Economic growth is the rate at which a country’s economy produces more goods and services. It is measured by comparing actual GDP with potential GDP, and it can be influenced by short-term policies like cutting taxes or increasing spending. Potential GDP is determined by labor force growth, capital accumulation, and technological advancements.
There are many ways to increase a nation’s economic growth, but the most important factor is incentive. People have to be encouraged to save, invest, start businesses, attend school, and so on. A well-designed system of incentives creates the right incentives for individuals and companies to take risks that will lead to higher economic growth.
Generally, economic growth comes from two sources: increasing the total amount of physical capital in the economy and the increase in the productivity (output per hour of labor) of that capital. Growing the total number of workers in an economy will also result in economic growth but this is limited by the need to provide basic subsistence for the new workers. Ultimately, the only sustainable way to increase economic growth is through innovation and technological change.
Increasing the economic growth rates of poor countries is one of the most challenging problems facing the world today. There are a lot of resources, time, and labor already being devoted to this problem but the good news is that there may be small, targeted interventions that can have a big impact. The key is to figure out what works and doesn’t work, based on research and real-world experience.