The global economy is currently recovering from a protracted and volatile recession. The recovery has sparked debate over what drives economic growth, with policymakers around the world searching for ways to spur it.
The broadest definition of economic growth is the increase in the size of an economy over time. This is measured by the total market value of goods and services produced in a country, known as gross domestic product (GDP). GDP includes all economic activity, from manufacturing to services to mining. A country’s economic growth is the result of both the supply and demand of products.
Various factors contribute to economic growth, but labor productivity is usually considered the main driver. Labor productivity refers to the amount of output that workers produce per unit of time. This can be improved through technological progress, such as introducing new machines or techniques. It can also be improved through better management and work practices.
Another factor is the availability of resources. A country can grow only as fast as it can utilize the available resources. This requires a sufficient supply of land and labour, as well as capital goods. Countries can also achieve short periods of high growth during economic recoveries, when consumers and businesses are catching up on delayed spending and utilizing idled capacity.
Lastly, political and social policies can have an impact on economic growth. For example, inequality can boost economic growth by directing savings toward individuals with a higher propensity to save.