What is economic growth:
Economic growth, economic welfare, total welfare, and economic development were used to convey the same meanings in 1960's and 1970's. However, the terms `economic growth' and economic development have different meanings and importance in economic literature.
Meaning of Economic growth?
The meaning and importance of economic growth is a vital issue in economics. Economic growth is often defined as a continuous increase in the real value of the production of goods and services. According to Kuznets, economic growth may be defined as a long term process wherein the substantial and sustained rise in real national income, total population and real per capita income takes place. In the words of Michael Todaro, Economic growth is a steady process by which the productive capacity of the economy is increased overtime to bring about rising levels of national output and income.
Elements of economic growth.
The definitions of ''economic growth'' clearly bring out the following elements of economic growth.
(1) Long term process. Economic growth is a long run process involving a period of decades. A short term increase in national income for a few years is not considered an economic growth.
(2) Rise in real per capita income. Economic growth is accompanied by substantial rise in real per capita income. This can be possible only if the real per capita income is higher than the rate of growth of population over a long period of time.
(3) Rise in productivity. Economic growth is always associated with substantial rise in productive capacity of the economy. The rise in real output can be achieved by proper utilization of natural and human resources and better techniques of production in all sectors of the economy.
(4) Greater equality. There should be greater equality in the distribution of income and reduction of the unemployment in the country.
Sources of Economic growth:
Economic growth, as we have stated earlier, is the production of more goods and services over the years. Economic growth can be achieved through two main sources (1) Supply factors and (2) Demand factors. Supply factors relate to the physical ability of an economy to grow. Production can be increased by using more factors of production (land, labour, capital and enterprise) and by using existing resources more efficiently. The second source of economic growth is to create increased demand for goods and services. The aggregate demand can be increased if there is additional spending by households, by private firms for investment, by government purchaser of goods and services and exports minus imports.
Benefits of economic growth
The main benefits of economic growth are:
(i) It helps in raising the material standard of living of the people.
ii) It allows the economy to have more consumer and capital goods.
iii) It increases employment opportunities.
iv) It reduces government cost associated with unemployment benefits, medical aid etc.
Costs of economic growth:
The costs of economic growth are:
(i) As more goods are manufactured, it produce, (a) air and water pollution (b) noise (c) traffic jams (d) rural and urban congestion (e) smoke (f) ugly landscapes (g) garbage etc.
(ii) The pollution of water and air etc reduces the quality of life.
(iii) The consumption of many goods and services reduces our scarce non-renewable resources such as gas, oil, minerals etc.