ECONOMIC GROWTH AND GDP 5
Economic growth is the increased capacity of acountry to produce more goods and services. Among the indicators ofeconomic growth in a country is having an increase in the GrossDomestic Production (GDP) and a lower rate of inflation. Apart fromincreased productivity, economic growth also means an increase in thequality of life among the citizens of a country. The discussion oneconomic growth, growth rate and GDP will explain their relationshipin macroeconomics.
Economic growth involves better quality of lifeinclude access to better healthcare, affordable education and a lowcost of living. However, in most instances, economic growth and GDPgrowth do not necessarily imply an increase in the quality of life ofthe citizens. Countries have recorded an upward trend in terms of GDPgrowth, but the quality of life remains deplorable (Roys &Seshadri, 2015). An example is some of the growing economy countries,such as Africa, with a specific case of Ethiopia. The country isamong the fastest growing economies in Africa, but it records thehighest number of economic emigrants every year. This essay is areflection on the topics discussed in the economics class withparticular focus on economic growth and GDP growth.
Numerous factors can have a positive ornegative effect on the rate of economic growth. Top on the list isthe discovery of new natural resources (Roys & Seshadri, 2015).Natural resources such as gas, oil and uranium will create moreemployment opportunities for the people. The discovery of naturalresources will also increase the aggregate supply in a country. Whenthe country exports the new resources, it will earn foreign exchangeand consequently lead to economic growth. Besides discovering newresources, countries can opt to increase their efficiency in theutilization of their new and existing resources. According to Roysand Seshadri (2015), countries fail to reap big from their naturalresources due to mismanagement and corruption.
Investment in the physical capital will lowerthe cost of economic activity (Roys & Seshadri, 2015). Physicalcapital in this context refers to production factors such as roads,machinery and factories. Poor road networks increase the cost ofproduction and, consequently, low returns on investment. Lack offactories will prompt a country to export unprocessed goods that havea low market price, unlike when value addition is exercised throughmanufacturing and processing. Outdated machinery will increase thecost of production and reduce the efficiency of the process.
A mere increase in the population will lead toincreased labor force. However, an increase in the investment inhuman capital will go a long way in fostering economic growth (Roys &Seshadri, 2015). Governments and institutions that invest in thetraining of their employees will increase the rate of production intheir firms. Skilled labor is efficient, innovative and moreprofessional. Besides, when an institution invests in its laborforce, it cuts down the cost of importing skilled labor oroutsourcing key services.
In essence, factors that lead to economicgrowth are the same factors that lead to an increase in the GDP of acountry. However, a few specific factors immensely contribute to GDPgrowth. An increase in the real disposable income of the citizens ofa country will increase its GDP (Roys & Seshadri, 2015). Such ascenario is only possible when the rate of unemployment goes down. Adecline in the personal savings of individuals will increase the GDPof a country. When households save, they reduce the amount of cashflowing in the economy. They also reduce their purchasing power. Anincrease in consumer confidence will increase their rate of spending.A common occurrence in human beings is failure to save when thefuture looks promising. They will spend their money carelessly andincrease the amount of cash flowing in the economy.
A number of factors are bound to hold backeconomic growth. The first one on the list is lack of technologicaladvancement (Upreti, 2009). The use of old technology to producegoods and services is will not advance the economy of any country.Old methods of production are slow, inefficient and outdated.Countries that hold on to old technology are not in a position tocompete with their counterparts who invest in new technology.
The value of the exchange rate may also affectthe economic growth of a country (Upreti, 2009). For instance,devaluing the dollar would make exports more competitive and importsmore expensive. Every country relies on imports to some extent. Whenimports become expensive, the cost of living in the country would goup (Upreti, 2009). According to Roys and Seshadri (2015), having ahigh cost of living in a country affects its economic growthnegatively. The factors that undermine economic growth in such a caseare reduced consumption, low demand, high cost of production andunemployment. These factors are also responsible for a low GDP. Somegeneral factors include political instability, labor strikes, naturaldisasters and an increase in interest rates.
In conclusion, economic growth and GDP growthare synonymous. Factors that lead to economic growth includeinvestment in labor, the discovery of natural resources, populationincrease and investment on physical factors. Factors that affecteconomic growth include increased interest rates, varying exchangerates and general factors such as political instability, laborstrikes and natural disasters.
Roys, N., Seshadri, A., (2015). TheOrigin and Causes of Economic Growth.Department of Economics, University of Wisconsin-Madison. RetrievedFrom, <http://www.ssc.wisc.edu/~aseshadr/WorkingPapers/growth.pdf>24 November, 2015
Upreti, P., (2009). Factorsaffecting economic growth in developing countries.New York: New York University press.