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The pursuit of economic growth Essay


Economic growth is the percentage increase in total output of the economy at constant prices. In another way, Economic Growth is defined as the way that the real income of an economy increases over time. Such increases mean that real incomes have improved and so probably have living standards. Thus the raising of the standard of living is closely tied to Economic growth. This generally signifies that the economy is wealthier and producing more, individuals are better off, and that living standards are higher. Economies need to make use if idle resources in order to grow. Once these have been utilized, an economy can only grow through increased productivity, i.e. grater output per person ( Sloman, Mark, 2000, pg 300).

A more practical definition would go into the way that Economic Growth is calculated, generally in terms of the Gross Domestic Product which is the most common measurement of the income of a country; it is the sum total of the value of a country’s output over the course of a year (Atkinson, 1995, pg 33). On the other hand, GDP figures can be misleading, for example, a growing economy may have rising production levels but also may have a growing birth rate which works against any positive effect on the standards of living. Then again, figures that show clear growth in terms of wealth may be ignoring the fact that inflation rates are increasing as well.

These are two examples of economic growth in the second half of the 20th century. In the diagram, we see Gross Domestic Product per capita for the USA and the Republic of Korea. The U. S. data are shown with the vertically barred top line and the Korean data by the solid line (McCain, 1998,) www.drexel.edu.

The diagram illustrate that, among 1950 and 1992, the amount of marketed goods and services the average American could buy almost two times. The increase over that period was 97%. For Korea, which in 1953 was a less-developed country devastated by war but by 1991 had become a Newly-Industrializing Country, the grow was over seven times (McCain, 1998, www.drexel.edu).

We can picture the economic growth as a shift in the Production Possibility Frontier. In the diagram shown below, growth indicates that the economy is able to produce more of everything (Parkin, 2003).

Diagram 2

Economic Growth in a Two-Product Economy

In case the production possibility frontier shifts outward, people can produce more of both, or somewhat many different, kinds of goods and services. It is this increase in production possibilities that bring about the increase in RGDP per capita, and, in turn, the RGDP statistics are considered to measure economic growth in this sense.

GDP Forecasts

In the United States, the world’s biggest economy, gross domestic product (GDP) growth, adjusted by Reuters for international contrasts, was seen at 4.5 percent this year before falling to 3.9 percent in 2005. However, the British economy is going to grow at a stable pace this year, but the recovery may lose some momentum in 2005 as higher interest rates consumer costs.

The tables below obtain the median, mid-range, forecasts as of the national polls. National conventions vary on how to determine gross domestic product growth, therefore Reuters has recalculated the GDP forecasts for the United States, Japan and Canada to make these directly comparable with forecasts for European countries. Polling was carried out July 12-16. Reuters surveyed a total of around 160 economists in separate surveys covering the United States, the euro zone, Japan, Britain, Germany, France, Italy and Canada (Economic Growth Expected to Slow in Major Economies During 2005, www. economics.about.com).

A lot of poor countries are desperate to increase their output so that they can provide their populations with basic necessities. Economic growth can transform people’s lives. For many industrial countries, most people have a long life expectance, reasonable leisure time and are able to use a wide range of good quality products. Economic growth causes the increase of economic status and power. For example, the USA has the world’s highest real GPD has vast economic power. In contrast, Bangladesh with real GDP less than Wal-Mart, which is US supermarket chain, has very small economic power (Grant, 2003, pg 260).

Arguments for:

1- Poverty: Increases in national income can lead to reduction of poverty in society. There is less resistance to the sacrifice of higher taxes paid by high-wage earners which may be needed to relieve poverty. The potential for fast economic growth means that great scale poverty reduction is now achievable within a human life. Developing countries like Botswana, Chile, China and Thailand have been able to double per capita incomes within 10 years. But this is quite recent observable fact. During the 19th century, the fastest growing economy, Britain, needed about 60 years to double per capita income.

In contrast, developing countries nowadays have the option of implement most excellent practice technologies and institutional arrangements from around the world so as to improve productivity growth and thus incomes more speedily. There is increasing proofs that the potential for growth, and thus the potential for poverty reduction, can best be understand in well performance private market economies that are open to operate and invest. A higher output allows people to have extra goods and services. It will furthermore generate higher incomes and so without increasing tax rates, government tax revenue will go up. Some of this increased revenue can be spent on benefits for poor people and on measures, including education and training to take them out of poverty( Grant, 2003, pg 261).

2- Efficiency growth: Economic growth encourages efficiency and best use of resources. Basically, Growth comes about as a result of the increased efficiency in the use of resources or Factors of Production. There are a few topics that can directly affect the levels of growth.

Increased Business Investment can only mean increased productivity and efficiency, so the country goods and services would become better and cheaper and in other way, more competitive. In case the money was used to build up the workforce through training and education, it would absolutely go towards strengthening the productivity of the nation in a long-term way. More spending by the individual consumer would also translate as higher revenue for firms, allowing them to make similar productive investment and creating easier opportunity to expand and develop. If the currency factor was big enough such that it had an impact on our export levels and general consumption of UK goods & services, this would surely lead to higher GDP figures.

3- Standard of living and income: Growth is necessary to maintain/improve living standards. Usually, Real Income as used when looking at Economic Growth takes the GDP figures and then takes out the effect of inflation rates, by forming an index), thereby creating a reasonable set of statistics from which to draw conclusions.

Economic Growth is clearly seen as a desirable point for all economies. For example, in UK it is clearly important to keep growing at a similar rate as other rich economies internationally, in order to stay competitive in terms of trade. This can lead to the following benefits for the country:

A) Higher levels of Employment: an economy where demand is rising and businesses are growing is likely to have in it sufficient capacity to employ more and more people in its growing businesses.

B) In case if growth leads to higher employment and higher earnings, then it follows that Government’s tax revenues increase as well. This might allow the goverment to pay some of the budget shortages. Economics growth also gives more choices, if output per worker rises, a country can produce the same or higher output with fewer workers to enjoy more leisure time, so that people retire earlier and more people enter higher education (Grant, 2003, pg 261).

C) Living Standards: Likely to increase in a growing economy. People in the UK in this period of time enjoy much better quality housing, more leisure goods and services and more advanced health care than ever before (Grant, 2003, pg 261). Living Standards are normally measured in real GDP per capita, so if Real GDP in fact is increasing positively against the birth rate, living standards would improve. However, resulting wealth such as that taken through fast economic growth is not always equally distributed; therefore an increase in living standards might be optimistic generalising in a way. Other benefits include increased opportunity for investment, increased business success and confidence, etc.

Economic growth besides has costs for both developing and industrialized countries. In case if a country is producing at or close to its productive capacity, economic growth may include an opportunity cost (Grant, 2003, pg 261). To raise its productive capacity, a country may have to divert some resources from producing capital goods. This is, nevertheless, a short-term opportunity cost, since in the longer term more capital goods will allow the country to produce more consumer and capital goods. What causes more concern is the effect that economic growth can have on the environment and the quality of people’s live.

Arguments against:

1- Social costs, such as congestion, noise, crime, pollution and the loss of beautiful countryside, may increase in the pursuit of economic goals. These costs often have to be paid for by the state. Most of developed countries which experiencing rapid industrial growth (e.g. the Newly Industrialised Countries NICs) are going through the experiences of promoting growth, but often at risk of damaging the environment. However, some countries are making so much effort to reduce this pollution.

For Example, Japan is of the most advanced countries in the world in the development and implementation of pollution control technologies, with their authorities investing about $4 billion per year for environmental equipments. Nevertheless, dramatic increases in chemical manufactures, nuclear waste, energy consumption, and road traffic over the last 20 years threaten to wipe out the progress made in pollution reduction (GCSE Geagraphy, BBC Website News). This is why economist and increasingly politicians are anxious to achieve sustainable economic growth.

2- Waste Disposal: particularly nuclear, becomes more difficult and dangerous. In view of the fact of the industrial revolution, world wide economic growth has been mostly based on the high consumption of natural resources and energy. This model contributed to the heavy cost of high consumption, low benefits and serious pollution. The industry developed speedily and caused serious pollution to the environment, which was demonstrated by a series of environmental pollution incidents shocking the world.

Development of resources, energy demand and the pollution that results have seriously reduced the amount and quality of natural communities of plants and animals all over the World. They have also led to a process of atmospheric warming which now causes a threat of climate change. Some people argue that Pollution has to be stopped at source. Economic growth has to be limited and the health and safety of the planet must become the main criteria in political and social development to maintain the quality of life which can be improved for all groups on the planet.

3- Attitudes may become carefree and complacent and develop with growth because people have high standards and little incentive for improvement, e.g. ‘throw away’ lifestyle; it is also claimed that much modern employment is depersonalized because of automation. These attitudes, and the increased freedom resulting from higher living standards, may cause more selfishness and less trust and co-operation in society.

4- Private affluence and public squalor. If the benefits of economics growth go to a small sector of society then these groups may become very wealthy. Alternatively, the rest of the community will be relatively badly off. The strength of this argument rests on the distribution of income and wealth in a nation and the attitude of the government.

Many economists believe that income inequality increase in the early stages of development, making the poor relatively worse off.

5- People might have to work more hours or under more stress. Within a dynamic economy, some industries will be getting bigger and some will be contracting, therefore some people will have to learn new skills and some will have to change the jobs they do and where they live. This could be unsettling and a number of people may find it difficult to cope (Grant, 2003, pg 261).

6- Getting more goods and services might not make people feel happier. For instance, more people at the present own and drive cars, giving them more flexibility in terms of when and where they travel. However, it is also resulting in additional traffic congestion and road accidents and makes it more risky for children to play in street. People also have more cloths, televisions, and music equipment than ever before but the majority are not satisfied and want more (Grant, 2003, pg 261).


We have to make a balance between these two factors, so we can be in safe side. This generally signifies that the economy is wealthier and producing more, individuals are better off, and that living standards are higher. Economies need to make use if idle resources in order to grow. Once these have been utilized, an economy can only grow through increased productivity, i.e. grater output per person. As it is mentioned at the beginning of this assignment, the intention of this document is simply to present my views on various problems involving the economic growth and in the same time to identify the advantages of the economic growth. The point I wish to make is that it is necessary to protect the environment and at same time it is also important to develop to be in powerful situation.


1- Economic Growth Expected to Slow in Major Economies During 2005, http://economics.about.com/od/taxesandeconomicgrowth/a/economicgrowth.htm,
Accessed on 23/04/2005.

2- Essential Principles of Economics: A Hypermedia Tex, 1998,r A. McCain, http://william-king.www.drexel.edu/top/prin/txt/EcoToC.html, Accessed on 22/04/2005.

3- GCSE Geography, BBC, http://www.bbc.co.uk/schools/gcsebitesize/sosteacher/geography/35634.shtml Accessed on 22/04/2005

4- John Sloman, Mark Sutcliffe, 2000, ” Economics, student workbook and reader”, 4th edition, Prentice Hall, pp 300.

5- Brian Atkinson, 1995, “Economics in the news”, Addison-Wesley publishing company, pp 33

6- SJ Grant, 2003, “As Economics”, Pearson Longman, pp 159, 261.

7- Michael Parkin, 2003, “Economics”, sixth edition, Addison Wesley, pp 38, 39

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