Overview

Economic growth refers to sustained increases in real GDP over time. Productivity growth, driven by improvements in capital, labor, and technology, is the key to raising living standards. This topic explores the sources of growth, the role of investment, and how policy can influence long-run development.

Key Themes and Concepts

• Definition of Economic Growth: Increase in real output or real output per capita over time. A sign of improving material well-being.
• Productivity: Output per unit of input. Labor productivity is often the focus — affected by education, tools, and technology.
• Investment in Human Capital: Education, training, and health that increase worker efficiency and innovation.
• Investment in Physical Capital: Machinery, infrastructure, and buildings that boost production capacity.
• Technological Progress: Innovation increases productivity by allowing more output with the same input.
• Growth Policies:
  • Public investment in R&D, infrastructure, and education
  • Stable institutions that support property rights and market incentives
  • Open trade and efficient capital markets
• Limits to Growth: Environmental constraints, inequality, and diminishing returns may slow or complicate growth.
• Measuring Growth: Long-term trends in real GDP, real GDP per capita, and productivity indices.

Quick Tip

Growth depends on productivity, not just more inputs. The best way to raise living standards is to invest in people, technology, and infrastructure. Pay attention to policies that encourage innovation and efficiency — they’re the engines of long-run prosperity.