Economic growth is the increase in the amount of goods and services a nation produces over time. The underlying reasons for this growth can vary, but generally speaking it is an indicator that people and businesses are earning more and spending more, which leaves them feeling better off. If the economy is stalling or contracting, companies will spend less and maybe even cut jobs, which leaves everyone feeling worse off.
The growth rate of a country depends on various factors, some of which are more important than others. One of the most important is economic institutions, which refers to the foundational rules that govern a nation’s economy and affect the way it functions. These include laws, regulations, and other customs that dictate how individuals and firms behave in a given country. These rules influence the incentives that lead to improvements in long-term economic growth.
Other determinants of economic growth include physical capital, human capital, and technology. For example, improved production technology can allow workers to produce more with a certain stock of materials. This is the kind of change that makes it worth investing in things like STEM programs or subsidizing coding academies.
There are many ways to measure economic growth, but the most common is gross domestic product (GDP). GDP only counts “economic” goods and services—that is, those that contribute to national income and wealth. It excludes such things as caring for children, which may contribute to a country’s GDP but doesn’t count in the same way as producing books on a printing press.
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