Economic growth refers to the increase in the total market value of goods and services produced by an economy. A single measurement of this is gross domestic product, or GDP, which adds up the dollar value of all purchases and sales (by both consumers and businesses) made in a country in a given period. From candy bars to haircuts, the value of all things produced is recorded in GDP.
The rate of economic growth can vary a great deal, with some nations experiencing slow and steady progress while others struggle to get off the ground. But what are the key ingredients to sustained economic growth?
One way to generate economic growth is to increase the number of people in the workforce. Increasing the labor force is not the only factor driving economic expansion, however. The new workers must be skilled enough to earn a living and produce enough output to offset their consumption. And the additional workers must also be able to work together with existing laborers and capital equipment in order to realize their productivity potential.
Another way to generate economic growth is through technological advances. Adding more and better tools to the workplace means that each worker can do more per period. The best example of this is a fisherman with a net instead of a rod: the net allows him to catch more fish in less time. Economies of scale and improved resource allocation are other factors driving technological improvement, accounting for about 30 percent of productivity growth.
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