Economic growth is a key concern of public- and private-sector leaders and individuals everywhere. If an economy is growing, people earn more and spend more, and they generally feel better off. If an economy is stalling or contracting, companies cut back on investment and people buy less, both of which can leave them feeling worse off. This article explores some of the many aspects of economic growth and a few of the open questions that remain at the frontiers of research in this area.
There are several ways to generate economic growth, and how widely the fruits of growth are shared is also important. One way is to invest in human capital, such as education and training, to increase the productivity of workers. Another way is to increase the supply of physical capital, such as increasing the number of factories or machines that produce goods. A third way is to improve technology, such as by developing new production methods. For example, Johannes Gutenberg’s invention of the printing press enabled workers to produce more books in a day than they could have produced in months before.
Regardless of how the growth is generated, the effect is the same—an economy that grows fast can close large gaps in living standards between nations. For example, the US average income per person grew sixfold between 1950 and 2000, while India’s and China’s incomes rose only seven percent. But there are important limits to economic growth—for example, a few percentage points of change in growth can cause huge swings in living standards over just a few generations.
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