Economic growth is the increase in the size of a country’s economy, usually measured by its gross domestic product (GDP). Achieving and sustaining high economic growth has been, and continues to be, one of the central challenges for elected politicians, both in developed and developing countries.
There are many ways to measure GDP. One way is to use constant prices. This adjusts for inflation and makes it possible to compare the same period of time across different countries and economies. Another way to measure economic growth is to use a quarterly or year-over-year rate of change in GDP. These rates are called real GDP growth.
The growth of a country’s economy is often attributed to the increase in the amount of physical capital invested in it. Capital is used to produce goods and services and therefore tends to increase the productivity of labor. For example, a fisherman who purchases and uses a net will catch more fish than one who does not. This is the essence of the “labor-saving device” model of economic growth that was popularized by Robert Solow and Trevor Swan in the 1950s.
However, there is more to growth than this. Economic growth does not necessarily translate into increased happiness or standard of living for a country’s citizens. For instance, increased production may come at a cost in terms of pollution or depletion of nonrenewable natural resources. In addition, the trade-off between leisure and work is difficult to measure in GDP growth.