Why is Economic growth important?

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Economic_growth_of_ChileFor businesses to thrive and prosper, economic growth is the key. You are aware that growth is measured by positive changes in the yearly gross domestic product (GDP) of a country.
To ascertain that a country has economic growth, these are the determinants: (1) an overtime increase in the market value of the goods and services produced by the economy; (2) convention measurement of the increased percent rate in real gross domestic product, or real GDP; (3) growth of the ratio of GDP to population (GDP per capita or per capita income; and (4) the cause of the growth caused is by more efficient use of inputs that is referred to as intensive growth. However, GDP growth caused only by increases in inputs such as capital, population or territory is called extensive growth.

Mistaken implication of economic growth:
Today growth of economy appears to the ‘holy grail’ in the business world. Economic growth is is not the by-all and end-all as it is limited in improving living standards. Some business gurus even suggested that the measurement of economic growth will be based on the Human Development Index (HDI) at the same time considers GDP and statistics to include literacy and health care standards.

Limitations are due to:
1. Poor distribution of higher incomes that economic bypasses the poorest in society;
2. Due to the presence of negative externalities such as pollution, higher crime rates and congestion which actually reduce living standards.;
3. Conflicts with the environment. e.g. global warming;
4. Dependent on what is produced; and
5. Economic growth can be unsustainable, especially if it is a boom and bust.

Economic growth is important as:

Alleviation of poverty ‘“
Economic growth is one tool to reduce poverty although growth does not necessarily mean that poverty has a solution but it can be considered as a first step without it, there will never be any meaningful and sustained measure in reducing poverty. This is especially important in developing economies.

Solution to unemployment ‘“
Economic growth gives birth to more businesses so more people are employed. As the economy remains stagnant, there will be higher rates of unemployment and the consequent social misery. A revival of the market will provide more jobs.

Rise of productive capacity ‘“
Modern economy as in UK or US has an average 2-3% rise in productive capacity a year. Even a small growth of 1% or less in production capacity can raise spare capacity and reduce unemployment.

Reduce budget deficits.-
Due to deep recession, there is a corresponding rise in budget deficit so growth in the economy is essential to alleviate government budget deficits.

Higher living standards.-
Well-managed economic growth increases resources to create and improve important public services like education and health care. Due to economic growth, state increases social services without an increase in tax rates, people will enjoy high standard of living.

In conclusion:

Economic growth is the bloodline of every business that enables it to thrive and prosper. It is related to growth in the economic output as a whole. To determine and measure growth, there must be positive changes in the gross domestic product of a country from year-to-year. Over time, a comparison must be made in adjusting this figure to give adjustment for inflation and the resulting value called ‘real growth’

The real goal of economic growth is to accomplish major improvements in the population’s standard of living; expanding existing markets & business and at the same time opening new ones. Real economic growth in the country also means sharing with one’s neighbor. Giving business opportunities to others is another sign of economic growth.

Author: Lourdes Cedeno

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