Economic growth is a key concept in macroeconomics. It’s the yearly percentage change in gross domestic product (or, more specifically, per-capita GDP). It’s the underlying measure that’s used to gauge how much of an economy is growing or shrinking.
It’s important to understand that the determinants of economic growth are extremely complex and varied. There are many different theories about what causes countries to grow, but it’s still not clear why some countries do well while others struggle to escape poverty.
One theory is that the underlying drivers of economic growth are technology, capital, and human capital. This is known as endogenous growth theory and explains how technological advancements, investments in human capital, and innovation can lead to sustainable long-term economic growth.
Another theory is that the underlying drivers of economic development are the transformations of an economy as it grows. For example, economist Colin Clark argues that economies move through a series of stages: traditional society, transitional society (where the foundations for growth are laid), take-off society (where the rate of development accelerates), and mature society.
Whether it’s through population growth, technological advances, or investments in infrastructure or education, economic growth can have a positive impact on a nation and its people. It’s also an essential factor in attracting flows of global financial capital, which can boost a country’s prosperity and standard of living. In this episode of EconTalk, Stanford University professor and Hoover Institution senior fellow Paul Romer discusses economic growth with host Russ Roberts.