Economic growth means producing more material goods with the same number of people and resources. It’s an important economic goal because more abundance reduces scarcity, making it easier to meet the needs of individuals and communities.
The easiest way to measure economic growth is by looking at the market value of all the things that a country makes—this is called gross domestic product (GDP). GDP tells us whether a nation’s economy is growing or shrinking over time.
There are two main sources of economic growth: increasing the amount of available factors of production or improving their productivity. The first of these is simply increasing the amount of physical capital a country has—this could mean building more factories or buying better tools to help workers produce more. Another source of growth is technological innovation. Discovering new or improved methods of producing goods can create a huge jump in output, such as when gasoline replaced horse power for transporting goods.
Increasing human capital also contributes to economic growth. This is because a more educated population can produce more with the same amount of land, capital and other resources. It also means more people can be employed, which in turn leads to higher consumption and incomes.
Achieving economic growth isn’t easy, however. Many countries struggle with high levels of poverty and are unable to attract foreign investment even if they have more available labor and land. McKinsey research suggests that boosting economic growth can help address this gap and lead to better living standards for all.
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