in the speed and efficiency of human labour.

It must be noted, however, that capital formation may not result in economic growth if capital increases relative to other factors of production such that its marginal efficiency falls.

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4. Technology growth: Technology is defined as the application of practical and scientific knowledge in combining resources to produce goods and services.

It is the body of knowledge and skills related to the utilization of resources in the production of goods and services.

Advances in technology are usually accompanied by economic growth.

Advances (or advancement) in technology refer to the expansion of knowledge through science and engineering, which leads to the discovery and innovation of new techniques of production.

Such advances in technology enable more goods and services to be produced with a given input.

This means that few resources can produce greater output, resulting in an output shaft in the production possibility curve.

Thus, it can be highlighted that technological advances accelerate the rate of economic growth.

It is vital to remember that technological advancements can be developed either internally through education and scientific research or externally through the import of technology from other countries.

Advantages of economic growth

1. More income for society: Economic growth results in more societal income as more output is produced from the resources of this society.

2. Decreases unemployment: Economic growth is required to increase employment and reduce unemployment.

This is because an increase in GDP is always accompanied by a decrease in the unemployment rate, resulting in a reduction in government spending on unemployment benefits.

3. Reduces Poverty: Economic growth is often associated with the reduction of poverty. 

This is because economic growth is usually accompanied by an increase in employment.

With an increase in employment, individuals will be able to earn more money and improve their standard of living.

4. Increase production: Economic growth usually arises as a result of an increase in real output (GDP).

Generally, as the economy grows, more goods and services will be produced to meet customer wants.

As a result, citizens will enjoy a higher standard of life.

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Disadvantages of economic growth

1. Economic growth may cause environmental degradation: Economic growth is usually achieved at the expense of increased pollution, increase noise and other negative externalities.

Economic growth also has the potential to degrade the environment by requiring more resources to create more goods and services, which can lead to environmental degradation and hasten the depletion of non-renewable resources.

2. It could lead to demand-pull inflation: If aggregate demand rises faster than the economy's ability to supply goods and services as a result of economic growth, there will be excess aggregate demand and a shortage in aggregate supply.

The result is that producers will raise the price of their goods and services to keep up with the excess demand.

This will raise prices, resulting in inflation.

3. Economic growth may widen income inequality:Economic growth may benefit only the rich, resulting in the rich becoming richer and the poor becoming poorer.

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