Economic growth is an increase in the total amount of goods and services that people produce for each other. It can be measured by aggregate measures such as national income (GNP) and gross domestic product (GDP). Economic growth is often discussed as a way to reduce the sting of scarcity, the condition that exists when the number of goods and services produced is less than the number of people who would like to consume them.
But economic growth has problems, not least that it depends on the value that individuals place on particular goods and services. In the case of a heater or an air conditioner, one person’s value for it may be much higher than another’s. This is why the term ‘economic growth’ is problematic: it assumes that the statisticians and economists who study it are the only ones who get to decide what is important to measure.
The most obvious way for a nation to grow is by increasing the amount of physical capital that people have at their disposal. This can be done by adding new equipment, constructing buildings and other infrastructure, and educating workers. The effect of this is to boost productivity; by having better and more tools, workers are able to produce more output per period.
A second factor is technological advance, which accounts for about 40 percent of the overall productivity gains. Economies of scale and improved resource allocation are also important factors, accounting for about 15 percent of productivity gains. The results from this study, using the panel autoregressive distributed lag (ARDL) method of Pool Mean Group, ratify the long run cointegration among these variables.
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