Economic growth is the increase in the inflation and adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP, usually in per capital terms. Growth is usually calculated in real terms, inflation is adjusted terms to eliminate the distorting effect of inflation on the price of goods produced. Measurement of economic growth uses national income accounting. Since economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure. The “rate of economic growth” refers to the geometric annual rate of growth in GDP between the first and the last year over a period of time. Implicitly, this growth rate is the trend in the average level of GDP over the period, which implicitly ignores the fluctuations in the GDP around this trend. An increase in economic growth caused by more efficient use of inputs such as labour productivity, physical capital, energy or materials is referred to as intensive growth. GDP growth caused only by increases in the amount of inputs available for use increased population, new territory is called extensive growth.Measuring economic growth by Gross domestic product, The economic growth rate is calculated from data on GDP estimated by countries´statistical agencies. The rate of growth of GDP/capital is calculated from data on GDP and population for the initial and final periods included in the analysis. Determinants of per capital GDP growth is in national income accounting, per capital output can be calculated using the following factors – output per unit of labour input labour productivity, hours worked intensity, the percentage of the working age population actually working participation rate and the proportion of the working-age population to the total population demography.
Productivity is increases in labour productivity, the ratio of the value of output to labour input have historically been the most important source of real per capital economic growth. In a famous estimate, that technological progress has accounted for 80 percent of the long-term rise in U.S. per capital income, with increased investment in capital explaining only the remaining 20 percent. There are various measures of productivity. The term used here applies to a broad measure of productivity. Historical sources of productivity growth is productivity improving technologies. Economic growth has traditionally been attributed to the accumulation of human and physical capital and the increase in productivity arising from technological innovation. Before industrialization technological progress resulted in an increase in the population, which was kept in check by food supply and other resources, which acted to limit per capital income, a condition known as the Malthusian trap. The rapid economic growth that occurred during the Industrial Revolution was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap. Countries that industrialized eventually saw their population growth slow down, a phenomenon known as the demographic transition. Increases in productivity are the major factor responsible for per capital economic growth, this has been especially evident since the mid-19th century. Most of the economic growth in the 20th century was due to increased output per unit of labour, materials, energy, and land less input per widget. The balance of the growth in output has come from using more inputs. Both of these changes increase output. The increased output included more of the same goods produced previously and new goods and services.
During the Industrial Revolution, mechanization began to replace hand methods in manufacturing, and new processes streamlined production of chemicals, iron, steel, and other products. Machine tools made the economical production of metal parts possible, so that parts could be interchangeable. During the Second Industrial Revolution, a major factor of productivity growth was the substitution of inanimate power for human and animal labour. Also there was a great increase in power as steam powered electricity generation and internal combustion supplanted limited wind and water power. Since that replacement, the great expansion of total power was driven by continuous improvements in energy conversion efficiency. Other major historical sources of productivity were automation, transportation infrastructures canals, rail-roads, and highways, new materials steel and power, which includes steam and internal combustion engines and electricity. Other productivity improvements included mechanized agriculture and scientific agriculture including chemical fertilizers and livestock and poultry management, and the Green Revolution. Interchangeable parts made with machine tools powered by electric motors evolved into mass production, which is universally used today.
Productivity lowered the cost of most items in terms of work time required to purchase. Real food prices fell due to improvements in transportation and trade, mechanized agriculture, fertilizers, scientific farming and the Green Revolution.Great sources of productivity improvement in the late nineteenth century were rail-roads, steam ships, horse-pulled reapers and combine harvesters, and steam-powered factories. The invention of processes for making cheap steel were important for many forms of mechanization and transportation. By the late nineteenth century both prices and weekly work hours fell because less labour, materials, and energy were required to produce and transport goods. However, real wages rose, allowing workers to improve their diet, buy consumer goods and afford better housing. The building of highway infrastructures also contributed to post World War II growth, as did capital investments in manufacturing and chemical industries.
Demographic changes is a factors may influence growth by changing the employment to population ratio and the labour force participation rate.Industrialization creates a demographic transition in which birth rates decline and the average age of the population increases. Women with fewer children and better access market employment tend to join the labour force in higher percentages. There is a reduced demand for child labour and children spend more years in school. The increase in the percentage of women in the labour force in the U.S. contributed to economic growth, as did the entrance of the baby bloomers into the work force. Spending wave. Other factors affecting growth is political institutions, property rights, and rule of law, also great Divergence and property rights, Great Divergence and Efficiency of markets and state intervention, and Great Divergence and State prohibition of new technology. As institutions influence behaviour and incentives in real life, they forge the success or failure of nations. In economics and economic history, the transition to capitalism from earlier economic systems was enabled by the adoption of government policies that facilitated commerce and gave individuals more personal and economic freedom. These included new laws favourable to the establishment of business, including contract law and laws providing for the protection of private property, and the abashment of anti-usury laws,When property rights are less certain, transaction costs can increase, hindering economic development. Enforcement of contractual rights is necessary for economic development because it determines the rate and direction of investments. When the rule of law is absent or weak, the enforcement of property rights depends on threats of violence, which causes bias against new firms because they can not demonstrate reliability to their customers.
In many poor and developing countries much land and housing is held outside the formal or legal property ownership registration system. In many urban areas the poor “invade” private or government land to build their houses, so they do not hold title to these properties. Much unregistered property is held in informal form through various property associations and other arrangements. Reasons for extra-legal ownership include excessive bureaucratic red tape in buying property and building. Unregistered businesses and lack of accepted accounting methods are other factors that limit potential capital. Businesses and individuals participating in unreported business activity and owners of unregistered property face costs such as bribes and pay-off that offset much of any taxes avoided. Capital in economics ordinarily refers to physical capital, which consists of structures and equipment used in business for example machinery, factory equipment, computers and office equipment, construction equipment, business vehicles, Up to a point increases in the amount of capital per worker are an important cause of economic output growth. Capital is subject to diminishing returns because of the amount that can be effectively invested and because of the growing burden of depreciation. In the development of economic theory the distribution of income was considered to be between labour and the owners of land and capital. In recent decades there have been several Asian countries with high rates of economic growth driven by capital investment.