Economic growth is an increase in the overall output of a country’s economy, measured in real terms. It can be driven by increased consumption (which is what GDP measures) or by higher investment in the economy and/or improved productivity. A growing economy is generally a positive sign for society, especially as it will help to reduce the incidence of absolute poverty – the percentage of people who can’t afford to pay for essential goods and services.
Growth can happen either through an increase in the number of workers or an increase in their productivity. Increasing the number of workers will result in more economic goods and services being produced, but this does require consuming additional inputs of capital or raw materials. In contrast, a rise in productivity will allow each worker to produce more economic goods and services using the same amount of inputs.
In the past, before societies achieved economic growth, becoming richer meant someone else had to become poorer. When a society experiences economic growth, however, people’s incomes can rise without anyone losing out.
Understanding how a country achieves economic growth is an important issue for economists and also for the policymakers and business leaders who shape the country’s economic policy. Economic growth is important to businesses because it often leads to higher sales revenue and profits. This is a key reason why firms invest in productive capacity. It’s also why many governments have a goal of raising their economic growth rates.