Definition
Economic Growth is the increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It is typically measured as the percent rate of increase in real Gross Domestic Product (GDP).
Why It Matters
Stagnation is a slow-motion catastrophe for the poor and the sick. Economic growth matters because it is the “interest” on human ingenuity that pays for the vaccines, the clean energy, and the education of the next generation. Without it, the world becomes a “zero-sum” fight for a shrinking pie; with it, we have the resources to turn “impossible” problems into solved history, ensuring that the future is richer and healthier than the past.
Core Concepts
- Human Well-being: There is a striking correlation between growth and progress in health, education, and child mortality. The richer a country, the longer and healthier its people live.
- Inclusive Growth: The most effective way to help the poor is through overall economic growth. Over 75% of the income differences of the poorest 40% in different countries are explained by average income growth.
- Problem-Solving Fuel: Growth provides the resources (knowledge, technology, capital) to solve new problems (e.g., vaccines for new viruses, hip replacements for aging populations, green technology for climate change).
- The Albania Constraint: Small differences in annual growth rates (e.g., 1%) lead to massive differences in prosperity over decades (the difference between Sweden and Albania).