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Economic growth

Economic growth, refers to the increase in the value of goods and services produced by an economy. It is conventionally measured as the rate of increase in Gross National Product. Growth is usually calculated in real terms (i.e. netting out the effect of inflation on the price of the goods and services produced).

The Gross National Product of an economy is often used as an indicator of the wealth of an economy, and economic growth is therefore often seen as indicating an increase in wealth. This is often the case, but there are many goods and services that are not synonomous with increasing wealth, and economic growth can be present in an economy even though a large amount of destruction is taking place and wealth is decreasing - a prime example of this is some wars.

Explaining economic growth is one of the central questions in economics. Without economic growth, automation since the industrial revolution would have resulted in a constantly shrinking workforce. The Luddites would have been right, but economic growth has allowed consumption to almost keep-up with the increased output of full-employment while automation is improving labor productivity.

Growth in output can be divided into two major categories: growth through increases in input (eg. capital, labor) and improvements in productivity (eg. new technologies).

Small differences in the rate of growth between two countries can lead to large cumulative differences in income over time. These differences in income can have a major impact on people's standard of living and on migration.

Analysis of economic success shows a close correlation with climate. Cold states like Sweden are much more successful than warm countries like Nigeria. In early human history, economic as well as cultural development was concentrated in warmer parts of the word, like Egypt. Today, however, cold, Northern states have much higher per capita GDP's compared to the hot, tropical states. This aspect of economics (economic geography) - and its influence on human migration and political structures - was extensively studied by Ellsworth Huntington, a professor of Economics at Yale University in the early 20th century.

The limits to growth

There is a debate in the economics literature, usually referred to as the limits to growth debate in which the ecological impact of growth and wealth creation is considered. Activities involved in economic growth use non-renewable resources. Most researchers feel that these sustained environmental impacts can have an effect on the whole ecosystem. They claim that the accumlated impacts on the ecosystem put a theortical limit on the amount of wealth that can be created. They draw on archeology to cite examples of cultures that they claim have disappeared because they grew beyond the ability of their ecosystems to support them. The conflict between our desire for more consumer goods and the need to conserve resources can be reduced by conserveration. Eventualy the limits to growth will make growth in resource consumption impossible.

Others are more otimistic. They claim that although localized environmental impacts may occur, large scale ecological effects are either minor (in terms of magnitude) or non-existent. They sometimes claim that if these global scale ecological effects exist, human ingenuity will always find ways of adapting to them. To them, there is no limit to the amount of growth or wealth that this planet will sustain.

The rate or style of economic growth may have important consequences for both "the environment" (i.e. the climate and natural capital of ecologies). Concerns about possible negative impacts of growth on the environment and on human society lead some to advocate lower levels of growth, e.g. in human development theory from which comes the idea of uneconomic growth, and Green parties which argue that economies are part of a global society and a global ecology, and cannot outstrip their natural growth without damaging them. Canadian scientist David Suzuki stated in the 1990s that ecologies can only typically grow about 1.5-3% new growth per year, and thus any requirement for agriculture or forestry to return greater than these rates, will necessarily cannibalize the natural capital of soil or forest. Some think that this argument can be applied to even developed world economies. Mainstream economists would argue that economies are driven by new technology. For instance, we have faster computer today than a year ago, but not necessarily physically more computers. That is, we may have been able to break free from physical limitations by relying on more knowledge rather than more physical production.

A concern for promoting economic growth over and above all less measurable considerations is a symptom of productivism - usually a pejorative term.

A classic work in the limits of growth debate was Limits to Growth.

See also