Economic growth is an increase in a nation’s real gross domestic product (GDP) over a period of time compared to the previous one. It’s an indicator of the health of a country’s economy and, by extension, its citizens.
There are many factors that lead to economic growth, but the two main ones are more capital and better labor productivity. More capital is money that people save and put into investments like factories, machinery, or houses. More labor means more people working and producing goods and services. A nation can also experience economic growth by increasing the value of its products or reducing the cost of production.
A good example is the invention of a steam engine that makes it possible to work more efficiently. In addition, a nation can use better technology to produce more goods and services with the same amount of labor and capital. New ideas that make better use of existing resources are driving forces behind continuing (long-run) economic growth.
The McKinsey Global Institute has been working to understand how best to encourage and sustain economic growth. A recent article in the journal Nature outlines some of our progress.
In short, economic growth reduces the sting of scarcity – the fact that there are not enough resources to produce everything people want – and creates wealth for everyone. It is an essential ingredient for a better, more prosperous world.