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
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