View source for Economic growth

{{Short description|Measure of increase in market value of goods}}
{{Use dmy dates|cs1-dates=ly|date=April 2022}}
[[File:Historic world GDP per capita.svg|thumb|upright=1.4|Historic world GDP per capita]]
[[File:GDP GROWTH.webp|thumb|upright=1.4|[[List of countries by real GDP growth rate|Countries by real GDP growth rate]] in % for 2024 (IMF WEO database)
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[[File:GDP per capita growth 2024.svg|thumb|upright=1.4|[[List of countries by real GDP per capita growth|Real GDP per capita growth]] in % for 2024<ref name="World Bank">{{Cite web|url=https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?end=2024&start=1961&view=map|title = GDP per capita growth (annual %), World Bank Group, accessed July 2025}}</ref>
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{{Macroeconomics sidebar}}
In [[economics]], '''economic growth''' is an increase in the quantity and quality of the economic [[goods]] and [[Service (economics)|services]] that a society [[Production (economics)|produces]]. It can be measured as the increase in the inflation-adjusted [[Output (economics)|output]] of an [[economy]] in a given year or over a period of time.<ref>{{Cite journal |last=Roser |first=Max |date=2021-05-13 |title=What is economic growth? And why is it so important? |url=https://ourworldindata.org/what-is-economic-growth |journal=Our World in Data |language=en}}</ref>

The rate of growth is typically calculated as [[List of countries by real GDP growth rate|real gross domestic product (GDP) growth rate]], [[List of countries by real GDP per capita growth|real GDP per capita growth rate]] or [[List of countries by GNI per capita growth|GNI per capita growth]]. The "rate" of economic growth refers to the [[Exponential growth|geometric]] annual rate of growth in GDP or GDP per capita between the first and the last year over a period of time. This growth rate represents the trend in the average level of GDP over the period, and ignores any fluctuations in the GDP around this trend. Growth is usually calculated in "real" value, which is [[real vs. nominal in economics|inflation-adjusted]], to eliminate the distorting effect of [[inflation]] on the prices of [[goods]] produced.<ref>[http://www.statista.com/statistics/197039/growth-of-the-global-gross-domestic-product-gdp/ Statistics on the Growth of the Global Gross Domestic Product (GDP) from 2003 to 2013] {{Webarchive|url=https://web.archive.org/web/20130503165447/http://www.statista.com/statistics/197039/growth-of-the-global-gross-domestic-product-gdp/ |date=2013-05-03 }}, IMF, October 2012. - "Gross domestic product, also called GDP, is the market value of goods and services produced by a country in a certain time period."</ref> [[List of countries by GDP (nominal) per capita|GDP per capita]] is the GDP of the entire country divided by the number of people in the country. [[Measures of national income and output|Measurement of economic growth]] uses [[National accounts|national income accounting]].{{sfn|Bjork|1999|p=251}}

Economists refer to economic growth caused by more efficient use of inputs (increased [[productivity]] of [[Labour productivity|labor]], of [[physical capital]], of [[Energy development|energy]] or of [[material]]s) as ''[[intensive growth]]''. In contrast, economic growth caused only by increases in the amount of inputs available for use (increased population, for example, or new territory) counts as ''[[extensive growth]]''.{{sfn|Bjork|1999|pp=[https://archive.org/details/wayitworkedwhyit0000bjor/page/2 2], [https://archive.org/details/wayitworkedwhyit0000bjor/page/67 67]}} [[Innovation]] also generates economic growth. In the U.S. about 60% of [[consumer spending]] in 2013 went on goods and services that did not exist in 1869.<ref>{{Cite book |last=Gordon |first=Robert J. |url=https://books.google.com/books?id=jXGYDwAAQBAJ&q=the+rise+and+fall+of+american+growth |title=The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War |date=2017-08-29 |publisher=Princeton University Press |isbn=978-0-691-17580-5 |pages=38–39 |language=en}}</ref>

The U.S. economy experienced accelerated growth in the spring of 2025, fueled by increasing consumer expenditure and decreasing imports, as reported by new government statistics. The gross domestic product (GDP) expanded at an annualized rate of 3.8 percent during the April to June timeframe. In the initial quarter of 2025, the U.S. economy contracted at a rate of 0.6 percent as businesses relied on imports to navigate President Donald Trump’s tariffs.<ref>{{cite web |title=US economic growth revised up on strong consumer spending |url=https://www.bbc.com/news/articles/cjedze7e95lo#:~:text=Gross%20domestic%20product%20(GDP)%2C,a%20contraction%20earlier%20this%20year. |website=BBC | date=25 September 2025 }}</ref>

==Determinants of economic growth==
[[File:Creative Economics The system of economic growth in developed regions.PNG|thumb|The system of economic growth in developed regions]]
In [[national income accounting]], per capita output can be calculated using the following factors: output per unit of labor input (labor productivity), hours worked (intensity), the percentage of the [[working-age]] population actually working (participation rate) and the proportion of the working-age population to the total population (demographics). "The rate of change of GDP/population is the sum of the rates of change of these four variables plus their cross products."{{sfn|Bjork|1999|p=68}}

Short-term economic changes happen around long-term changes, though they are unpredictable. [[Recession|Recessions]] may occur, causing GDP to fall, along with productivity, causing unemployment to rise.<ref>{{Cite web |title=Chapter 8: Business Cycles |url=https://web.mnstate.edu/stutes/Econ304/RootNotes/chpt8.htm |access-date=2025-08-20 |website=web.mnstate.edu}}</ref>

===Productivity===
{{main|Productivity-improving technologies}}
Increases in labor [[productivity]] (the ratio of the value of output to labor input) have historically been the most important source of real per capita economic growth.{{sfn|Bjork|1999|p={{pn|date=July 2022}}}}<ref>{{Cite web |last1=Roubini |first1=Nouriel| last2=Backus |first2=David |work=Lectures in Macroeconomics |year=1998 |title=Productivity and Growth |url=http://pages.stern.nyu.edu/~nroubini/NOTES/CHAP4.HTM#topic2}}</ref><ref>{{Cite web
 |last1        = Wang
 |first1       = Ping
 |title        = Growth Accounting
 |year         = 2014
 |page         = 2
 |url          = http://pingwang.wustl.edu/Econ472/Growth%20Development-V.pdf
 |archive-url   = https://web.archive.org/web/20140715173535/http://pingwang.wustl.edu/Econ472/Growth%20Development-V.pdf
 |archive-date  = 2014-07-15
}}</ref><ref>{{ Cite web
 | last1 = Corry
 | first1 =Dan
| last2 = Valero
 | first2=Anna
| last3 = Van Reenen
 | first3 =John
 | title = UK Economic Performance Since 1997
 | date = Nov 2011
 | url = http://cep.lse.ac.uk/conference_papers/15b_11_2011/CEP_Report_UK_Business_15112011.pdf
 | quote = The UK‟s high GDP per capita growth was driven by strong growth in productivity (GDP per hour), which was second only to the US. 
}}</ref><ref name="Kendrick_1961"/> In a famous estimate, MIT Professor [[Robert Solow]] concluded that technological progress has accounted for 80 percent of the long-term rise in U.S. per capita income, with increased investment in capital explaining only the remaining 20 percent.<ref>{{ Cite journal
 | last = Krugman
 | first =Paul
 | title = The Myth of Asia's Miracle
 | year = 1994
|journal=Foreign Affairs
|volume=73
|issue=6
|pages=62–78
| url = https://www.foreignaffairs.com/articles/asia/1994-11-01/myth-asias-miracle
 | doi=10.2307/20046929
| jstor =20046929
 }}</ref>

Increases in productivity lower the real cost of goods. Over the 20th century, the real price of many goods fell by over 90%.<ref>{{cite book |title=Inside the Black Box: Technology and Economics |last=Rosenberg |first=Nathan |year=1982 |publisher=Cambridge University Press |location=Cambridge, New York |isbn=978-0-521-27367-1 |page=[https://archive.org/details/insideblackboxte00rose/page/258 258] |url=https://archive.org/details/insideblackboxte00rose/page/258 }}</ref>

Economic growth has traditionally been attributed to the accumulation of human and physical capital and the increase in productivity and creation of new goods arising from technological innovation.<ref name="Lucas1988">{{cite journal |last=Lucas |first=R. E. |year=1988 |title=On the Mechanics of Economic Development |journal=[[Journal of Monetary Economics]] |volume=22 |issue=1 |pages=3–42 |doi=10.1016/0304-3932(88)90168-7 |s2cid=154875771 |url=https://papers.ssrn.com/sol3/Delivery.cfm/nber_R1176.pdf?abstractid=227120&mirid=1 }}</ref> Further [[division of labour]] (specialization) is also fundamental to rising productivity.<ref>{{cite book|title= Capitalism: A complete understanding of the nature and value of human economic life|last=Reisman|first= George|year= 1998|isbn= 0-915463-73-3|publisher =Jameson Books }}</ref>

Before [[industrialization]], technological progress resulted in an increase in the population, which was kept in check by food supply and other resources, which acted to limit per capita income, a condition known as the [[Malthusian trap]].<ref name="Galor (2005)">{{cite book |last=Galor |first=Oded |year=2005 |chapter=From Stagnation to Growth: Unified Growth Theory |title=Handbook of Economic Growth |volume=1 |pages=171–293 |publisher=Elsevier |chapter-url=https://ideas.repec.org/h/eee/grochp/1-04.html}}</ref>{{sfn|Clark|2007|loc=Part I: The Malthusian Trap|p={{pn|date=July 2022}}}} The rapid economic growth that occurred during the [[Industrial Revolution]] was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap.{{sfn|Clark|2007|loc=Part 2: The Industrial Revolution|p={{pn|date=July 2022}}}} Countries that industrialized eventually saw their population growth slow down, a phenomenon known as the [[demographic transition]].

Increases in productivity are the major factor responsible for per capita economic growth—this has been especially evident since the mid-19th century. Most of the economic growth in the 20th century was due to increased output per unit of labor, materials, energy, and land (less input per widget). The balance of the growth in output has come from using more inputs. Both of these changes increase output. The increased output included more of the same goods produced previously and new goods and services.<ref name="nber.org">Kendrick, J. W. 1961 "[https://www.nber.org/books/kend61-1 Productivity trends in the United States] {{Webarchive|url=https://web.archive.org/web/20190304154526/https://www.nber.org/books/kend61-1 |date=2019-03-04  }}", Princeton University Press</ref>

During the [[Industrial Revolution]], [[mechanization]] began to replace hand methods in manufacturing, and new processes streamlined production of chemicals, iron, steel, and other products.<ref name="Landes1969">
{{cite book
|title=The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
 |last=Landes
 |first= David. S.
|author-link=David Landes
|year= 1969|publisher =Press Syndicate of the University of Cambridge
|location= Cambridge, New York
|isbn= 978-0-521-09418-4
}}
</ref> [[Machine tool]]s made the economical production of metal parts possible, so that parts could be interchangeable.<ref name="Houndshell_1984">{{Hounshell1984}}</ref> (See: [[Interchangeable parts]].)

During the [[Second Industrial Revolution]], a major factor of [[productivity]] growth was the substitution of inanimate power for human and animal labor. Also there was a great increase in power as steam-powered [[electricity generation]] and internal combustion supplanted limited wind and [[water power]].<ref name="Landes1969"/> Since that replacement, the great expansion of total power was driven by continuous improvements in [[energy conversion efficiency]].<ref name="Ayres-Warr2004">{{Cite journal
 |last1        = Ayres
 |last2        = Warr
 |first1       = Robert U.
 |first2       = Benjamin
 |title        = Accounting for Growth: The Role of Physical Work
 |date         = June 2005
 |url          = https://www.academia.edu/5771930
 |access-date  = 2022-08-09
 |journal=Structural Change and Economic Dynamics |volume=16 |issue=2 |pages=181–209 |doi=10.1016/j.strueco.2003.10.003 |citeseerx=10.1.1.1085.9040
}}</ref> Other major [[Productivity improving technologies (historical)|historical sources of productivity]] were [[automation]], transportation infrastructures (canals, railroads, and highways),<ref>{{Cite book
| last1 = Grubler
| first1 = Arnulf
| title = The Rise and Fall of Infrastructures
| year = 1990
| url = http://www.iiasa.ac.at/Admin/PUB/Documents/XB-90-704.pdf
| access-date = 2011-02-01 
| archive-date = 2012-03-01 
| archive-url = https://web.archive.org/web/20120301221205/http://www.iiasa.ac.at/Admin/PUB/Documents/XB-90-704.pdf
}}</ref><ref>
{{cite book
|title=The Transportation Revolution, 1815–1860
 |last=Taylor
 |first= George Rogers
|isbn= 978-0-87332-101-3|year=1951
 |publisher=Rinehart
 }}
</ref> new materials (steel) and power, which includes steam and internal combustion engines and [[electrification|electricity]]. Other [[productivity]] improvements included [[mechanized agriculture]] and scientific agriculture including chemical [[fertilizer]]s and livestock and poultry management, and the [[Green Revolution]]. [[Interchangeable parts]] made with [[machine tool]]s powered by [[electric motor]]s evolved into [[mass production]], which is universally used today.<ref name="Houndshell_1984" />

[[File:Cost of chicken in time worked.jpg|thumb|upright=1.4|right|Productivity lowered the cost of most items in terms of work time required to purchase. Real [[food prices]] fell due to improvements in transportation and trade, [[mechanized agriculture]], [[fertilizer]]s, scientific farming and the [[Green Revolution]].]]

Great sources of productivity improvement in the late 19th century were railroads, steam ships, horse-pulled [[reaper]]s and [[combine harvester]]s, and [[steam engine|steam]]-powered factories.<ref name="Wells_1890">{{cite book
|title=Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society
|last=Wells
 |first=David A.
|year=1890 |publisher= D. Appleton and Co.|location= New York|isbn= 978-0-543-72474-8 |url= https://archive.org/details/recenteconomicc01wellgoog }}</ref><ref>
{{cite book |title      = A New Economic View of American History
 |last1      = Atack
 |first1     = Jeremy
 |last2      = Passell
 |first2     = Peter
 |year       = 1994
 |publisher  = W.W. Norton and Co.
 |location   = New York
 |isbn       = 978-0-393-96315-1
 |url        = https://archive.org/details/neweconomicviewo00atac
}}
</ref> The invention of processes for making cheap [[steel]] were important for many forms of [[mechanization]] and transportation. By the late 19th century both prices and weekly work hours fell because less labor, materials, and energy were required to produce and transport goods. However, real wages rose, allowing workers to improve their diet, buy consumer goods and afford better housing.<ref name="Wells_1890"/>

[[Mass production]] of the 1920s created [[overproduction]], which was arguably one of several [[causes of the Great Depression]] of the 1930s.<ref>{{cite book |title=Mass Production, the Stock Market Crash and the Great Depression |last=Beaudreau |first=Bernard C. |year=1996 |publisher=Authors Choice Press|location=New York, Lincoln, Shanghi }}</ref> Following the [[Great Depression]], economic growth resumed, aided in part by increased demand for existing goods and services, such as automobiles, telephones, radios, electricity and household appliances. New goods and services included television, air conditioning and commercial aviation (after 1950), creating enough new demand to stabilize the work week.<ref>{{Cite journal| last1 = Moore
| first1 = Stephen
| last2 = Simon
| first2 = Julian
| title = The Greatest Century That Ever Was: 25 Miraculous Trends of the last 100 Years |publisher = The Cato Institute |journal =Policy Analysis |issue=364
| date = December 15, 1999
| url = http://www.cato.org/pubs/pas/pa364.pdf
}}[[Diffusion curve]]s for various innovations start at Fig. 14</ref> The building of highway infrastructures also contributed to post-World War II growth, as did capital investments in manufacturing and chemical industries.<ref>
{{cite book
|title=A Great Leap Forward: 1930s Depression and U.S. Economic Growth
 |last1=Field
 |first1= Alexander J.
|year= 2011 |publisher =Yale University Press
|location= New Haven, London
|isbn=978-0-300-15109-1 
}}
</ref> The post-World War II economy also benefited from the discovery of vast amounts of oil around the world, particularly in the [[Middle East]]. By [[John Whitefield Kendrick|John W. Kendrick's]] estimate, three-quarters of increase in U.S. per capita GDP from 1889 to 1957 was due to increased productivity.<ref name="Kendrick_1961">{{cite book |title=Productivity Trends in the United States |last=Kendrick |first=John W. |year=1961 |publisher= Princeton University Press for NBER |page=3 |url=https://www.nber.org/chapters/c2236.pdf}}</ref>

Economic growth in the [[United States]] slowed down after 1973.<ref>[https://research.stlouisfed.org/fred2/series/USARGDPC St. Louis Federal Reserve] {{Webarchive|url=https://web.archive.org/web/20150413023638/https://research.stlouisfed.org/fred2/series/USARGDPC |date=2015-04-13  }} Real GDP per capita in the U.S. rose from $17,747 in 1960 to $26,281 in 1973 for a growth rate of 3.07%/yr. Calculation: (26,281/17,747)^(1/13). From 1973 to 2007 the growth rate was 1.089%. Calculation: (49,571/26,281)^(1/34) From 2000 to 2011 average annual growth was 0.64%.</ref> In contrast, growth in [[Asia]] has been strong since then, starting with [[Japan]] and spreading to [[Four Asian Tigers]], [[China]], [[Southeast Asia]], the [[Indian subcontinent]] and [[Asia Pacific]].<ref name="MarketWatch 2019">{{cite web | title=Semiconductor Foundry Market: 2019 Global Industry Trends, Growth, Share, Size and 2021 Forecast Research Report | website=MarketWatch | date=2019-11-28 | url=https://www.marketwatch.com/press-release/semiconductor-foundry-market-2019-global-industry-trends-growth-share-size-and-2021-forecast-research-report-2019-11-28 | access-date=2019-12-20 | archive-date=2019-12-20  | archive-url=https://web.archive.org/web/20191220172649/https://www.marketwatch.com/press-release/semiconductor-foundry-market-2019-global-industry-trends-growth-share-size-and-2021-forecast-research-report-2019-11-28 }}</ref> In 1957 [[South Korea]] had a lower per capita [[GDP]] than [[Ghana]],<ref>[https://www.independent.co.uk/news/education/education-news/leading-article-africa-has-to-spend-carefully-407666.html Leading article: Africa has to spend carefully] {{Webarchive|url=https://web.archive.org/web/20120124072325/https://www.independent.co.uk/news/education/education-news/leading-article-africa-has-to-spend-carefully-407666.html |date=2012-01-24  }}. The Independent. July 13, 2006.</ref> and by 2008 it was 17 times as high as Ghana's.<ref>Data refer to the year 2008. $26,341 GDP for Korea, $1513 for Ghana. ''World Economic Outlook Database – October 2008''. [[International Monetary Fund]].</ref> The Japanese economic growth has slackened considerably since the late 1980s.

Productivity in the United States grew at an increasing rate throughout the 19th century and was most rapid in the early to middle decades of the 20th century.<ref>{{Cite journal
 | last1 = Kendrick
 | first1 = John
 | title = U.S. Productivity Performance in Perspective, Business Economics, October 1, 1991
 | journal = Business Economics
 | volume = 26
 | issue = 4
 | pages = 7–11
 | year =1991
 | jstor = 23485828
 }}</ref><ref>{{Cite journal
 | last = Field
 | first = Alezander J.
 | title = U.S. Economic Growth in the Gilded Age
 | journal = Journal of Macroeconomics
 | volume = 31
 | year = 2007
 | pages = 173–190
 | doi = 10.1016/j.jmacro.2007.08.008
 | s2cid = 154848228
 | url = http://www.scu.edu/business/economics/research/upload/field_macroecon_2009.pdf
 | access-date = 2014-07-12 
 | archive-date = 2016-01-08 
 | archive-url = https://web.archive.org/web/20160108181103/http://www.scu.edu/business/economics/research/upload/field_macroecon_2009.pdf
 }}</ref><ref>{{Cite journal|title=Technological Change and Economic Growth the Interwar Years and the 1990s|last=Field|first=Alexander|journal=The Journal of Economic History|year=2004|volume=66|issue=1 |url=https://www.cambridge.org/core/journals/journal-of-economic-history/article/technological-change-and-us-productivity-growth-in-the-interwar-years/99E3F7A9C33CA30278F06C1442A913E3|pages=203–236 |doi=10.1017/S0022050706000088 |ssrn=1105634 |s2cid=154757050|url-access=subscription}}</ref><ref name="Gordon2000">{{Cite journal
 | last1 = Gordon
 | first1 = Robert J.
 | title = Interpreting the 'One Big Wave' in U.S. Long Term Productivity Growth
 | journal = NBER Working Paper No. 7752 
 | date = June 2000
 | doi = 10.3386/w7752
| doi-access = free
 }}</ref><ref>{{cite book
 |title        = Two Centuries of American Macroeconomic Growth From Exploitation of Resource Abundance to Knowledge-Driven Development
 |last1        = Abramovitz
 |first1       = Moses
 |last2        = David
 |first2       = Paul A.
 |year         = 2000
 |publisher    = Stanford University
 |pages        = 24–5 (pdf pp. 28–9)
 |url          = http://www-siepr.stanford.edu/papers/pdf/01-05.pdf
 |access-date  = 2014-07-13 
 |archive-date = 2020-07-31 
 |archive-url  = https://web.archive.org/web/20200731023437/http://www-siepr.stanford.edu/papers/pdf/01-05.pdf
 }}</ref> U.S. productivity growth spiked towards the end of the century in 1996–2004, due to an acceleration in the rate of technological innovation known as [[Moore's law]].<ref name="Gordon 2013">{{cite journal |title=U.S. Productivity Growth: The Slowdown Has Returned After a Temporary Revival |journal=International Productivity Monitor, Centre for the Study of Living Standards |date=Spring 2013 |last=Gordon |first=Robert J. |volume=25 |pages=13–9 |url=http://faculty-web.at.northwestern.edu/economics/Gordon/SAN-to-NBER%20Baily-Sharpe%20as%20published_130327.pdf |access-date=2014-07-19 |quote=The U.S. economy achieved a growth rate of labour productivity of 2.48 per cent per year for 81 years, followed by 24 years of 1.32 per cent, then a temporary recovery back to 2.48 per cent per cent, and a final slowdown to 1.35 per cent. The similarity of the growth rates in 1891–1972 with 1996–2004, and of 1972–96 with 1996–2011 is quite remarkable. |archive-url=https://web.archive.org/web/20140809065612/http://faculty-web.at.northwestern.edu/economics/Gordon/SAN-to-NBER%20Baily-Sharpe%20as%20published_130327.pdf |archive-date=2014-08-09 }}</ref><ref name="Jorgenson&Ho_2014"><!-- Jorgenson, Ho, and Samuels (2014) Long-term Estimates of U.S. Productivity and Growth -->{{cite Q|Q111455533}}</ref><ref>{{cite journal|doi=10.1257/jep.22.1.3 |title=A Retrospective Look at the U.S. Productivity Growth Resurgence |journal=Journal of Economic Perspectives |volume=22 |issue=1 |pages=3–24 |author1=Dale W. Jorgenson |author2=Mun S. Ho |author3=Kevin J. Stiroh |year=2008 |doi-access=free }}</ref><ref>{{cite web|url=http://bea.gov/papers/pdf/ip-nipa.pdf |title=Information Processing Equipment and Software in the National Accounts |publisher=U.S. Department of Commerce Bureau of Economic Analysis |author1=Bruce T. Grimm |author2=Brent R. Moulton |author3=David B. Wasshausen |year=2002 |access-date=2014-05-15}}</ref> After 2004 U.S. productivity growth returned to the low levels of 1972–96.<ref name="Gordon 2013"/>

=== Factor accumulation ===
Capital in economics ordinarily refers to physical capital, which consists of structures (largest component of physical capital) and equipment used in business (machinery, factory equipment, computers and office equipment, construction equipment, business vehicles, medical equipment, etc.).{{sfn|Bjork|1999|p=251}} Up to a point increases in the amount of capital per worker are an important cause of economic output growth. Capital is subject to [[diminishing returns]] because of the amount that can be effectively invested and because of the growing burden of depreciation. In the development of economic theory, the distribution of income was considered to be between labor and the owners of land and capital.<ref>
{{cite book|title=History of Economic Thought: A Critical Perspective|last1=Hunt|first1=E. K.|last2=Lautzenheiser|first2=Mark|publisher=PHI Learning|year=2014|isbn=978-0-7656-2599-1}}
</ref> In recent decades there have been several Asian countries with high rates of economic growth driven by capital investment.<ref>{{Cite journal|last=Krugman|first=Paul|year=1994|title=The Myth of Asia's Miracle|url=https://www.foreignaffairs.com/articles/asia/1994-11-01/myth-asias-miracle|journal=Foreign Affairs|volume=73|issue=6|pages=62–78|doi=10.2307/20046929|jstor=20046929}}</ref>

The work week declined considerably over the 19th century.<ref>{{Cite web
 |title       = Hours of Work in U.S. History
 |year        = 2010
 |url         = http://eh.net/encyclopedia/article/whaples.work.hours.us
 |archive-url  = https://web.archive.org/web/20111026075949/http://eh.net/encyclopedia/article/whaples.work.hours.us
 |archive-date = 2011-10-26
}}</ref><ref>{{Cite journal
 | last1 = Whaples
 | first1 = Robert
 | title = The Shortening of the American Work Week: An Economic and Historical Analysis of Its Context, Causes, and Consequences |journal=The Journal of Economic History |volume=51 |issue= 2 |pages=454–7
 | date = June 1991
 | doi=10.1017/s0022050700039073
| s2cid = 153813437
 }}</ref> By the 1920s the average work week in the U.S. was 49 hours, but the work week was reduced to 40 hours (after which overtime premium was applied) as part of the [[National Industrial Recovery Act]] of 1933.

Demographic factors may influence growth by changing the employment to population ratio and the labor force participation rate.{{sfn|Bjork|1999|p={{pn|date=July 2022}}}} [[Industrialization]] creates a [[demographic transition]] in which birth rates decline and the average age of the population increases.

Women with fewer children and better access to market employment tend to join the labor force in higher percentages. There is a reduced demand for child labor and children spend more years in school. The increase in the percentage of women in the labor force in the U.S. contributed to economic growth, as did the entrance of the [[baby boomer]]s into the workforce.{{sfn|Bjork|1999|p={{pn|date=July 2022}}}}

===Conventional growth domain===
It has been observed that GDP growth is influenced by the size of the economy. The relation between GDP growth and GDP across the countries at a particular point of time is convex. Growth increases as GDP reaches its maximum and then begins to decline. There exists some extremum value. This is not exactly middle-income trap. It is observed for both developed and developing economies. Actually, countries having this property belong to ''conventional growth domain''. However, the extremum could be extended by technological and policy innovations and some countries move into ''innovative growth domain'' with higher limiting values.<ref>{{cite journal |last1=Das |first1=Tuhin K. |title=Cross-Sectional Views of GDP Growth in the Light of Innovations |journal=Economic Growth eJournal |date=2019 |doi=10.2139/ssrn.3503386 |ssrn=3503386 |s2cid=219383124}}</ref>

===Human capital===
Many theoretical and empirical analyses of economic growth attribute a major role to a country's level of [[human capital]], defined as the skills of the population or the work force. Human capital has been included in both neoclassical and endogenous growth models.<ref>{{cite journal|last1=Mankiw|first1=N. Gregory|author-link=N. Gregory Mankiw|last2=Romer|first2=David|author-link2=David Romer|last3=Weil|first3=David|year=1992|title=A Contribution to the Empirics of Economic Growth|journal=[[Quarterly Journal of Economics]]|volume=107|issue=2|pages=407–37|doi=10.2307/2118477|jstor=2118477|citeseerx=10.1.1.335.6159|s2cid=1369978}}</ref><ref>{{cite journal|last1=Sala-i-Martin |first1=Xavier|last2=Doppelhofer|first2=Gernot|last3=Miller|first3=Ronald I.|year=2004|title=Determinants of Long-term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach|journal=[[American Economic Review]] |volume=94|issue=4|pages=813–35|doi=10.1257/0002828042002570|s2cid=55710066|url=http://www.nber.org/papers/w7750.pdf}}</ref><ref>{{cite journal|last=Romer|first=Paul|author-link=Paul Romer|year=1990|title=Human Capital and Growth: Theory and Evidence|journal=Carnegie-Rochester Conference Series on Public Policy|volume=32|pages=251–86|doi=10.1016/0167-2231(90)90028-J|s2cid=15491089|url=http://www.nber.org/papers/w3173.pdf}}</ref>

A country's level of human capital is difficult to measure since it is created at home, at school, and on the job. Economists have attempted to measure human capital using numerous proxies, including the population's level of literacy, its level of numeracy, its level of book production/capita, its average level of formal schooling, its average test score on international tests, and its cumulative depreciated investment in formal schooling. The most commonly used measure of human capital is the level (average years) of school attainment in a country, building upon the data development of [[Robert Barro]] and Jong-Wha Lee.<ref>{{cite journal|last1=Barro|first1=Robert J. |last2=Lee|first2=Jong-Wha|year=2001|title=International Data on Educational Attainment: Updates and Implications|journal=Oxford Economic Papers|volume=53|issue=3|pages=541–63|doi=10.1093/oep/53.3.541|s2cid=30819754 |url=https://www.hks.harvard.edu/sites/default/files/centers/cid/files/publications/faculty-working-papers/042.pdf}}</ref> This measure is widely used because Barro and Lee provide data for numerous countries in five-year intervals for a long period of time.

One problem with the schooling attainment measure is that the amount of human capital acquired in a year of schooling is not the same at all levels of schooling and is not the same in all countries. This measure also presumes that human capital is only developed in formal schooling, contrary to the extensive evidence that families, neighborhoods, peers, and health also contribute to the development of human capital. Despite these potential limitations, Theodore Breton has shown that this measure can represent human capital in log-linear growth models because across countries GDP/adult has a log-linear relationship to average years of schooling, which is consistent with the log-linear relationship between workers' personal incomes and years of schooling in the [[Mincer earnings function|Mincer model]].<ref name="Theodore">{{cite journal|last=Breton|first=Theodore R.|year=2015|title=Higher Test Scores or More Schooling? Another Look at the Causes of Economic Growth|journal=[[Journal of Human Capital]]|volume=9|issue=2|pages=239–263 |url=http://repository.eafit.edu.co:80/bitstream/10784/2644/3/2013_34_Theodore_Breton.pdf |doi=10.1086/681911|hdl=10784/2644|s2cid=140069337|hdl-access=free}}</ref>

[[Eric Hanushek]] and Dennis Kimko introduced measures of students' mathematics and science skills from international assessments into growth analysis.<ref>{{cite journal|last1=Hanushek|first1=Eric A.|last2=Kimko|first2=Dennis D.|year=2000|title=Schooling, Labor Force Quality, and the Growth of Nations|journal=American Economic Review|volume=90|issue=5|pages=1184–208|doi=10.1257/aer.90.5.1184|citeseerx=10.1.1.232.7942}}</ref> They found that this measure of human capital was very significantly related to economic growth. Eric Hanushek and [[Ludger Wößmann]] have extended this analysis.<ref>{{cite journal|last1=Hanushek|first1=Eric A.|last2=Woessmann|first2=Ludger|year=2008 |title=The Role of Cognitive Skills in Economic Development|journal=Journal of Economic Literature|volume=46|issue=3|pages=607–68|doi=10.1257/jel.46.3.607|citeseerx=10.1.1.507.5325}}</ref><ref>{{cite journal|last1=Hanushek|first1=Eric A.|last2=Woessmann|first2=Ludger|year=2011|title=How Much Do Educational Outcomes Matter in OECD Countries?|journal=Economic Policy|volume=26|issue=67|pages=427–91|doi=10.1111/j.1468-0327.2011.00265.x|s2cid=7733555|url=https://www.cesifo-group.de/DocDL/cesifo1_wp3238.pdf|archive-date=2021-04-15 |access-date=2019-08-16 |archive-url=https://web.archive.org/web/20210415084846/http://www.cesifo-group.de/DocDL/cesifo1_wp3238.pdf}}</ref> Theodore Breton shows that the correlation between economic growth and students' average test scores in Hanushek and Wößmann's analyses is actually due to the relationship in countries with less than eight years of schooling. He shows that economic growth is not correlated with average scores in more educated countries.<ref name="Theodore" /> Hanushek and Wößmann further investigate whether the relationship of knowledge capital to economic growth is causal. They show that the level of students' cognitive skills can explain the slow growth in Latin America and the rapid growth in East Asia.<ref>{{cite book|url=https://books.google.com/books?id=rIhLCAAAQBAJ|title=The Knowledge Capital of Nations: Education and the Economics of Growth|last1=Hanushek|first1=Eric|last2=Woessmann|first2=Ludger|publisher=[[MIT Press]]|year=2015|isbn=978-0-262-02917-9}}</ref>

[[Jörg Baten|Joerg Baten]] and [[Jan Luiten van Zanden]] employ book production per capita as a proxy for sophisticated literacy capabilities and find that "Countries with high levels of human capital formation in the 18th century initiated or participated in the industrialization process of the 19th century, whereas countries with low levels of human capital formation were unable to do so, among them many of today's Less Developed Countries such as India, Indonesia, and China."<ref>{{Cite journal|last1=Baten|first1=Joerg|last2=van Zanden|first2=Jan Luiten|date=2008|title=Book Production and the Onset of Modern Economic Growth|journal=Journal of Economic Growth|volume=13 | issue = 3 |pages=217–235|doi=10.1007/s10887-008-9031-9|hdl=10230/757|s2cid=195314801|hdl-access=free}}</ref>

=== Health ===
Here, health is approached as a functioning from [[Amartya Sen]] and [[Martha Nussbaum]]'s [[capability approach]] that an individual has to realise the achievements like economic success. Thus health in a broader sense is not the absence of illness, but the opportunity for people to biologically develop to their full potential their entire lives <ref name=Lustig>{{Cite journal|last=Lustig|first=Nora|year=2006 |title=Investing in health for economic development: The case of Mexico |journal=WIDER Research Paper |isbn=92-9190-798-7 |location=Helsinki |publisher=The United Nations University World Institute for Development Economics Research |url=https://www.econstor.eu/bitstream/10419/63484/1/510836623.pdf |issue=2006/30}}</ref> It is established that human capital is an important asset for economic growth, however, it can only be so if that population is healthy and well-nourished. One of the most important aspects of health is the mortality rate and how the rise or decline can affect the labour supply predominant in a developing economy.<ref name="Longevity and Life cycle Savings">{{Cite journal|last1=Bloom |first1=David|last2=Canning|first2=David|last3=Graham|first3=Bryan|year=2003|title=Longevity and Life cycle Savings |journal=The Scandinavian Journal of Economics|volume=105|issue=3|pages=319–338|s2cid=11960778 |doi=10.1111/1467-9442.t01-1-00001|url=https://onlinelibrary.wiley.com/doi/full/10.1111/1467-9442.t01-1-00001|url-access=subscription}}</ref> Mortality decline triggers greater investments in individual human capital and an increase in economic growth. [[Matteo Cervellati]] and [[Uwe Sunde]]<ref name="aeaweb.org">{{Cite journal |last1=Cervellati|first1=Matteo|last2=Sunde|first2=Uwe|year=2005|title=Human Capital Formation, Life Expectancy, and the Process of Development |journal=American Economic Review |volume=95 |issue=5 |pages=1653–1672 |pmid=29125727 |doi=10.1257/000282805775014380 |url=https://www.aeaweb.org/articles?id=10.1257/000282805775014380}}</ref> and [[Rodrigo.R Soares]]<ref name="Soares 2005">{{Cite journal|last=Soares|first=Rodrigo R.|year=2005|title=Mortality Reductions, Educational Attainment, and Fertility Choice|journal=American Economic Review |volume=95 |issue=3 |pages=580–601 |pmid=29125724 |doi=10.1257/0002828054201486 |url=https://www.aeaweb.org/articles?id=10.1257/0002828054201486}}</ref> consider frameworks in which mortality decline has an influence on parents to have fewer children and to provide quality education for those children, as a result instituting an economic-demographic transition.

The relationship between health and economic growth is further nuanced by distinguishing the influence of specific diseases on [[GDP]] per capita from that of aggregate measures of [[health]], such as [[life expectancy]]<ref name="Health and Economic Growth">{{Cite SSRN|last1=Bloom|first1=David|last2=Kuhn|first2=Michael|last3=Prettner|first3=Klaus|year=2018|title=Health and Economic Growth|ssrn=3301688}}</ref> Thus, investing in health is warranted both from the growth and equity perspectives, given the important role played by health in the economy. Protecting health assets from the impact of systemic transitional costs on economic reforms, pandemics, economic crises and natural disasters is also crucial. Protection from the shocks produced by illness and death, are usually taken care of within a country's social insurance system. In areas such as Sub-Saharan Africa, where the prevalence of [[HIV and AIDS]], has a comparative negative impact on economical development. It will be interesting to see how research in the areas of health in near future uncover how the world will be performing living with the [[SARS-CoV-2]], especially looking at the economic impacts it already has in a space of two years. Ultimately, when people live longer on average, [[human capital]] expenditures are more likely to pay off, and all of these mechanisms center around the complementarity of longevity, [[health]], and [[education]], for which there is ample empirical evidence.<ref name="Health and Economic Growth"/><ref name=Lustig/><ref name="aeaweb.org"/><ref name="Soares 2005"/><ref name="Longevity and Life cycle Savings"/>

===Political institutions===
{{see also|Great Divergence#Property rights|Great Divergence#Efficiency of markets and state intervention|Great Divergence#State prohibition of new technology}}

<blockquote>"As institutions influence behavior and incentives in real life, they forge the success or failure of nations."<ref name="Acemoglu&Robinson">{{harvnb|Acemoglu|Robinson|2012|page= [https://archive.org/details/whynationsfailor0000acem/page/43 43]}}.</ref></blockquote>

In economics and economic history, the transition from earlier economic systems to [[capitalism]] was facilitated by the adoption of government policies which fostered  [[commerce]] and gave individuals more personal and economic freedom. These included new laws favorable to the establishment of business, including [[contract law]], laws providing for the protection of [[private property]], and the abolishment of anti-usury laws.<ref>
{{cite book
|title=History of Economic Thought: A Critical Perspective
|last1=Hunt	
|first1= E. K.
|last2=Lautzenheiser
|first2=Mark
|year= 2014 |publisher =PHI Learning
|isbn= 978-0-7656-2599-1 
}}
</ref><ref>
{{cite book
|title=The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
 |last=Landes	
 |first= David. S.
|year= 1969|publisher =Press Syndicate of the University of Cambridge
|location= Cambridge, New York
|isbn=  978-0-521-09418-4|pages=8–18
}}
</ref>

Much of the literature on economic growth refers to the success story of the British state after the [[Glorious Revolution]] of 1688, in which high fiscal capacity combined with constraints on the power of the king generated some respect for the rule of law.<ref>{{cite journal |last1=North |first1=Douglass C. |author-link=Douglass North |first2=Barry |last2=Weingast |s2cid=3198200 |title=Constitutions and Commitment: the Evolutions of Institutions Governing Public Choice in Seventeenth Century England |journal=Journal of Economic History |year=1989 |volume=49 |issue=4 |pages=803–32 |doi=10.1017/S0022050700009451 }}</ref><ref>{{cite book |last=Barker |first=J. H. |chapter=Personal Liberty under Common Law of England, 1200–1600 |editor-first=R. W. |editor-last=Davis |title=The Origins of Modern Freedom in the West |publisher=Stanford University Press |location=Stanford |year=1995 |pages=[https://archive.org/details/originsofmodernf0000unse/page/178 178–202] |isbn=978-0-8047-2474-6 |chapter-url=https://archive.org/details/originsofmodernf0000unse/page/178 }}</ref><ref>{{cite book |last1=Acemoglu |first1=Daron |first2=Simon |last2=Johnson |first3=James A. |last3=Robinson |chapter=Institutions as a Fundamental Cause of Long-Run Growth |editor-first=Philippe |editor-last=Aghion |editor2-first=Steven |editor2-last=Durlauf |title=Handbook of Economic Growth |series=Vol. 1, Part A |publisher=Elsevier |year=2005 |pages=385–472 |doi=10.1016/S1574-0684(05)01006-3 |isbn=978-0-444-52041-8 }}</ref><ref name="Acemoglu&Robinson"/> However, others have questioned that this institutional formula is not so easily replicable elsewhere as a change in the Constitution—and the type of institutions created by that change—does not necessarily create a change in political power if the economic powers of that society are not aligned with the new set of rule of law institutions.<ref>{{cite book |last1=Rajan |first1=R. |first2=L. |last2=Zingales |title=Saving Capitalism from the Capitalists |publisher=Random House |location=New York |year=2003 |isbn=978-0-7126-2131-1 }}</ref> In England, a dramatic increase in the state's fiscal capacity followed the creation of constraints on the crown, but elsewhere in Europe increases in [[state capacity]] happened before major rule of law reforms.<ref name=":0">{{cite journal |last1=Johnson |first1=Noel D. |first2=Mark |last2=Koyama |title=States and Economic Growth: Capacity and Constraints |year=2017 |journal=Explorations in Economic History |volume=64 |pages=1–20 |doi=10.1016/j.eeh.2016.11.002 }}</ref>

There are many different ways through which states achieved state (fiscal) capacity and this different capacity accelerated or hindered their economic development. Thanks to the underlying homogeneity of its land and people, England was able to achieve a unified legal and fiscal system since the Middle Ages that enabled it to substantially increase the taxes it raised after 1689.<ref name=":0" /> On the other hand, the French experience of state building faced much stronger resistance from local feudal powers keeping it legally and fiscally fragmented until the French Revolution despite significant increases in state capacity during the seventeenth century.<ref>{{cite journal |last=Johnson |first=Noel D. |s2cid=73630821 |title=Banking on the King: The Evolution of the Royal Revenue Farms in Old Regime France |journal=Journal of Economic History |year=2006 |volume=66 |issue=4 |pages=963–991 |doi=10.1017/S0022050706000398 }}</ref><ref>{{cite journal |last1=Johnson |first1=Noel D. |first2=Mark |last2=Koyama |title=Tax Farming and the Origins of State Capacity in England and France |journal=Explorations in Economic History |year=2014 |volume=51 |issue=1 |pages=1–20 |doi=10.1016/j.eeh.2013.07.005 }}</ref> Furthermore, Prussia and the Habsburg empire—much more heterogeneous states than England—were able to increase state capacity during the eighteenth century without constraining the powers of the executive.<ref name=":0" /> Nevertheless, it is unlikely that a country will generate institutions that respect property rights and the rule of law without having had first intermediate fiscal and political institutions that create incentives for elites to support them. Many of these intermediate level institutions relied on informal private-order arrangements that combined with public-order institutions associated with states, to lay the foundations of modern rule of law states.<ref name=":0" />

In many poor and developing countries much land and housing are held outside the formal or legal property ownership registration system. In many urban areas the poor "invade" private or government land to build their houses, so they do not hold title to these properties. Much unregistered property is held in informal form through various property associations and other arrangements. Reasons for extra-legal ownership include excessive bureaucratic red tape in buying property and building; failures to notarize transaction documents; or having documents notarized but failing to have them recorded with the official agency.<ref name="Desoto_2000">{{cite book |title     = The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else
 |last      = De Soto
 |first     = Hernando
 |year      = 2000
 |publisher = Basic Books
 |isbn      = 978-0-465-01614-3
 |url       = https://archive.org/details/mysteryofcapital00soto
}}
</ref> According to Hernando De Soto, unclear property rights limits economic growth, as people cannot use land as collateral to secure loans, depriving many poor countries of one of their most important potential sources of capital. Unregistered businesses and lack of accepted accounting methods are other factors that limit potential capital.<ref name="Desoto_2000" /> Businesses and individuals participating in unreported business activity and owners of unregistered property face costs such as bribes and pay-offs that offset much of any taxes avoided.<ref name="Desoto_2000" />

According to [[Daron Acemoglu]], [[Simon Johnson (economist)|Simon Johnson]] and [[James A. Robinson (Harvard University)|James Robinson]], the positive correlation between high income and cold climate is a by-product of history. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates (e.g., due to the presence of tropical diseases), they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently (e.g. those with temperate climates), they established institutions with this objective in mind and modeled them after those in their European homelands. In these 'neo-Europes' better institutions in turn produced better development outcomes. Thus, although other economists focus on the identity or type of legal system of the colonizers to explain institutions, these authors look at the environmental conditions in the colonies to explain institutions. For instance, former colonies have inherited corrupt governments and geopolitical boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts that hinder development. In another example, societies that emerged in colonies without solid native populations established better property rights and incentives for long-term investment than those where native populations were large.<ref>{{cite journal |last1=Acemoglu|first1=Daron|last2=Johnson|first2=Simon|last3=Robinson|first3=James A.|year=2001|title=The Colonial Origins of Comparative Development: An Empirical Investigation|journal=[[American Economic Review]]|volume=91 |issue=5|pages=1369–401|doi=10.1257/aer.91.5.1369|citeseerx=10.1.1.313.7172}}</ref>

[[UNESCO]] and the [[United Nations]] consider that [[cultural property]] protection, high-quality education, cultural diversity and social cohesion in armed conflicts are particularly necessary for qualitative growth.<ref>Jyot Hosagrahar "Culture: at the heart of SDGs", [[UNESCO Courier|UNESCO-Kurier]], April–June 2017.</ref>

Economic growth, its sustainability and its distribution remain central aspects of government policy. For example, the [[UK Government]] recognises that "Government can play an important role in supporting economic growth by helping to level the playing field through the way it [[government procurement|buys public goods, works and services]]",<ref>Crown Commercial Service, [https://assets.publishing.service.gov.uk/media/5a7f8126e5274a2e8ab4c92f/Balanced_Scorecard_paper.pdf Procuring Growth: Balanced Scorecard], published October 2016, accessed 17 April 2024</ref> and "Post-[[COVID-19 pandemic|Pandemic]] Economic Growth" has been featured in a series of inquiries undertaken by the parliamentary [[Business, Energy and Industrial Strategy Committee]], which argues that the UK Government "has a big job to do in helping businesses survive, stimulating economic growth and encouraging the creation of well-paid meaningful jobs".<ref>Business, Energy and Industrial Strategy Committee, [https://committees.parliament.uk/work/342/postpandemic-economic-growth/news/115838/postpandemic-economic-growth-superinquiry-launched-by-beis-committee/ Post-Pandemic Economic Growth super-inquiry launched by BEIS Committee], published 3 June 2020, accessed 17 April 2024</ref>

=== Democracy and economic growth ===
{{Main|Democracy and economic growth}}
"Democracy Does Cause Growth", according to Acemoglu ''et al.'' Specifically, they state that "democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public goods provision, and reducing social unrest".<ref>{{cite journal |last1=Acemoglu |first1=Daron |last2=Naidu |first2=Suresh |last3=Restrepo |first3=Pascual |last4=Robinson |first4=James A. |title=Democracy Does Cause Growth |journal=NBER Working Paper No. 20004 |doi=10.3386/w20004 |date=March 2014 |doi-access=free}}</ref>

In ''Why Nations Fail'', Acemoglu and Robinson said that the English in North America started by trying to repeat the success of the Spanish [[Conquistador]]s in extracting wealth (especially gold and silver) from the countries they had conquered. This system repeatedly failed for the English. Their successes rested on giving land and a voice in the government to every male settler to incentivize productive labor. In Virginia it took twelve years and many deaths from starvation before the governor decided to try democracy.{{sfn|Acemoglu|Robinson|2012|p=26}}

=== Entrepreneurs and new products ===
Policymakers and scholars frequently emphasize the importance of entrepreneurship for economic growth. However, surprisingly few research empirically examine and quantify entrepreneurship's impact on growth. This is due to endogeneity—forces that drive economic growth also drive entrepreneurship. In other words, the empirical analysis of the impact of entrepreneurship on growth is difficult because of the joint determination of entrepreneurship and economic growth. A few papers use quasi-experimental designs, and have found that entrepreneurship and the density of small businesses indeed have a causal impact on regional growth.<ref>{{Cite journal | doi=10.1093/jeg/lbw021| title=Entrepreneurship, small businesses and economic growth in cities| journal=Journal of Economic Geography| pages=311–343 <!-- Bad Crossref data: lbw021 --> |volume=17 |issue=2 | date=2016-07-28| last1=Lee| first1=Yong Suk| url=https://academic.oup.com/joeg/article-pdf/17/2/311/11008876/lbw021.pdf}}</ref><ref>{{Cite journal | doi=10.1016/j.jbusvent.2017.11.001| title=Government guaranteed small business loans and regional growth| journal=Journal of Business Venturing| volume=33| pages=70–83| year=2018| last1=Lee| first1=Yong Suk| s2cid=168857205}}</ref>

Another major cause of economic growth is the introduction of new products and services and the improvement of existing products. New products create demand, which is necessary to offset the decline in employment that occurs through labor-saving technology (and to a lesser extent employment declines due to savings in energy and materials).<ref name="Jorgenson&Ho_2014"/><ref>{{Cite book |last1=Ayres |first1=Robert |author1-link=Robert Ayres (scientist) |title=Technological Transformations and Long Waves |year=1989 |page=9 |isbn=3-7045-0092-5 |publisher=Novographic |location=Vienna, Austria |url=http://www.iiasa.ac.at/Admin/PUB/Documents/RR-89-001.pdf |archive-date=2011-07-16 |archive-url=https://web.archive.org/web/20110716175240/http://www.iiasa.ac.at/Admin/PUB/Documents/RR-89-001.pdf}}
Attributed to Mensch who described new products as "demand creating".</ref> In the U.S. by 2013 about 60% of consumer spending was for goods and services that did not exist in 1869. Also, the creation of new services has been more important than invention of new goods.<ref>{{cite book |title=The Rise and Fall of American Growth |last=Gordon |first=Robert J. |year=2016 |publisher=Princeton University Press |location=Princeton, NJ |isbn=978-0-691-14772-7 |page=39}}</ref>

=== Structural change ===
{{Main|Rostow's stages of growth|Spending wave}}
Economic growth in the U.S. and other developed countries went through phases that affected growth through changes in the labor force participation rate and the relative sizes of economic sectors. The transition from an agricultural economy to manufacturing increased the size of the sector with high output per hour (the high-productivity manufacturing sector), while reducing the size of the sector with lower output per hour (the lower productivity agricultural sector). Eventually high productivity growth in manufacturing reduced the sector size, as prices fell and employment shrank relative to other sectors.<ref>{{cite web |title=Manufacturing's declining share of GDP is a global phenomenon, and it's something to celebrate |url=http://www.uschamberfoundation.org/blog/2012/03/manufacturing%E2%80%99s-declining-share-gdp |work=U.S. Chamber of Commerce Foundation |access-date=2014-06-26  |archive-date=2021-04-20  |archive-url=https://web.archive.org/web/20210420114823/https://www.uschamberfoundation.org/blog/2012/03/manufacturing%E2%80%99s-declining-share-gdp }}</ref><ref>{{cite web|title=All Employees: Manufacturing |date=January 1939 |url=http://research.stlouisfed.org/fred2/series/MANEMP}}</ref> The service and government sectors, where output per hour and productivity growth is low, saw increases in their shares of the economy and employment during the 1990s.{{sfn|Bjork|1999|p={{pn|date=July 2022}}}} The [[public sector]] has since contracted, while the service economy expanded in the 2000s.

== Growth theories {{anchor|theory}} ==

=== Adam Smith ===

Adam Smith pioneered modern economic growth and performance theory in his book [[The Wealth of Nations]]'','' first published in 1776. For Smith, the main factors of economic growth are division of labour and [[capital accumulation]]. However, these are conditioned by what he calls "the extent of the market". This is conditioned notably by geographic factors but also institutional ones such as the political-legal environment.<ref>Adam Smith, ''The Wealth of Nations'' (1776).  ''Adam Smith's The Wealth of Nations: A Translation into Modern English'', ISR Publications, 2015.</ref>

=== Malthusian theory ===
{{Main|Malthusianism}}
Malthusianism is the idea that population growth is potentially exponential while the growth of the food supply or other resources is linear, which eventually reduces living standards to the point of triggering a population die off. The Malthusian theory also proposes that over most of human history technological progress caused larger population growth but had no impact on income per capita in the long run. According to the theory, while technologically advanced economies over this epoch were characterized by higher population density, their level of income per capita was not different from those among technologically regressed society.{{cn|date=November 2025}}

The conceptual foundations of the Malthusian theory were formed by Thomas Malthus,<ref>{{Cite book|title=An Essay on the Principle of Population|last=Malthus|first=Thomas R.|publisher=Oxford University Press|year=1798|editor-last=Gilbert|editor-first=Geoffrey|location=Oxford|publication-date=1999}}</ref> and a modern representation of these approach is provided by Ashraf and Galor.<ref name=":1">{{Cite journal|last1=Quamrul|first1=Ashraf|last2=Galor |first2=Oded|date=2011|title=Dynamics and Stagnation in the Malthusian Epoch|url=https://ideas.repec.org/a/aea/aecrev/v101y2011i5p2003-41.html|journal=American Economic Review|volume=101|issue=5|pages=2003–2041 |doi=10.1257/aer.101.5.2003|pmid=25506082|pmc=4262154}}</ref> In line with the predictions of the Malthusian theory, a cross-country analysis finds a significant positive effect of the technological level on population density and an insignificant effect on income per capita significantly over the years 1–1500.<ref name=":1" />

===Classical growth theory===
In classical ([[David Ricardo|Ricardian]]) economics, the theory of production and the theory of growth are based on the theory of sustainability and law of variable proportions, whereby increasing either of the [[factors of production]] (labor or capital), while holding the other constant and assuming no technological change, will increase output, but at a diminishing rate that eventually will approach zero. These concepts have their origins in [[Thomas Malthus]]'s theorizing about agriculture. Malthus's examples included the number of seeds harvested relative to the number of seeds planted (capital) on a plot of land and the size of the harvest from a plot of land versus the number of workers employed.{{sfn|Bjork|1999|pp=297–298}} (See also [[Diminishing returns]])

Criticisms of classical growth theory are that technology, an important factor in economic growth, is held constant and that [[economies of scale]] are ignored.{{sfn|Bjork|1999|p=298}}

One popular theory in the 1940s was the [[big push model]], which suggested that countries needed to jump from one stage of development to another through a [[virtuous cycle]], in which large investments in infrastructure and education coupled with private investments would move the economy to a more productive stage, breaking free from economic paradigms appropriate to a lower productivity stage.<ref>[[Paul Rosenstein-Rodan]] {{specify|date=November 2010}}</ref> The idea was revived and formulated rigorously, in the late 1980s by [[Kevin Murphy (economist)|Kevin Murphy]], [[Andrei Shleifer]] and [[Robert Vishny]].<ref>{{cite journal|last1=Murphy|first1=Kevin M.|last2=Shleifer |first2=Andrei|last3=Vishny|first3=Robert W.|year=1989|title=Industrialization and the Big Push|journal=[[Journal of Political Economy]] |volume=97|issue=5|pages=1003–1026|doi=10.1086/261641|citeseerx=10.1.1.538.3040 |s2cid=222424224}}</ref>

===Solow–Swan model===
{{Main|Solow–Swan model}}
[[Robert Solow]] and [[Trevor Swan]] developed what eventually became the main model used in growth economics in the 1950s.<ref>{{cite journal|last=Solow|first=Robert M.|year=1956|title=A Contribution to the Theory of Economic Growth|journal=Quarterly Journal of Economics|volume=70|issue=1|pages=65–94|jstor=1884513|doi=10.2307/1884513|url=http://rcin.org.pl/Content/39010|hdl=10338.dmlcz/143862|hdl-access=free}}</ref><ref>{{cite journal|last1=Swan |first1=Trevor W.|year=1956|title=Economic Growth and Capital Accumulation'|journal=Economic Record|volume=32|issue=2|pages=334–61|doi=10.1111/j.1475-4932.1956.tb00434.x}}</ref> This model assumes that there are [[diminishing returns]] to capital and labor. Capital accumulates through investment, but its level or stock continually decreases due to depreciation. Due to the diminishing returns to capital, with increases in capital/worker and absent technological progress, economic output/worker eventually reaches a point where capital per worker and economic output/worker remain constant because annual investment in capital equals annual depreciation. This condition is called the 'steady state'.

In the Solow–Swan model if productivity increases through technological progress, then output/worker increases even when the economy is in the steady state. If productivity increases at a constant rate, output/worker also increases at a related steady-state rate. As a consequence, growth in the model can occur either by increasing the share of GDP invested or through technological progress. But at whatever share of GDP invested, capital/worker eventually converges on the steady state, leaving the growth rate of output/worker determined only by the rate of technological progress. As a consequence, with world technology available to all and progressing at a constant rate, all countries have the same steady state rate of growth. Each country has a different level of GDP/worker determined by the share of GDP it invests, but all countries have the same rate of economic growth. Implicitly in this model rich countries are those that have invested a high share of GDP for a long time. Poor countries can become rich by increasing the share of GDP they invest. One important prediction of the model, mostly borne out by the data, is that of ''conditional convergence''; the idea that poor countries will grow faster and catch up with rich countries as long as they have similar investment (and saving) rates and access to the same technology.

The Solow–Swan model is considered an "exogenous" growth model because it does not explain why countries invest different shares of GDP in capital nor why technology improves over time. Instead, the rate of investment and the rate of technological progress are exogenous. The value of the model is that it predicts the pattern of economic growth once these two rates are specified. Its failure to explain the determinants of these rates is one of its limitations.

Although the rate of investment in the model is exogenous, under certain conditions the model implicitly predicts convergence in the rates of investment across countries. In a global economy with a global financial capital market, financial capital flows to the countries with the highest return on investment. In the Solow-Swan model countries with less capital/worker (poor countries) have a higher return on investment due to the diminishing returns to capital. As a consequence, capital/worker and output/worker in a global financial capital market should converge to the same level in all countries.<ref>{{cite journal|last=Lucas|first=Robert E.|year=1990|title=Why Doesn't Capital Flow from Rich to Poor Countries?|journal=American Economic Review|volume=80|issue=2|pages=92–6|jstor=2006549}}</ref> Since historically financial capital has not flowed to the countries with less capital/worker, the basic Solow–Swan model has a conceptual flaw. Beginning in the 1990s, this flaw has been addressed by adding additional variables to the model that can explain why some countries are less productive than others and, therefore, do not attract flows of global financial capital even though they have less (physical) capital/worker.

In practice, convergence was rarely achieved. In 1957, Solow applied his model to data from the U.S. gross national product to estimate contributions. This showed that the increase in capital and labor stock only accounted for about half of the output, while the population increase adjustments to capital explained eighth. This remaining unaccounted growth output is known as the Solow Residual. Here the A of (t) "technical progress" was the reason for increased output. Nevertheless, the model still had flaws. It gave no room for policy to influence the growth rate. Few attempts were also made by the RAND Corporation the non-profit think tank and frequently visiting economist Kenneth Arrow to work out the kinks in the model. They suggested that new knowledge was indivisible and that it is endogenous with a certain fixed cost. Arrow's further explained that new knowledge obtained by firms comes from practice and built a model that "knowledge" accumulated through experience.<ref>Warsh, David. Knowledge and the Wealth of Nations. W.W. Norton & Company 2006</ref>

===Endogenous growth theory===
{{Main|Endogenous growth theory}}
Unsatisfied with the assumption of exogenous technological progress in the Solow–Swan model, economists worked to "[[Exogenous and endogenous variables|endogenize]]" (i.e., explain it "from within" the models) productivity growth in the 1980s. The resulting [[endogenous growth theory]], most notably advanced by [[Robert Lucas, Jr.]] and his student [[Paul Romer]], includes a mathematical explanation of technological advancement.<ref name="Lucas1988" /><ref>{{cite journal|last=Romer|first=Paul|year=1986|title=Increasing Returns and Long-Run Growth|journal=[[Journal of Political Economy]]|volume=94|issue=5|pages=1002–1037|doi=10.1086/261420|citeseerx=10.1.1.589.3348|s2cid=6818002}}</ref> This [[Uzawa–Lucas model|model]] was notable for its incorporation of [[human capital]], which is interpreted from changes to investment patterns in education, training, and healthcare by private sector firms or governments. Notwithstanding the implications this component has for policy, the endogenous perspective on human capital investment emphasizes the possibility for broad-based effects which can be realized by other firms in the economy. Accordingly, human capital is theorized to deliver increasing rates of return unlike [[physical capital]]. Research done in this area has focused on what increases human capital (e.g. [[education]]) or technological change (e.g. [[innovation]]).<ref name="mystery">{{cite book|title=The Mystery of Economic Growth|last=Helpman |first=Elhanah|publisher=Harvard University Press|year=2004|isbn=978-0-674-01572-2|url=https://archive.org/details/mysteryofeconomi00help}}</ref> 

On Memorial Day weekend in 1988, a conference in Buffalo brought together influential thinkers to evaluate the conflicting theories of growth. Romer, Krugman, Barro, and Becker were in attendance along with many other high profiled economists of the time. Amongst many papers that day the one that stood out was Romer's "Micro Foundations for Aggregate Technological Change." The Micro Foundation claimed that endogenous technological change had the concept of Intellectual Property imbedded and that knowledge is an input and output of production. Romer argued that outcomes to the national growth rates were significantly affected by public policy, trade activity, and intellectual property. He stressed that cumulative capital and specialization were key, and that not only population growth can increase capital of knowledge, it was human capital that is specifically trained in harvesting new ideas.<ref>Warsh, David. Knowledge and the Wealth of Nations: A Story of Economic Discovery. W.W. Norton & Company, 2006.</ref>

While intellectual property may be important, Baker (2016) cites multiple sources claiming that "stronger patent protection seems to be associated with slower growth". That's particularly true for patents in the ethical health care industry. In effect taxpayers pay twice for new drugs and diagnostic procedures: First in tax subsidies and second for the high prices of diagnostic procedures treatments. If the results of research paid by taxpayers were placed in the public domain, Baker claims that people everywhere would be healthier, because better diagnoses and treatment would be more affordable the world over.<ref>{{cite Q|Q100216001}}<!-- Rigged:  How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer -->.</ref>

One branch of endogenous growth theory was developed on the foundations of the Schumpeterian theory, named after the 20th-century [[Austrians|Austrian]] [[economist]] [[Joseph Schumpeter]].<ref>{{cite book |url=https://archive.org/details/historyofeconomi0000land|url-access=registration|title=History of Economic Theory: Scope, Method, and Content|last=Landreth|first=Harry|publisher=Houghton Mifflin|year=1976|isbn=978-0-395-19234-4 |location=Boston|pages=[https://archive.org/details/historyofeconomi0000land/page/478 478]–480}}

</ref> The approach explains growth as a consequence of [[innovation]] and a process of [[creative destruction]] that captures the dual nature of technological progress: in terms of creation, entrepreneurs introduce new products or processes in the hope that they will enjoy temporary monopoly-like profits as they capture markets. In doing so, they make old technologies or products obsolete. This can be seen as an ''annulment'' of previous technologies, which makes them obsolete, and "destroys the rents generated by previous innovations".<ref name="Aghion2002">{{cite journal|last=Aghion|first=Philippe|author-link=Philippe Aghion|year=2002|title=Schumpeterian Growth Theory and the Dynamics of Income Inequality|journal=[[Econometrica]]|volume=70|issue=3|pages=855–82|doi=10.1111/1468-0262.00312|citeseerx=10.1.1.458.7383 |s2cid=1268535}}</ref>{{rp|855}}<ref>Also see {{cite book|title=Macroeconomics: Imperfections, Institutions and Policies|last1=Carlin|first1=Wendy|last2=Soskice|first2=David|publisher=Oxford University Press |year=2006|isbn=978-0-19-877622-2|pages=529–60|chapter=Endogenous and Schumpeterian Growth}}</ref> A major model that illustrates [[Schumpeterian growth]] is the [[Aghion–Howitt model]].<ref>{{cite journal|last1=Aghion|first1=Philippe|last2=Howitt|first2=Peter|year=1992|title=A Model of Growth Through Creative Destruction|journal=[[Econometrica]]|volume=60|issue=2|pages=323–51|doi=10.2307/2951599|jstor=2951599|url=http://nrs.harvard.edu/urn-3:HUL.InstRepos:12490578}}</ref><ref name="Aghion2002" />

===Unified growth theory===
{{Main|Unified growth theory}}
[[Unified growth theory]] was developed by [[Oded Galor]] and his co-authors to address the inability of endogenous growth theory to explain key empirical regularities in the growth processes of individual economies and the world economy as a whole.<ref name=":2">{{Cite book|title=Unified Growth Theory|last=Galor|first=Oded|publisher=Princeton University Press|year=2011|location=Princeton}}</ref><ref name=":3">Galor O., 2005, "From Stagnation to Growth: Unified Growth Theory". ''Handbook of Economic Growth'', Elsevier {{doi|10.1016/S1574-0684(05)01004-X}}</ref> Unlike endogenous growth theory that focuses entirely on the modern growth regime and is therefore unable to explain the roots of inequality across nations, unified growth theory captures in a single framework the fundamental phases of the process of development in the course of human history: (i) the Malthusian epoch that was prevalent over most of human history, (ii) the escape from the [[Malthusian trap]], (iii) the emergence of human capital as a central element in the growth process, (iv) the onset of the fertility decline, (v) the origins of the modern era of sustained economic growth, and (vi) the roots of divergence in income per capita across nations in the past two centuries. The theory suggests that during most of human existence, technological progress was offset by population growth, and living standards were near subsistence across time and space. However, the reinforcing interaction between the rate of technological progress and the size and composition of the population has gradually increased the pace of technological progress, enhancing the importance of education in the ability of individuals to adapt to the changing technological environment. The rise in the allocation of resources towards education triggered a fertility decline enabling economies to allocate a larger share of the fruits of technological progress to a steady increase in income per capita, rather than towards the growth of population, paving the way for the emergence of sustained economic growth. The theory further suggests that variations in biogeographical characteristics, as well as cultural and institutional characteristics, have generated a differential pace of transition from stagnation to growth across countries and consequently divergence in their income per capita over the past two centuries.<ref name=":2" /><ref name=":3" />

== Inequality and growth ==

=== Theories ===
{{Further|Economic inequality|Effects of economic inequality}}

The prevailing views about the [[Social inequality and economic growth|role of inequality]] in the growth process has radically shifted in the past century.<ref>Galor, Oded (2011). "Inequality, Human Capital Formation, and the Process of Development". ''Handbook of the Economics of Education.'' Elsevier.</ref>

The classical perspective, as expressed by Adam Smith, and others, suggests that inequality fosters the growth process.<ref name="BergOstryEE">{{Cite journal|last1=Berg|first1=Andrew G.|last2=Ostry |first2=Jonathan D.|year=2011 |title=Equality and Efficiency|journal=Finance and Development|volume=48 |issue=3 |url=http://www.imf.org/external/pubs/ft/fandd/2011/09/berg.htm|access-date=July 13, 2014 |publisher=International Monetary Fund}}</ref><ref name="BergOstrySD">{{cite journal|last1=Berg |first1=Andrew|last2=Ostry|first2=Jonathan|year=2017|title=Inequality and Unsustainable Growth: Two Sides of the Same Coin|journal=IMF Economic Review|volume=65|issue=4|pages=792–815 |doi=10.1057/s41308-017-0030-8 |s2cid=13027248|url=http://www.imf.org/external/pubs/cat/longres.aspx?sk=24686}}</ref> Specifically, since the aggregate saving increases with inequality due to higher property to save among the wealthy, the classical viewpoint suggests that inequality stimulates capital accumulation and therefore economic growth.<ref>{{cite journal|last=Kaldor|first=Nicoals|year=1955|title=Alternative Theories of Distribution |journal=Review of Economic Studies|volume=23|issue=2|pages=83–100|doi=10.2307/2296292|jstor=2296292}}</ref>

The [[Neoclassical economics|Neoclassical perspective]] that is based on [[representative agent]] approach denies the role of inequality in the growth process. It suggests that while the growth process may affect inequality, income distribution has no impact on the growth process.

The modern perspective which has emerged in the late 1980s suggests, in contrast, that [[income distribution]] has a significant impact on the growth process. The modern perspective, originated by [[Galor-Zeira model|Galor and Zeira]],<ref name=":4">{{Cite journal|last1=Galor|first1=Oded|last2=Zeira|first2=Joseph|date=1993|title=Income Distribution and Macroeconomics|journal=The Review of Economic Studies|volume=60|issue=1|pages=35–52 |doi=10.2307/2297811|jstor=2297811|citeseerx=10.1.1.636.8225}}</ref><ref name=":5">{{Cite journal|last1=Galor|first1=Oded|last2=Zeira|first2=Joseph|date=1988|title=Income Distribution and Investment in Human Capital: Macroeconomics Implications|journal=Working Paper No. 197 |publisher=Department of Economics, Hebrew University}}</ref> highlights the important role of [[Homogeneity and heterogeneity|heterogeneity]] in the determination of aggregate economic activity, and economic growth. In particular, Galor and Zeira argue that since credit markets are imperfect, inequality has an enduring impact on [[human capital]] formation, [[Aggregate income|the level of income]] per capita, and the growth process.<ref>{{Cite web|url=https://www.brown.edu/Departments/Economics/Faculty/Oded_Galor/pdf/WB.pdf |title=The Effect of Distribution on Growth|last=The World Bank Group|date=1999}}</ref> In contrast to the classical paradigm, which underlined the positive implications of inequality for capital formation and economic growth, Galor and Zeira argue that [[Economic inequality|inequality]] has an adverse effect on [[human capital]] formation and the development process, in all but the very poor economies.

Later theoretical developments have reinforced the view that inequality has an adverse effect on the growth process. Specifically, Alesina and Rodrik and Persson and Tabellini advance a political economy mechanism and argue that inequality has a negative impact on economic development since it creates a pressure for distortionary redistributive policies that have an adverse effect on investment and economic growth.<ref name=":6">{{cite journal |last1=Alesina|first1=Alberto|last2=Rodrik|first2=Dani|year=1994 |title=Distributive Politics and Economic Growth|journal=Quarterly Journal of Economics|volume=109|issue=2 |pages=65–90|doi=10.2307/2118470|jstor=2118470 |url=http://dash.harvard.edu/bitstream/handle/1/4551798/alesina_distributive.pdf}}</ref><ref name=":7">{{cite journal|last1=Persson|first1=Torsten|last2=Tabellini|first2=Guido|year=1994|title=Is Inequality Harmful for Growth?|journal=American Economic Review|volume=84|issue=3|pages=600–21|jstor=2118070}}</ref>

In accordance with the credit market imperfection approach, a study by Roberto Perotti showed that inequality is associated with lower level of human capital formation (education, experience, apprenticeship) and higher level of fertility, while lower level of human capital is associated with lower growth and lower levels of economic growth. In contrast, his examination of the political economy channel found no support for the political economy mechanism.<ref name=":8">{{cite journal|last=Perotti |first=Roberto|year=1996|title=Growth, Income Distribution, and Democracy: What the Data Say |journal=Journal of Economic Growth|volume=1|issue=2|pages=149–87|doi=10.1007/BF00138861 |s2cid=54670343}}</ref> Consequently, the political economy perspective on the relationship between inequality and growth have been revised and later studies have established that inequality may provide an incentive for the elite to block redistributive policies and institutional changes. In particular, inequality in the distribution of land ownership provides the landed elite with an incentive to limit the mobility of rural workers by depriving them from education and by blocking the development of the industrial sector.<ref>{{Cite journal|last1=Galor|first1=Oded|last2=Moav|first2=Omer|last3=Vollrath|first3=Dietrich|date=2009 |title=Inequality in Landownership, the Emergence of Human-Capital Promoting Institutions, and the Great Divergence|journal=Review of Economic Studies|volume=76|issue=1|pages=143–179|doi=10.1111/j.1467-937X.2008.00506.x|pmid=23946551|pmc=3740999}}</ref>

A unified theory of inequality and growth that captures that changing role of inequality in the growth process offers a reconciliation between the conflicting predictions of classical viewpoint that maintained that inequality is beneficial for growth and the modern viewpoint that suggests that in the presence of credit market imperfections, inequality predominantly results in underinvestment in human capital and lower economic growth. This unified theory of inequality and growth, developed by Oded Galor and Omer Moav,<ref>{{Cite journal|last1=Galor|first1=Oded|last2=Moav|first2=Omer|date=2004|title=From Physical to Human Capital Accumulation: Inequality and the Process of Development|journal=Review of Economic Studies |volume=71|issue=4|pages=1001–1026|doi=10.1111/0034-6527.00312|citeseerx=10.1.1.561.4168}}</ref> suggests that the effect of inequality on the growth process has been reversed as human capital has replaced physical capital as the main engine of economic growth. In the initial phases of industrialization, when physical capital accumulation was the dominating source of economic growth, inequality boosted the development process by directing resources toward individuals with higher propensity to save. However, in later phases, as human capital become the main engine of economic growth, more equal distribution of income, in the presence of credit constraints, stimulated investment in human capital and economic growth.

In 2013, French economist [[Thomas Piketty]] postulated that in periods when the average annual rate on return on investment in capital (''r'') exceeds the average annual growth in economic output (''g''), the rate of inequality will increase.<ref>{{cite book|title=Capital in the Twenty-first Century.|last1=Piketty|first1=Thomas|date=2014|publisher=Brilliance Audio|isbn=978-1-4915-3465-6}}</ref> According to Piketty, this is the case because wealth that is already held or inherited, which is expected to grow at the rate ''r'', will grow at a rate faster than wealth accumulated through labor, which is more closely tied to ''g''. An advocate of reducing inequality levels, Piketty suggests levying a global [[wealth tax]] in order to reduce the divergence in wealth caused by inequality.

=== Evidence: reduced form ===
The reduced form empirical relationship between inequality and growth was studied by Alberto Alesina and Dani Rodrik, and Torsten Persson and Guido Tabellini.<ref name=":6" /><ref name=":7" /> They find that inequality is negatively associated with economic growth in a cross-country analysis.

[[Robert Barro]] reexamined the reduced form relationship between inequality on economic growth in a panel of countries.<ref>{{cite journal|last=Barro|first=Robert J.|year=2000|title=Inequality and Growth in a Panel of Countries|journal=Journal of Economic Growth|volume=5|issue=1|pages=5–32|doi=10.1023/A:1009850119329|s2cid=2089406}}</ref> He argues that there is "little overall relation between income inequality and rates of growth and investment". However, his empirical strategy limits its applicability to the understanding of the relationship between inequality and growth for several reasons. First, his regression analysis control for education, fertility, investment, and it therefore excludes, by construction, the important effect of inequality on growth via education, fertility, and investment. His findings simply imply that inequality has no direct effect on growth beyond the important indirect effects through the main channels proposed in the literature. Second, his study analyzes the effect of inequality on the average growth rate in the following 10 years. However, existing theories suggest that the effect of inequality will be observed much later, as is the case in human capital formation, for instance. Third, the empirical analysis does not account for biases that are generated by reverse causality and omitted variables.

Recent papers based on superior data, find negative relationship between inequality and growth. Andrew Berg and Jonathan Ostry of the [[International Monetary Fund]], find that "lower net inequality is robustly correlated with faster and more durable growth, controlling for the level of redistribution".<ref name=":9">{{Cite journal|last1=Berg|first1=Andrew|last2=Ostry|first2=Jonathan D.|last3=Tsangarides|first3=Charalambos G.|last4=Yakhshilikov |first4=Yorbol|date=2018|title=Redistribution, inequality, and growth: new evidence|journal=Journal of Economic Growth|volume=23|issue=3|pages=259–305|doi=10.1007/s10887-017-9150-2|s2cid=158898163}}</ref> Likewise, Dierk Herzer and Sebastian Vollmer find that increased income inequality reduces economic growth.<ref>{{cite journal|last1=Herzer|first1=Dierk|last2=Vollmer|first2=Sebastian|year=2013|title=Rising top incomes do not raise the tide|journal=Journal of Policy Modeling|volume=35|issue=4|pages=504–19|doi=10.1016/j.jpolmod.2013.02.011}}</ref>

=== Evidence: mechanisms ===
The [[Galor-Zeira model|Galor and Zeira's model]] predicts that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries.<ref name=":4" /><ref name=":5" /> These testable predictions have been examined and confirmed empirically in recent studies.<ref>{{Cite web|url=https://voxeu.org/article/effects-income-inequality-economic-growth|title=Effects of income inequality on economic growth |last1=Brückner|first1=Markus|last2=Lederman|first2=Daniel|date=2015 |website=VOX CEPR Policy Portal}}</ref><ref>{{Cite journal|last1=Brückner|first1=Markus|last2=Lederman |first2=Daniel|date=2018|title=Inequality and economic growth: the role of initial income|journal=Journal of Economic Growth|volume=23|issue=3|pages=341–366|hdl=10986/29896|hdl-access=free|s2cid=55619830 |url=http://documents.worldbank.org/curated/en/574281528247194319/Inequality-and-economic-growth-the-role-of-initial-income|doi=10.1007/s10887-018-9156-4}}</ref> In particular, Brückner and Lederman test the prediction of the model by in the panel of countries during the period 1970–2010, by considering the impact of the interaction between the level of income inequality and the initial level of GDP per capita. In line with the predictions of the model, they find that at the 25th percentile of initial income in the world sample, a 1 percentage point increase in the Gini coefficient increases income per capita by 2.3%, whereas at the 75th percentile of initial income a 1 percentage point increase in the Gini coefficient decreases income per capita by -5.3%. Moreover, the proposed human capital mechanism that mediates the effect of inequality on growth in the Galor-Zeira model is also confirmed. Increases in income inequality increase human capital in poor countries but reduce it in high and middle-income countries.

This recent support for the predictions of the Galor-Zeira model is in line with earlier findings. Roberto Perotti showed that in accordance with the credit market imperfection approach, developed by Galor and Zeira, inequality is associated with lower level of human capital formation (education, experience, apprenticeship) and higher level of fertility, while lower level of human capital is associated with lower levels of economic growth.<ref name=":8"/> Princeton economist Roland Benabou's finds that the growth process of Korea and the Philippines "are broadly consistent with the credit-constrained human-capital accumulation hypothesis".<ref>{{Cite journal|last=Bénabou |first=Roland|date=1996|title=Inequality and Growth|journal=NBER Macroeconomics Annual|volume=11|pages=11–92|doi=10.1086/654291|s2cid=154145268}}</ref> In addition, Andrew Berg and Jonathan Ostry<ref name=":9" /> suggest that inequality seems to affect growth through human capital accumulation and fertility channels.

In contrast, Perotti argues that the political economy mechanism is not supported empirically. Inequality is associated with lower redistribution, and lower redistribution (under-investment in education and infrastructure) is associated with lower economic growth.<ref name=":8"/>

==Long-term growth==
[[File:WeltBIPWorldgroupOECDengl.PNG|thumb|upright=1.4| Rate of change of GDP, world and [[Organisation for Economic Co-operation and Development|OECD]], since 1961]]
Living standards vary widely from country to country, and furthermore, the change in living standards over time varies widely from country to country. Below is a table which shows GDP per person and annualized per person GDP growth for a selection of countries over a period of about 100 years. The GDP per person data are adjusted for inflation, hence they are "[[Real versus nominal value (economics)|real]]".

{| class="wikitable"
|+ Economic growth by country<ref>{{cite book |last=Mankiw |first=Gregory |date=2011 |title=Principles of Macroeconomics |edition=6th |page=[https://archive.org/details/principlesofmacr00mank/page/236 236] |publisher=Cengage Learning |isbn=978-0-538-45306-6 |url=https://archive.org/details/principlesofmacr00mank/page/236 }}</ref>
! Country
! Period
! Real GDP per person at beginning of period
! Real GDP per person at end of period
! Real annualized growth rate
|-
! Japan
| 1890–2008 || $1,504 || $35,220 || 2.71%
|-
! Brazil
| 1900–2008 || $779 || $10,070 || 2.40%
|-
! Mexico
| 1900–2008 || $1,159 || $14,270 || 2.35%
|-
! Germany
| 1870–2008 || $2,184 || $35,940 || 2.05%
|-
! Canada
| 1870–2008 || $2,375 || $36,220 || 1.99%
|-
! China
| 1900–2008 || $716 || $6,020 || 1.99%
|-
! United States 
| 1870–2008 || $4,007 || $46,970 || 1.80%
|-
! Argentina
| 1900–2008 || $2,293 || $14,020 || 1.69%
|-
! United Kingdom
| 1870–2008 || $4,808 || $36,130 || 1.47%
|-
! India
| 1900–2008 || $675 || $2,960 || 1.38%
|-
! Indonesia
| 1900–2008 || $891 || $3,830 || 1.36%
|-
! Bangladesh
| 1900–2008 || $623 || $1,440 || 0.78%
|}

Seemingly small differences in yearly GDP growth lead to large changes in GDP when [[Compound interest|compounded]] over time. For instance, in the above table, GDP per person in the United Kingdom in the year 1870 was $4,808. At the same time in the United States, GDP per person was $4,007, lower than the UK by about 20%. However, in 2008 the positions were reversed: GDP per person was $36,130 in the [[United Kingdom]] and $46,970 in the United States, i.e. GDP per person in the US was 30% more than it was in the UK. As the above table shows, this means that GDP per person grew, on average, by 1.80% per year in the US and by 1.47% in the UK. Thus, a difference in GDP growth by only a few tenths of a percent per year results in large differences in outcomes when the growth is persistent over a generation. This and other observations have led some economists to view GDP growth as the most important part of the field of [[macroeconomics]]:

{{Blockquote
|text=...if we can learn about government policy options that have even small effects on long-term growth rates, we can contribute much more to improvements in standards of living than has been provided by the entire history of macroeconomic analysis of [[Procyclical and countercyclical variables|countercyclical policy]] and fine-tuning. Economic growth [is] the part of macroeconomics that really matters.<ref>{{cite book |last1=Barro |first1=Robert |first2=Xavier |last2=Sala-i-Martin |date=2004 |title=Economic Growth |edition=2nd |page=6 |asin=B003Q7WARA}}</ref>
}}

=== Importance of long-run growth ===
Over long periods of time, even small rates of [[exponential growth|growth]], such as a 2% annual increase, have large effects. For example, the United Kingdom experienced a 1.97% average annual increase in its inflation-adjusted GDP between 1830 and 2008.<ref>{{cite web |author1=Ryland Thomas |author2=Samuel H. Williamson |title=What Was the U.K. GDP Then? |website=MeasuringWorth |year=2022 |url=http://www.measuringworth.com/ukgdp/}}</ref> In 1830, the GDP was 41,373 million pounds. It grew to 1,330,088 million pounds by 2008. A growth rate that averaged 1.97% over 178 years resulted in a 32-fold increase in GDP by 2008.

The large impact of a relatively small growth rate over a long period of time is due to the power of [[exponential growth]]. The [[rule of 72]], a mathematical result, states that if something grows at the rate of x% per year, then its level will double every 72/x years. For example, a growth rate of 2.5% per annum leads to a doubling of the GDP within 28.8 years, whilst a growth rate of 8% per year leads to a doubling of GDP within nine years. Thus, a small difference in economic growth rates between countries can result in very different standards of living for their populations if this small difference continues for many years.

==Considerations==
===Quality of life===
One theory that relates economic growth with quality of life is the "Threshold Hypothesis", which states that economic growth up to a point brings with it an increase in quality of life. But at that point – called the threshold point – further economic growth can bring with it a deterioration in quality of life.<ref><!-- Economic Growth and Quality of Life: A Threshold Hypothesis -->{{cite Q|Q56032205}}</ref> This results in an upside-down-U-shaped curve, where the vertex of the curve represents the level of growth that should be targeted. Happiness has been shown to increase with [[GDP per capita]], at least up to a level of $15,000 per person.<ref>[http://www.cato.org/pub_display.php?pub_id=8179 "In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy?"] {{Webarchive|url=https://web.archive.org/web/20110219211701/http://www.cato.org/pub_display.php?pub_id=8179 |date=2011-02-19 }} [[The Cato Institute]]. April 11, 2007</ref>

Economic growth has the indirect potential to alleviate [[poverty]], as a result of a simultaneous increase in employment opportunities and increased [[labor productivity]].<ref name="ODI2">Claire Melamed, Renate Hartwig and Ursula Grant 2011. [http://www.odi.org.uk/resources/details.asp?id=5752&title=jobs-growth-poverty-employment Jobs, growth and poverty: what do we know, what don't we know, what should we know?] {{Webarchive|url=https://web.archive.org/web/20120918140511/http://www.odi.org.uk/resources/details.asp?id=5752&title=jobs-growth-poverty-employment |date=2012-09-18  }} London: [[Overseas Development Institute]]</ref> A study by researchers at the [[Overseas Development Institute]] (ODI) of 24 countries that experienced growth found that in 18 cases, poverty was alleviated.<ref name="ODI2" />

In some instances, quality of life factors such as healthcare outcomes and educational attainment, as well as social and political liberties, do not improve as economic growth occurs.<ref>{{cite book|last1=Drèze|first1=Jean|last2=Sen|first2=Amartya|title=An uncertain glory India and its contradictions|date=2013|publisher=Princeton University Press|location=Princeton|isbn=978-1-4008-4877-5}}</ref>{{dubious|date=May 2016}}

Productivity increases do not always lead to increased wages, as can be seen in the [[United States]], where the gap between productivity and wages has been rising since the 1980s.<ref name="ODI2" />

===Equitable growth===
{{Main|Inclusive growth}}

While acknowledging the central role economic growth can potentially play in [[Human development (humanity)|human development]], [[poverty reduction]] and the achievement of the [[Millennium Development Goals]], it is becoming widely understood amongst the development community that special efforts must be made to ensure poorer sections of society are able to participate in economic growth.<ref name="ODI">Claire Melamed, Kate Higgins and Andy Sumner (2010) [http://www.odi.org.uk/resources/details.asp?id=4892&title=millennium-development-goals-equitable-growth-policy-brief Economic growth and the MDGs] {{Webarchive|url=https://web.archive.org/web/20110717041456/http://www.odi.org.uk/resources/details.asp?id=4892&title=millennium-development-goals-equitable-growth-policy-brief |date=2011-07-17  }} [[Overseas Development Institute]]</ref><ref>{{cite news|last1=Anand |first1=Rahul|title=Inclusive growth revisited: Measurement and evolution|url=http://www.voxeu.org/article/inclusive-growth-revisited-measurement-and-evolution|access-date=13 January 2015|work=VoxEU.org|publisher=Centre for Economic Policy Research|date=17 August 2013|display-authors=etal}}</ref><ref>{{cite web|last1=Anand|first1=Rahul|date=May 2013|title=Inclusive Growth: Measurement and Determinants|number=WP/13/135|publisher=International Monetary Fund |location=Asia Pacific Department |url=http://www.imf.org/external/pubs/ft/wp/2013/wp13135.pdf |access-date=13 January 2015|series=IMF Working Paper|display-authors=etal}}</ref> The effect of economic growth on poverty reduction – the [[growth elasticity of poverty]] – can depend on the existing level of inequality.<ref>{{cite web|last1=Ranieri|first1=Rafael|last2=Ramos|first2=Raquel Almeida|title=Inclusive Growth: Building up a Concept |date=March 2013|volume=104|url=http://www.ipc-undp.org/pub/IPCWorkingPaper104.pdf |access-date=13 January 2015|series=Working Paper|publisher=International Policy Centre for Inclusive Growth|location=Brazil|issn=1812-108X}}</ref><ref>{{cite book |last=Bourguignon |first=Francois |chapter=Growth Elasticity of Poverty Reduction: Explaining Heterogeneity across Countries and Time Periods |date=February 2002 |title=Forthcoming in T. Eichler and S. Turnovsky (eds), Growth and Inequality, MIT Press |s2cid=1574390 |url=http://www.delta.ens.fr/abstracts/wp200203.pdf|archive-url=https://web.archive.org/web/20040330010906/http://www.delta.ens.fr/abstracts/wp200203.pdf |archive-date=2004-03-30}}</ref> For instance, with low inequality a country with a growth rate of 2% per head and 40% of its population living in poverty, can halve poverty in ten years, but a country with high inequality would take nearly 60 years to achieve the same reduction.<ref>Ravallion, M. (2007) Inequality is bad for the poor in S. Jenkins and J. Micklewright, (eds.) Inequality and Poverty Re-examined, Oxford University Press, Oxford.</ref><ref>Elena Ianchovichina and Susanna Lundstrom, 2009. [http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2009/03/03/000158349_20090303083943/Rendered/PDF/WPS4851.pdf "Inclusive growth analytics: Framework and application"] {{Webarchive|url=https://web.archive.org/web/20141111163449/http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2009/03/03/000158349_20090303083943/Rendered/PDF/WPS4851.pdf |date=2014-11-11  }}, Policy Research Working Paper Series 4851, The World Bank.</ref> In the words of the [[Secretary-General of the United Nations|Secretary-General]] of the United Nations [[Ban Ki-moon]]: "While economic growth is necessary, it is not sufficient for progress on reducing poverty."<ref name="ODI" />

==={{visible anchor|Environmental impact|Environmental impacts}}===
{{See also|The Limits to Growth|Overconsumption}}
Critics such as the [[Club of Rome]] argue that a narrow view of economic growth, combined with globalization, is creating a scenario where we could see a systemic collapse of our planet's natural resources.<ref>Donella H. Meadows, Jorgen Randers, Dennis L. Meadows. ''Limits to Growth: The 30-Year Update''. White River Junction, Vermont: Chelsea Green, 2004.</ref><ref><!-- Allan Schnaiberg (1980) The environment: From surplus to scarcity-->{{cite Q|Q111450348}}</ref>

[[File:Uneconomic Growth diagram.jpg|thumb|Conceptual diagram used in ecological economics illustrating the idea that the marginal costs of economic growth could surpass its marginal benefits.]]

Concerns about negative environmental effects of growth have prompted some people to advocate lower levels of growth, or the abandoning of growth altogether. In academia, concepts like [[uneconomic growth]], [[steady-state economy]], [[eco-taxes]], green investments, [[Guaranteed minimum income|basic income guarantees]], along with more radical approaches associated with [[degrowth]], [[Commons|commoning]], [[eco-socialism]] and [[Green anarchism|eco-anarchism]] have been developed in order to achieve this and to overcome possible [[Growth imperative|growth imperatives]].<ref>{{cite journal |last1=Wiedmann|first1=Thomas |last2=Lenzen|first2=Manfred |last3=Keyßer|first3=Lorenz T. |last4=Steinberger|first4=Julia K.|author-link4=Julia Steinberger|title=Scientists' warning on affluence |journal=[[Nature Communications]] |date=2020 |volume=11 |issue=3107 |page=3107 |doi=10.1038/s41467-020-16941-y |pmid=32561753 |pmc=7305220 |bibcode=2020NatCo..11.3107W }}</ref><ref>{{cite journal |last1=Hickel|first1=Jason|author-link1=Jason Hickel|last2=Kallis|first2=Giorgos|author-link2=Giorgos Kallis|last3=Jackson|first3=Tim|author-link3=Tim Jackson (economist)|last4=O'Neill|first4=Daniel W.|last5=Schor|first5=Juliet B.|author-link5=Juliet Schor|display-authors=etal.|date=December 12, 2022|title=Degrowth can work — here's how science can help|url= |journal=[[Nature (journal)|Nature]]|volume=612|issue=7940|pages=400–403|doi=10.1038/d41586-022-04412-x|pmid=36510013 |bibcode=2022Natur.612..400H |s2cid=254614532 |doi-access=free}}</ref><ref>{{Cite web |last=Smith |first=E. T. |date=2024-01-23 |title=Practising Commoning |url=https://commonslibrary.org/practising-commoning/ |access-date=2024-02-24 |website=The Commons Social Change Library |language=en-AU}}</ref><ref>{{Cite web |last=Nelson |first=Anitra |date=2024-01-31 |title=Degrowth as a Concept and Practice: Introduction |url=https://commonslibrary.org/degrowth-as-a-concept-and-practice-introduction/ |access-date=2024-02-24 |website=The Commons Social Change Library |language=en-AU}}</ref> In politics, [[Green party|green parties]] embrace the [[Global Greens Charter]], recognising that "... the dogma of economic growth at any cost and the excessive and wasteful use of natural resources without considering Earth's [[carrying capacity]], are causing extreme deterioration in the environment and a massive extinction of species."<ref>{{cite web |url=https://www.globalgreens.org/sites/globalgreens.org/files/GG_charter_2012_english.pdf |format=PDF contains full charter |title=Charter of the Global Greens |place=Dakar |date=2012 |website=Global Greens |access-date=2024-02-23  |archive-date=2020-10-17  |archive-url=https://web.archive.org/web/20201017102418/https://www.globalgreens.org/sites/globalgreens.org/files/GG_charter_2012_english.pdf }}</ref>{{rp|2}}

The 2019 ''[[Global Assessment Report on Biodiversity and Ecosystem Services]]'' published by the [[United Nations]]' [[Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services]] warned that given the [[Holocene extinction|substantial loss of biodiversity]], society should not focus solely on economic growth.<ref>{{cite web|title=One million species at risk of extinction, UN report warns|website=National Geographic|date=6 May 2019|url=https://www.nationalgeographic.com/environment/2019/05/ipbes-un-biodiversity-report-warns-one-million-species-at-risk/ |archive-url=https://web.archive.org/web/20190506164806/https://www.nationalgeographic.com/environment/2019/05/ipbes-un-biodiversity-report-warns-one-million-species-at-risk/ |archive-date=6 May 2019 | access-date=18 May 2019}}</ref><ref>{{cite news|title=World must undergo huge social and financial transformation to save future of human life, major report finds|url=https://www.independent.co.uk/environment/un-biodiversity-report-2019-human-future-nature-food-green-farming-waste-action-a8901776.html|date=6 May 2019|access-date=18 May 2019|newspaper=The Independent}}</ref> Anthropologist Eduardo S. Brondizio, one of the co-chairs of the report, said "We need to change our narratives. Both our individual narratives that associate wasteful consumption with quality of life and with status, and the narratives of the economic systems that still consider that [[environmental degradation]] and social inequality are inevitable outcomes of economic growth. Economic growth is a means and not an end. We need to look for the quality of life of the planet."<ref>{{cite news |last= McKenzie|first=A. D.|date=7 May 2019 |title=Loss of Biodiversity Puts Current and Future Generations at Risk|url=http://www.ipsnews.net/2019/05/loss-biodiversity-puts-current-future-generations-risk/|work=[[Inter Press Service]]|access-date=18 May 2019 }}</ref> 

Those more optimistic about the environmental impacts of growth believe that, though localized environmental effects may occur, large-scale ecological effects are minor. The argument, as posited by commentator [[Julian Lincoln Simon]], stated in 1981 that if these global-scale ecological effects exist, human ingenuity will find ways to adapt to them.<ref>''[[The Ultimate Resource]]'', Julian Simon, 1981</ref> Conversely [[Partha Dasgupta]], in a 2021 report on the economics of biodiversity commissioned by the British Treasury, argued that [[Biodiversity loss|biodiversity is collapsing]] faster than at any time in human history as a result of the demands of contemporary human civilization, which "far exceed nature's capacity to supply us with the goods and services we all rely on. We would require 1.6 Earths to maintain the world's current living standards." He says that major transformative changes will be needed "akin to, or even greater than, those of the Marshall Plan," including abandoning GDP as a measure of economic success and societal progress.<ref>{{cite news |last=Carrington |first=Damian |date=February 2, 2021 |title=Economics of biodiversity review: what are the recommendations? |url=https://www.theguardian.com/environment/2021/feb/02/economics-of-biodiversity-review-what-are-the-recommendations |work= [[The Guardian]]|location= |access-date=8 February 2021}}</ref> Philip Cafaro, professor of philosophy at the School of Global Environmental Sustainability at [[Colorado State University]], wrote in 2022 that a scientific consensus has emerged which demonstrates that humanity is on the precipice of unleashing a major [[extinction event]], and that "the cause of global biodiversity loss is clear: other species are being displaced by a rapidly growing human economy."<ref>{{cite journal |last1= Cafaro|first1=Philip|date=2022 |title=Reducing Human Numbers and the Size of our Economies is Necessary to Avoid a Mass Extinction and Share Earth Justly with Other Species|url=https://www.researchgate.net/publication/359182950|journal=Philosophia|volume=50 |issue= 5|pages=2263–2282 |doi=10.1007/s11406-022-00497-w|s2cid=247433264 }}</ref>

In 2019, a [[World Scientists' Warning to Humanity#2019 warning on climate change and 2021 and 2022 updates|warning on climate change]] signed by 11,000 scientists from over 150 nations said economic growth is the driving force behind the "excessive extraction of materials and [[overexploitation]] of ecosystems" and that this "must be quickly curtailed to maintain long-term sustainability of the biosphere." They add that "our goals need to shift from GDP growth and the pursuit of affluence toward sustaining ecosystems and improving human well-being by prioritizing basic needs and reducing inequality."<ref>{{cite journal |last1= Ripple |first1=William J|last2=Wolf|first2=Christopher |last3= Newsome |first3=Thomas M |last4=Barnard |first4= Phoebe  |last5= Moomaw |first5=William R |date=November 5, 2019 |title=World Scientists' Warning of a Climate Emergency |url=https://academic.oup.com/bioscience/advance-article/doi/10.1093/biosci/biz088/5610806 |journal=[[BioScience]] |volume=70|pages=8–12|article-number=biz088 |doi=10.1093/biosci/biz088 |access-date=November 8, 2019|author-link1=William J. Ripple|hdl=1808/30278 |hdl-access=free }}</ref><ref>{{cite news |last= Carrington |first=Damian |date=November 5, 2019 |title=Climate crisis: 11,000 scientists warn of 'untold suffering'|url=https://www.theguardian.com/environment/2019/nov/05/climate-crisis-11000-scientists-warn-of-untold-suffering |work=[[The Guardian]] |access-date=November 8, 2019}}</ref> A 2021 paper authored by top scientists in ''Frontiers in Conservation Science'' posited that given the environmental crises including [[biodiversity loss]] and [[climate change]], and possible "ghastly future" facing humanity, there must be "fundamental changes to global capitalism," including the "abolition of perpetual economic growth."<ref>{{cite news |last= Weston |first=Phoebe |date=January 13, 2021 |title=Top scientists warn of 'ghastly future of mass extinction' and climate disruption |url=https://www.theguardian.com/environment/2021/jan/13/top-scientists-warn-of-ghastly-future-of-mass-extinction-and-climate-disruption-aoe |work=[[The Guardian]] |location= |access-date=January 21, 2021}}</ref><ref>{{cite journal |last1=Bradshaw |first1=Corey J. A. |last2=Ehrlich |first2=Paul R. |last3=Beattie |first3=Andrew |last4=Ceballos |first4=Gerardo |last5=Crist |first5=Eileen |last6=Diamond |first6=Joan |last7=Dirzo |first7=Rodolfo |last8=Ehrlich |first8=Anne H. |last9=Harte |first9=John |last10=Harte |first10=Mary Ellen |last11=Pyke |first11=Graham |last12=Raven |first12=Peter H. |last13=Ripple |first13=William J. |last14=Saltré |first14=Frédérik |last15=Turnbull |first15=Christine |last16=Wackernagel |first16=Mathis |last17=Blumstein |first17=Daniel T. |date=2021 |title=Underestimating the Challenges of Avoiding a Ghastly Future |journal=Frontiers in Conservation Science |volume=1 |issue= |article-number=615419 |doi=10.3389/fcosc.2020.615419 |doi-access=free |bibcode=2021FrCS....1.5419B }}</ref><ref>{{cite news |last=Specktor |first=Brandon |date=January 15, 2021|title=The planet is dying faster than we thought |url=https://www.livescience.com/ghastly-future-global-crises.html |work=[[Live Science]] |location= |access-date=January 21, 2021}}</ref>

===Global warming===
{{see also|Economics of global warming}}

Up to the present, there is a close correlation between economic growth and the rate of [[carbon dioxide emissions]] across nations, although there is also a considerable divergence in [[carbon intensity]] (carbon emissions per GDP).<ref>Stern Review, Part III Stabilization. Table 7.1 p. 168</ref> Up to the present, there is also a direct relation between global economic wealth and the rate of global emissions.<ref name="Garrett 2011">{{Cite journal | doi = 10.1007/s10584-009-9717-9| title = Are there basic physical constraints on future anthropogenic emissions of carbon dioxide?| journal = Climatic Change| volume = 104| issue = 3–4| page = 437| year = 2009| last1 = Garrett | first1 = T. J. | arxiv = 0811.1855| s2cid = 5287353}}</ref> The [[Stern Review]] notes that the prediction that, "Under business as usual, global emissions will be sufficient to propel greenhouse gas concentrations to over 550 ppm {{CO2}} by 2050 and over 650–700 ppm by the end of this century is robust to a wide range of changes in model assumptions." The scientific consensus is that planetary ecosystem functioning without incurring dangerous risks requires stabilization at 450–550 ppm.<ref>Stern Review Economics of Climate Change. Part III Stabilization p. 183</ref>

As a consequence, growth-oriented environmental economists propose government intervention into switching sources of energy production, favouring [[wind power|wind]], [[solar power|solar]], [[hydroelectric]], and [[Nuclear power|nuclear]]. This would largely confine use of fossil fuels to either domestic cooking needs (such as for kerosene burners) or where [[carbon capture and storage]] technology can be cost-effective and reliable.<ref>{{cite book |last=Jaccard |first=M. |year=2005 |title=Sustainable Fossil Fuels |location=New York |publisher=Cambridge University Press |isbn=978-0-521-67979-4 |url-access=registration |url=https://archive.org/details/sustainablefossi0000jacc }}</ref> The [[Stern Review]], published by the United Kingdom Government in 2006, concluded that an investment of 1% of GDP (later changed to 2%) would be sufficient to avoid the worst effects of climate change, and that failure to do so could risk climate-related costs equal to 20% of GDP. Because carbon capture and storage are as yet widely unproven, and its long term effectiveness (such as in containing carbon dioxide 'leaks') unknown, and because of current costs of alternative fuels, these policy responses largely rest on faith of technological change.

British conservative politician and journalist [[Nigel Lawson]] has deemed [[carbon emission trading]] an 'inefficient system of [[rationing]]'. Instead, he favours [[carbon tax]]es to make full use of the efficiency of the market. However, in order to avoid the migration of energy-intensive industries, the whole world should impose such a tax, not just Britain, Lawson pointed out. There is no point in taking the lead if nobody follows suit.<ref>{{cite web|url=https://publications.parliament.uk/pa/jt200607/jtselect/jtclimate/170/7051604.htm|title=Examination of Witnesses (Questions 32–39)|date=16 May 2007|access-date=2007-11-29}}</ref>

=== Resource constraint ===
{{See also|Energy returned on energy invested|Substitute good|Mining|Peak minerals|Steady-state economy#Present situation: Exceeding global limits to growth}}
Many earlier predictions of resource depletion, such as [[Thomas Malthus]]' 1798 predictions about approaching famines in Europe, ''[[The Population Bomb]]'',<ref name="oswego.edu">{{cite web |url=http://www.oswego.edu/~edunne/200ch17.html |title=Chapter 17: Growth and Productivity-The Long-Run Possibilities |publisher=Oswego.edu |date=1999-06-10 |access-date=2010-12-22 |archive-url=https://web.archive.org/web/20101218063522/http://www.oswego.edu/~edunne/200ch17.html |archive-date=2010-12-18 }}</ref><ref name="reason.com">{{cite web|first=Ronald | last = Bailey |url=http://www.reason.com/news/show/34758.html |title=Science and Public Policy |publisher=Reason.com |date=2004-02-04 |access-date=2010-12-22}}</ref> and the [[Simon–Ehrlich wager]] (1980)<ref name="wired.com">{{cite magazine|url=https://www.wired.com/wired/archive/5.02/ffsimon_pr.html |title=The Doomslayer |magazine=Wired |first=Ed |last=Regis |archive-url=https://web.archive.org/web/20080516050031/http://www.wired.com/wired/archive/5.02/ffsimon_pr.html |archive-date=2008-05-16 }}</ref> have not materialized. Diminished production of most resources has not occurred so far, one reason being that advancements in technology and science have allowed some previously unavailable resources to be produced.<ref name="wired.com" /> In some cases, [[Substitute good|substitution]] of more abundant materials, such as plastics for cast metals, lowered growth of usage for some metals. In the case of the limited resource of land, famine was relieved firstly by the revolution in transportation caused by railroads and steam ships, and later by the [[Green Revolution]] and chemical fertilizers, especially the [[Haber process]] for ammonia synthesis.<ref name="Wells1891">{{cite book
|title=Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society
|last=Wells
|first=David A.
|year=1891 |publisher= D. Appleton and Co.|location= New York|isbn= 978-0-543-72474-8 |url= https://archive.org/details/recenteconomicc01wellgoog }}Opening line of the Preface.</ref><ref>{{cite book |title= Enriching the Earth: Fritz Haber, Carl Bosch, and the Transformation of World Food Production
|last=Smil
|first=Vaclav |year=2004
|publisher= MIT Press
|isbn= 978-0-262-69313-4
}}</ref>

Resource quality is composed of a variety of factors including ore grades, location, altitude above or below sea level, proximity to railroads, highways, water supply and climate. These factors affect the capital and operating cost of extracting resources. In the case of minerals, lower grades of mineral resources are being extracted, requiring higher inputs of capital and energy for both extraction and processing. [[Copper]] ore grades have declined significantly over the last century.<ref>{{cite book |title= Energy and Resource Quality: The ecology of the Economic Process
|last1=Hall |first1=Charles A.S. 
|last2= Cleveland |first2=Cutler J.
|last3=Kaufmann |first3=Robert
|year=1992 |publisher= University Press of Colorado |location= Niwot, Colorado }}</ref><ref>{{Cite web
 | last = Lyon
 | first =Christioher
 | title = Declining South America copper ore grades require ingenuity
|publisher=Mining Weekly
 | date = July 3, 2015
 | url = http://www.miningweekly.com/article/declining-copper-ore-grades-require-ingenuity-2015-07-03/rep_id:3650
}}</ref> Another example is [[natural gas]] from shale and other low permeability rock, whose extraction requires much higher inputs of energy, capital, and materials than conventional gas in previous decades. Offshore oil and gas have exponentially increased cost as water depth increases.

Some physical scientists like Sanyam Mittal regard continuous economic [[Exponential growth#Limitations of models|growth]] as unsustainable.<ref name="Bartlett 2013">{{cite web |url=http://www.albartlett.org/presentations/arithmetic_population_energy.html |title=Arithmetic, Population and Energy |last=Bartlett |first=Albert Allen |author-link=Albert Allen Bartlett |publisher=albartlett.org |date=2013 |access-date=2014-07-22 |quote=You cannot sustain population growth and / or growth in the rates of consumption of resources.}}</ref><ref name="Murphy 2011">{{cite web |url=http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/ |title=Galactic-Scale Energy |last=Murphy |first=Tom |work=Do the Math |date=2011-07-12 |access-date=2014-07-22 |quote=continued growth in energy use becomes physically impossible within conceivable timeframes ... all economic growth must similarly end. }}</ref> Several factors may constrain economic growth – for example: finite, peaked, or [[resource depletion|depleted resources]].

In 1972, ''[[The Limits to Growth]]'' study modeled limitations to infinite growth; originally ridiculed,<ref name="oswego.edu" /><ref name="reason.com" /><ref name="aei.org">{{cite web |last=Hayward |first=Steven F. |url=http://www.aei.org/publications/pubID.21588/pub_detail.asp |title=That Old Time Religion |publisher=AEI |access-date=2010-12-22 |archive-url=https://web.archive.org/web/20090418014446/http://www.aei.org/publications/pubID.21588/pub_detail.asp |archive-date=2009-04-18 }}</ref> some of the predicted trends have materialized, raising concerns of an impending [[societal collapse|collapse]] or decline due to resource constraints.<ref name="Turner 2010">{{cite journal |last=Turner |first=Graham |title=A Comparison of the Limits of Growth with Thirty Years of Reality |journal=Socio-Economics and the Environment in Discussion |issn=1834-5638 |series=CSIRO Working Paper Series|date=June 2008 |url=http://www.csiro.au/files/files/plje.pdf|access-date=2010-10-20|archive-url=https://web.archive.org/web/20101128151523/http://www.csiro.au/files/files/plje.pdf |archive-date=2010-11-28 }}</ref><ref>{{cite journal |last1=Hall |first1=C. |last2=Day |first2=J. |year=2009 |title=Revisiting the Limits to Growth After Peak Oil |journal=American Scientist |volume=97 |issue=3| pages=230–238 |doi=10.1511/2009.78.230}}</ref><ref>{{cite book
 | last = Meadows
 | first = D H
| author2 =Randers
 | title = Limits to Growth: The 30-Year Update
 | publisher =Chelsea Green Publishing
| year =2004
| isbn =978-1-931498-58-6
}}</ref>

[[Malthusianism|''Malthusians'']] such as [[William R. Catton, Jr.]] are skeptical of technological advances that improve resource availability. Such advances and increases in efficiency, they suggest, merely accelerate the drawing down of finite resources. Catton claims that increasing rates of resource extraction are "...stealing ravenously from the future".<ref>"Overshoot" by William Catton, p. 3 [1980]</ref>

===Energy===
{{further|topic=Energy role in economy|Econodynamics}}
{{further|topic=Energy efficiency|Productivity improving technologies (historical)#Energy efficiency}}
Energy economic theories hold that rates of energy consumption and [[Efficient energy use|energy efficiency]] are linked causally to economic growth.<ref>{{cite journal |last1=Kümmel |first1=Reiner |author-link1=Reiner Kümmel |date=2013 |title=Why energy's economic weight is much larger than its cost share |url= |journal=Environmental Innovation and Societal Transitions |volume=9 |publisher=Elsevier |pages=33–37 |doi=10.1016/j.eist.2013.09.003 |bibcode=2013EIST....9...33K }}</ref> The Garrett Relation holds that there has been a fixed relationship between current rates of [[global energy consumption]] and the historical accumulation of world GDP, independent of the year considered. It follows that economic growth, as represented by GDP growth, requires higher rates of energy consumption growth. Seemingly [[Jevons paradox|paradoxically]], these are sustained through increases in energy efficiency.<ref name="Garrett 2014a">{{Cite journal|last1=Garrett|first1=T. J.|year=2014|title=Long-run evolution of the global economy: 1. Physical basis |journal=Earth's Future|volume=2|issue=3|page=127 |doi=10.1002/2013EF000171|arxiv=1306.3554|bibcode=2014EaFut...2..127G|s2cid=204937958 }}</ref> Increases in energy efficiency were a portion of the increase in [[Total factor productivity]].<ref name="Kendrick_1961"/> Some of the most technologically important innovations in history involved increases in energy efficiency. These include the great improvements in efficiency of conversion of heat to work, the reuse of heat, the reduction in friction and the transmission of power, especially through [[electrification]].<ref>{{cite book|title=The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present|last=Landes|first=David. S.|publisher=Press Syndicate of the University of Cambridge|year=1969|isbn=978-0-521-09418-4|location=Cambridge, New York|pages=289, 293|author-link=David Landes}}</ref><ref name="Devine83">{{Cite journal|last1=Devine |first1=Warren D. Jr.|year=1983|title=From Shafts to Wires: Historical Perspective on Electrification |journal=Journal of Economic History|volume=43|issue=2|pages=347–372 [p. 355] |doi=10.1017/S0022050700029673|s2cid=153414525}}</ref> There is a strong correlation between per capita electricity consumption and economic development.<ref>
{{cite book|url=http://www.nap.edu/catalog.php?record_id=900|title=Electricity in Economic Growth|last1=Committee on Electricity in Economic Growth Energy Engineering Board Commission on Engineering and Technical Systems National Research Council|publisher=National Academy Press|year=1986|isbn=978-0-309-03677-1|location=Washington, DC|pages=16, 40}}
</ref><ref>
{{cite book|title=The Evolution of Progress: The End of Economic Growth and the Beginning of Human Transformation|last1=Paepke|first1=C. Owen|publisher=Random House|year=1992|isbn=978-0-679-41582-4|location=New York, Toronto|page=[https://archive.org/details/evolutionofprogr00paep/page/109 109]|url=https://archive.org/details/evolutionofprogr00paep/page/109}}
</ref>

==See also==
{{div col|colwidth=18em}}
* [[Agrowth]]
* [[American exceptionalism]]
* [[Civilizing mission]]
* [[Climate change]]
* [[Critique of political economy]]
* [[Degrowth]]
* [[Development theory]]
* [[Economic development]]
* [[Export-oriented industrialization]]
* [[Debt-to-GDP ratio]]
* [[Greed]]
* [[Green growth]]
* [[Green new deal]]
* [[Growth accounting]]
* [[Hindu rate of growth]] 
* ''[[The Limits to Growth]]''
* [[List of countries by labour productivity#Productivity growth|List of countries by productivity growth]].
* [[Manifest destiny]] 
* [[Orthodox Development]]
* [[Post-growth]]
* [[Productivism]]
* [[Progress]]
* [[Propaganda]]
* ''[[Prosperity Without Growth]]''
* [[Status quo]]
* [[Sufficiency economy]]
* [[Sustainability]]
* [[Sustainable development]]
* [[Thermoeconomics]]
* [[Uneconomic growth]]
* [[Unified growth theory]]
* [[Universal basic income]]
* [[Wealth redistribution]]
* [[The White Man's Burden]]
* [[World view]]
{{div col end}}

==References==
{{reflist|30em}}

;Sources
* {{cite book |last1=Acemoglu |first1=Daron |last2=Robinson |first2=James A. |year=2012 |title=Why Nations Fail: The Origins of Power, Prosperity, and Poverty |publisher=Crown Business division of Random House |isbn=978-0-307-71922-5 |url=https://archive.org/details/whynationsfailor0000acem |url-access=registration}}
* {{cite book |last=Bjork |first=Gordon J. |year=1999 |title=The Way It Worked and Why It Won't: Structural Change and the Slowdown of U.S. Economic Growth |publisher=Praeger |location= Westport, CT; London |isbn=978-0-275-96532-7 |url=https://archive.org/details/wayitworkedwhyit0000bjor/}}
* {{cite book |last=Clark |first=Gregory |year=2007 |title=A Farewell to Alms: A Brief Economic History of the World |publisher=Princeton University Press |isbn=978-0-691-12135-2 |url=https://archive.org/details/farewelltoalmsbr00clar}}

==Further reading==
*{{cite journal |last1=Barro |first1=Robert J. |title=Determinants of Economic Growth: A Cross-Country Empirical Study |date=1996 |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3422 |publisher=[[Social Science Research Network]] |ssrn=3422 |language=en}}
*[[Robert Barro|Barro, Robert J.]] (1997) ''Determinants of Economic Growth: A Cross-Country Empirical Study.'' MIT Press.
* Galor, O. (2005) ''From Stagnation to Growth: Unified Growth Theory.'' Handbook of Economic Growth, Elsevier.
* Kuznets, Simon (1947). "Measurement: Measurement of Economic Growth". ''The Journal of Economic History''. '''7''': 10–34.
*{{cite book|last=Hickel|first=Jason|author-link=Jason Hickel|title=Less is More: How Degrowth Will Save the World |year=2020|publisher=[[Penguin Random House]]|isbn=978-1-78515-249-8}}
* Jones, Charles I. (2002) ''Introduction to Economic Growth'' 2nd ed. W. W. Norton & Company.
* [[Robert Lucas, Jr.|Lucas, Robert E., Jr.]] (2003) ''The Industrial Revolution: Past and Future'', Federal Reserve Bank of Minneapolis, ''Annual Report'' [https://web.archive.org/web/20071127032512/http://minneapolisfed.org/pubs/region/04-05/essay.cfm online edition]
* Schumpeter, Jospeph A. (1912) ''The Theory of Economic Development'' 1982 reprint, Transaction Publishers
* Weil, David N. (2008) ''Economic Growth'' 2nd ed. Addison Wesley.
* {{cite journal |last1=Gorodnichenko |first1=Yuriy |last2=Roland |first2=Gerard |title=Individualism, innovation, and long-run growth |journal=[[Proceedings of the National Academy of Sciences]] |date=2011 |volume=108 |issue=supplement_4 |pages=21316–21319 |doi=10.1073/pnas.1101933108|pmid=22198759 |pmc=3271573 |bibcode=2011PNAS..10821316G |doi-access=free }}
* {{cite journal |last1=Gorodnichenko |first1=Yuriy |last2=Roland |first2=Gerard |title= Culture, Institutions and the Wealth of Nations |journal=[[The Review of Economics and Statistics]] | date=2017 |volume=99 |issue=3 | pages=402–416 |doi=10.1162/REST_a_00599|s2cid=2562715 }}
* {{cite journal |last1=Spolaore |first1=Enrico |last2=Wacziarg |first2=Romain |title=How Deep Are the Roots of Economic Development? |journal=[[Journal of Economic Literature]] |date= 2013 |volume=51 |issue=2 |pages=325–369 |doi=10.1257/jel.51.2.325 |doi-access=free }}
* {{cite book |last1=Mokyr |first1=Joel |title=A Culture of Growth: the Origins of the Modern Economy. |date=2016 |publisher=[[Princeton University Press]] |isbn=978-0-691-18096-0}}
* {{cite book |last1=McCloskey |first1=Deirdre |title=Bourgeois Equality. How Ideas, Not Capital or Institutions, Enriched the World |date=2016 |publisher=[[University of Chicago Press]] |isbn=978-0-226-52793-2}}
* {{cite book |last1=McCloskey |first1=Deirdre |last2=Carden |first2=Art |title=Leave Me Alone and I'll Make You Rich: How the Bourgeois Deal Enriched the World |date=2020 |publisher=[[University of Chicago Press]] |isbn=978-0-226-73966-3}}
* {{Cite journal |last1=Wiedmann |first1=Thomas |last2=Lenzen |first2=Manfred |last3=Keyßer |first3=Lorenz T. |last4=Steinberger |first4=Julia K. |date=2020 |title=Scientists' warning on affluence |journal=[[Nature Communications]] |language=en |volume=11 |issue=1 |page=3107 |doi=10.1038/s41467-020-16941-y |issn=2041-1723 |pmc=7305220 |pmid=32561753|bibcode=2020NatCo..11.3107W }}
*{{cite journal |last1=Ruck |first1=Damian J. |last2=Bentley |first2=R. Alexander |last3=Lawson |first3=Daniel J. |title=Cultural prerequisites of socioeconomic development |journal=[[Royal Society Open Science]] |date=2020 |volume=7 |issue=2 |article-number=190725 |doi=10.1098/rsos.190725 |pmid=32257300 |pmc=7062048 |bibcode=2020RSOS....790725R |doi-access=free }}
* {{cite journal |last1=Burgess |first1=Matthew G. |last2=Carrico |first2=Amanda R. |last3=Gaines |first3=Steven D. |last4=Peri |first4=Alessandro |last5=Vanderheiden |first5=Steve |title=Prepare developed democracies for long-run economic slowdowns |journal=[[Nature Human Behaviour]] |date=2021 |volume=5 |issue=12 |pages=1608–1621 |doi=10.1038/s41562-021-01229-y |pmid=34795424 |pmc=9026903 |doi-access=free}}

==External links==
{{wikiquote}}

===Articles and lectures===
* [https://www.britannica.com/eb/article-9106198/economic-growth "Economic growth."] Encyclopædia Britannic. 2007. Encyclopædia Britannica Online. 17 November 2007.
* [https://web.archive.org/web/20070611214820/http://www.gsb.stanford.edu/research/faculty/news_releases/Romer.Paul/London_Speech.html Beyond Classical and Keynesian Macroeconomic Policy]. [[Paul Romer]]'s plain-English explanation of endogenous growth theory.
* [http://www.cepr.net/index.php/economics-seminar-series/ CEPR Economics Seminar Series] {{Webarchive|url=https://web.archive.org/web/20100711075942/http://www.cepr.net/index.php/economics-seminar-series/ |date=2010-07-11  }} Two seminars on the importance of growth with economists [[Dean Baker]] and [[Mark Weisbrot]]
* [http://www.iisg.nl/research/jvz-research.pdf On global economic history] by Jan Luiten van Zanden. Explores the idea of the inevitability of the Industrial Revolution.
* [http://www.sciam.com/article.cfm?id=the-economist-has-no-clothes The Economist Has No Clothes] – essay by [[Robert Nadeau (science historian)|Robert Nadeau]] in [[Scientific American]] on the basic assumptions behind current [[economic theory]]
* [[World Growth Institute]]. An organization dedicated to helping the developing world realize its full potential via economic growth.
*[https://www.stlouisfed.org/on-the-economy/2017/february/why-economic-growth-slowing-down? Why Does Growth Keep Slowing Down? St. Louis Federal Reserve Bank]
* [https://www.nature.com/articles/d41586-022-00723-1 Are there limits to economic growth? It's time to call time on a 50-year argument]. ''[[Nature (journal)|Nature]]'', 16 March 2022.

===Data===
* [http://www.ggdc.net/maddison/ Angus Maddison's Historical Dataseries] – series for almost all countries on GDP, population and GDP per capita from the year 0 up to 2003.
* [http://stats.oecd.org/wbos/Index.aspx?QueryId=350 OECD economic growth statistics]{{Dead link|date=July 2025 |bot=InternetArchiveBot |fix-attempted=yes }}
* [http://gsociology.icaap.org/dataupload.html Multinational data sets] - easy to use dataset showing GDP, per capita and population, by country and region, 1970 to 2008. Updated regularly.

{{economics}}
{{GDP country lists}}
{{Global economic classifications}}

{{DEFAULTSORT:Growth}}
[[Category:Economic growth| ]]
[[Category:Economic development]]
[[Category:Macroeconomic indicators]]