What Leads to Economic Growth?

All communities seek economic growth, because simply put, a growing economy leads to a better quality of life.  But let’s take a closer look at what exactly we mean by “economic growth.”  Economic growth is an increase in a community or a nation’s economic output – the goods and services its businesses produce – and the income these businesses receive.

At the national level, we keep track of the real Gross Domestic Product (GDP), which allows us to measure economic growth.  When both demand and supply of a good or service increase typically attributed to the increase in community’s aggregate demand and aggregate supply, which leads to an increase in the market value of the goods and services produced. While increase in aggregate supply and demand are simple causes, there are many factors which attribute to these two things occurring, which cause economic growth. 

Factors that Increase Economic Growth

Access to natural resources (such as oil or mineral deposits) has always been a benefit to a country. While it is nearly impossible to increase the amount of natural resources in a country, any discover of more natural resources will provide a boost in economic growth. However, scarce natural resources should be balanced to avoid the risk of depleting them entirely.

Improving land management can help businesses that rely on land resources. Higher quality land can lead to economic growth.

Investments in improving the physical assets and capital will greatly impact economic growth. Creating better factories or machinery will end up increasing a business’ productivity, more than adding physical labor. The increased productivity will increase output as well as lower the business’ overall cost of creating goods, allowing for higher profits.

An increase in the population and trends in workers working later into their lives creates more available manpower for companies to access. However, if not properly utilized, this manpower can risk adding to unemployment rates.

Training and investing in the labor force creates more skilled workers. Higher quality labor can reduce production times and increase output.

Improvements and developments in technology can have tremendous impacts on businesses. Investing in new technology that speeds up processes or make said processes easier can provide an increase in output without bringing on more labor, leading to an increase in both growth and development.

Rules, laws and institutions can help to foster economic growth or keep an even playing field for businesses. However, there is no one specific set of laws or rules that will directly promote growth at all times.

While many factors that attribute to economic growth are domestic in nature, growth doesn’t happen purely in isolation. The world’s economies are linked, and economic events that take place in one country or region can have a great impact on the potential for growth in another.

The Benefits of Economic Growth

Economic growth over the long term can have a very positive impact on a country. Long-term growth can lead to economic development, which leads to benefits such as increased employment rates and national income. These benefits in economic development lead to an increase in the standard of living for citizens of the country. Increased economic development can help to reduce the rate of poverty in a country. Economic growth also provides additional tax income which is used for government spending, which can be used to develop the economy further.




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