How Does Economic Growth Affect Society?

Economic growth is the increase in the 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.Of more importance is the growth of the ratio of GDP to population (GDP per capita), which is also called per capita income. An increase in per capita income is referred to as intensive growth. GDP growth caused only by increases in population or territory is called extensive growth.

Advantages of Economic Growth:

Higher living standards – i.e. an increase in real income per head of population

Employment effects - growth stimulates more jobs to help new people as they enter the labour market

In the long term, an economy grows because technology gets better and we get better at producing things. In the short term, growth is an indication that the economy is producing as much as it could be and resources are not being needlessly wasted. With a growing population and rising wages, the economy has to grow to create sufficient new jobs.

Fiscal dividend – sustained GDP growth boosts tax revenues and provides the government with extra money to improve public services such as education and healthcare. It makes it easier for a government to reduce the size of a budget deficit

Investment - the accelerator effect - rising demand and output encourages investment – this sustains growth by increasing long run aggregate supply

Consumer and business confidence - growth has a positive impact on business profits & confidence. A stronger economy will help to persuade consumers that the time is right to make major purchases

Growth can also help protect the environment such as low-carbon investment, innovation and research and development, resulting in more efficient production processes to reduce costs. Ethical consumerism and corporate social responsibility has become important in recent years.

Disadvantages of Economic Growth:

Inflation risk: If demand races ahead of aggregate supply the scene is set for rising prices. Many fast growing developing countries have seen high rates of inflation in recent years, a good example is India

Working hours – sometimes there are fears that a fast-growing economy places increasing demands on the hours that people work and can upset work-life balance

Structural change – although a growing economy will be creating more jobs, it also leads to structural changes in the pattern of jobs. Some industries will be in decline whilst others will be expanding. Structural unemployment can rise even though it appears that a country is growing – the labour force needs to be occupationally mobile.

Environmental concerns:

Fast growth can create negative externalities for example higher levels of noise pollution and lower air quality arising from air pollution and road congestion

Increased consumption of de-merit goods which damages social welfare

It can leads to a huge increase in household and industrial waste which again creates external costs for society

Growth that leads to environmental damage may lower the sustainable rate of growth.  Examples include the destruction of rain forests through deforestation, the over-exploitation of fish stocks and loss of natural habitat and bio-diversity created through the construction of new roads, hotels, retail malls and industrial estates.

Deforestation releases more CO2 into the atmosphere each year than all of the world's planes, trains and automobiles put together. Globally, an area almost the size of England and Wales is cut down every year releasing billions of tons of CO2 into the atmosphere.

Using-up scarce resources:

“The consequences of environmentally unsustainable production are already visible. Increased exposure to drought, floods and environmental stress is a major impediment to realizing people’s aspirations”

Source: UNDP Report, 2011

The world’s resources are limited, and recognizing this fact and trying to preserve them for future generations is vital for sustainable growth. Our rampant use of oil has run many reserves dry and each year it becomes more difficult to find new oil fields.

Even water, which so many people take for granted will become a scarce resource, like many other raw materials. According to the United Nations, by 2025 1.8bn people will be affected by water scarcity. The pollution caused by economic growth is another concern.

The Stern Report highlighted the dangers of our disregard for the environment, especially large CO2 emissions. It is predicted that many species will become extinct as forests and jungles, homes for many animals, are cut down to pave way for the growing world population.

At present 16,000 species are threatened today. In 1900 according to the UN’s Global Environmental Outlook, there were 7.91 hectares per person, while it is estimated that there will only be 1.63 by 2050 if present trends continue.

-Gwen Su (18)

2E

How does economic growth affects the society?

How does economic growth affects the society?

Economic growth is a long-term expansion of a country’s productive potential.

China and India are examples of very fast-growing countries. Their annual growth has far exceeded that for most advanced economies; China has out-paced India although both have experienced a slowdown in growth over the last couple of years.

There have been numerous research studies in what determines long term GDP growth. Every country is different, each factor will vary in importance for a country at a given point in time. The advantages of economic growth are higher living standards where there will be an increase in real income per head of population and also employment effects where growth stimulates more jobs to help new people as they enter the labour market. Growth can also help protect the environment such as low-carbon investment, innovation and research and development, resulting in more efficient production processes to reduce costs.

There are also disadvantages of an economic growth. Firstly, it is the Inflation risk. If demand races ahead of aggregate supply the scene is set for rising prices. Many fast growing developing countries have seen high rates of inflation in recent years, a good example is India. Secondly, the working hours of adults will be increased. A fast-growing economy places increasing demands on the hours that people work and can upset work-life balance. Lastly, there will be a structural change. Although a growing economy will be creating more jobs, it also leads to structural changes in the pattern of jobs. Some industries will be in decline whilst others will be expanding. Structural unemployment can rise even though it appears that a country is growing – the labour force needs to be occupationally mobile. There are also environmental concerns such as fast growth can create negative externalities for example higher levels of noise pollution and lower air quality arising from air pollution and road congestion, increased consumption of de-merit goods which damages social welfare. It can leads to a huge increase in household and industrial waste which again creates external costs for society.Growth that leads to environmental damage may lower the sustainable rate of growth.  Examples include the destruction of rain forests through deforestation, the over-exploitation of fish stocks and loss of natural habitat and bio-diversity created through the construction of new roads, hotels, retail malls and industrial estates.Deforestation releases more CO2 into the atmosphere each year than all of the world's planes, trains and automobiles put together. Globally, an area almost the size of England and Wales is cut down every year releasing billions of tons of CO2 into the atmosphere.

Not all of the benefits of growth are evenly distributed. A rise in real GDP can lift millions of people out of absolute poverty but it can often be accompanied by widening income and wealth inequality in society that is reflected in an increase in relative povertyIf inequality grows as a country becomes richer, this raises important questions about a potential trade-off between equity and efficiency. 

Fast growth often lead to a widening of inequalities in both developed and developing countries. Examples are very high increases in the pay of people in the top-paying jobs – market-based economies offer the highest rewards to households with the most valuable skills, education and access to capital , increasing wealth including rising property prices – fast-growing economies will often seen a rapid increase in property prices, growing gaps between urban and rural areas with rural poverty on the increase, high fertility in the poorest households and linked effects of inequality in health and education.

-Teo Lian Wei Vesy (20) 2E

How does economic growth affect society?

Firstly, Economic growth is the increase in the 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. Some effects of economic growth are unemployment and inflation.

A number of arguments have been raised against economic growth.It may be that economic growth improves the quality of life up to a point, after which it doesn't improve the quality of life, but rather obstructs sustainable living. Sustainable living is a lifestyle that attempts to reduce an individual's or society's use of the Earth's natural resources and personal resources.

Practitioners of sustainable living often attempt to reduce their carbon footprint by altering methods of transportation, energy consumption, and diet.

Changes in social structures occurring during the process of economic growth can be considered direct consequences of this process, while other changes are caused by factors such as technological progress, that affect simultaneously social structures and growth.

The impact of economic growth on poverty has been documented. The relationship is not direct. In some cases it can be positive i.e.economic growth leading to reduction in poverty, whereas in some cases it can be negative, ie economic growth leading to increase in poverty. The impact of economic growth on poverty depends highly on the inequalities that are prevailing in an economy.And thus it doesn't make sense to measure poverty in a developed economy in the same way you would meausre it a developing country, because the definitions of poverty will definitely differ in different economies. 

The manner in which generative and distributive effects drive ultimate outcomes and affect the economy is complex. Consequently, it is important to understand the types of economic impacts that may be generated by transportation investments.

Costs of Production and Competitiveness—Improved highway systems reduce costs for delivery of goods and services; they also support faster, more reliable transportation from one place to another. These, in turn, reduce the costs of collecting inputs and delivering products to markets in several ways:

less driver time on the road thus lower labor costs;

increased trip miles per time period per vehicle and thus smaller vehicle fleet needed for the same amount of work ("freight efficiency");

lower vehicle repair and operating costs; and

improved transportation reliability.

The first three work directly to reduce total product costs. Improved transportation reliability works to reduce production costs via reductions in inventories of inputs, spare parts, and/or finished goods.

Cost reductions that are realized will enhance the competitive position of enterprises with access to the improved highway network. In turn, this can stimulate increased trade domestically and/or internationally, resulting in improved trade balances. Moreover, expanded demand can generate economies of scale and improved productivity as enterprises take advantage of these market opportunities—thus inducing another round of cost reduction. The relative impact of these effects vary among sectors (i.e., the type of economic activity or industry) and vary according to the level of pre-highway urbanization and development.

Labor Pool—Because labor can more readily reach employment locations from farther away (assuming there are vehicles to transport them over the highway system), enterprises have a larger employment pool from which to draw. Competition could reduce wages, but an expanded labor pool should also encourage a more efficient match between skills and jobs. In some circumstances, improved connections between hometown and employment opportunities prompts workers to move closer to employment opportunities since they do not need to sever their ties to family when they migrate. Thus improved access can affect demographic patterns as well as production costs of individual enterprises.

Economic Structure—Transportation costs and improved physical access may change the mix of economic activities. That is, major investments can alter the mix of economic activities where transportation cost (or access) was an inhibiting factor. For example, previously self-sufficient areas may specialize in those activities that earn the greatest income and use that income to "import" products that used to be produced locally. The lure of reduced transportation costs can lead to shifts in geographic distribution of economic activity to take advantage of these changes. To the degree that such structural changes improve productivity, national output (per capita) is increased.

-Yu Zhen (23) 2E