Economic growth can be illustrated by an increase in the market value of goods and services produced in the country. Moreover, an adjustment is made for inflation to remove the issue of depreciation of money. Most often, the economic forecast takes into account the change in real gross domestic product per capita.
Of course, this method of statistical estimation of growth has both advantages and disadvantages. For example, when measuring economic growth using GDP, fluctuations that occur within the period of calculation of gross domestic product are not taken into account.
Typology
If the development of the national economy was due to a more efficient use of resources, then it is called intensive. It is this growth that countries are striving for. If GDP has increased due to the wider use of factors of production, then it is called extensive. Such development cannot last long, as resources are depleted quickly enough.
GDP as a determinant
Economic growth can be illustrated by an increase in gross domestic product. It can be associated with both extensive and intensive development. More accurate is the per capita indicator. GDP is considered a reflection of the total market value of all final goods and services produced in a country over a period of time. It is nominal and real. More accurately reflects the reality of the second.
Economic growth can be illustrated by a change in real GDP per capita, as this indicator takes into account inflation and people's living standards. National statistical agencies of most countries of the world, as well as some international organizations, evaluate this indicator. The main disadvantage of GDP as a determinant of economic growth is the fact that it reflects flows, not stocks. He also does not take into account environmental pollution due to technological progress, income distribution within society, “gray” and “black” markets, and subjective satisfaction with people's lives.
Gross Product Factors
Economic growth may be due to an increase in labor productivity, the intensity of people’s work, the percentage of the able-bodied population and a decrease in the unemployed. The increase in gross product reflects the combined effect of these factors on the national economy. Productivity is the increase in the value of goods and services produced, ceteris paribus. According to Robert Solow, technological progress is the reason for the 80% increase in per capita income in the US in the long run.
Much less impact on it has investment. As for labor intensity, it is measured in the number of hours of work. Other factors of GDP growth are associated with demographic changes in the structure of the population.
Growth Parameters
Economic growth can be seen by increasing the following indicators:
- Real gross domestic product per capita. We already talked about this indicator in detail in the last section, so we immediately turn to the rest. It is equal to the sum of consumption of government spending, investment and net exports, divided by the number of citizens of the country.
- The volume of money supply of various liquidity in the economy.
- Consumer price index. Each country itself determines a representative set of goods and services, therefore, the calculation results are not always comparable. However, it shows well what percentage of growth is due not to improving the economic situation, but to inflation.
- Production price index. It is similar to the previous indicator, but reflects the costs of the business.
- Inflation expectations index. This indicator reflects the aspirations of consumers about tomorrow. It should be noted that expected inflation is much better than that for which no one had time to prepare.
- Employment. During recessions, it decreases, so this indicator clearly reflects the stage of the economic cycle that the economy is going through.
- Volumes of retail sales. This indicator is related to the consumer inflation expectations index. However, it better reflects which sectors are developing worse and which are better.
- The level of construction. The rapid expansion of housing and industrial buildings indicates a heyday in the economy.
- The volume of inventory in warehouses. Its increase is characteristic of a period of slowdown in economic growth and the approach of a recession.
- The value of shares of leading market companies.
Regional aspect
Since economic growth can be illustrated by a shift to the right and up the production curve, it is important to understand why this can happen. And here the regional economy comes to the rescue. She studies how placement of factors affects output and markets.
The regional economy is the industry on the basis of which the development policy of the administrative-territorial units of the country and the state as a whole is formed.
Theories and models
The economic forecast of future changes in the volume and structure of national income is perhaps the most important aspect of the study. After all, it gives a real practical result, which can be implemented to improve the current economic situation. Each school has developed its own approach to studying growth. Among them are the following:
- Classical growth theories. They take into account only two factors. Therefore, the growth in them is due to a change in labor or capital. Technological innovations are not taken into account. Not considered and economies of scale.
- The Solow-Swan model was developed by scientists in the 50s. The model considers the diminishing returns on the use of labor and capital as factors of production.
- Endogenous growth theory was developed by Romer and Lucas in the 80s. It takes into account the mathematical explanation of technology improvement and the concept of human capital.
- Unified Growth Theory. Its author is Oded Galor. It explains the empirical patterns of growth of individual economies that are not considered by the previous theory.
- The concept of the “big push”. This theory was especially popular in the 40s. According to her, each country needs a push in order to move from one stage of development to another.
