You probably know that growth is good, whether it’s your investment portfolio or the number of plants in your yard. But understanding economic growth for an entire country is a lot more complicated than knowing that you have more money in your bank account than yesterday. Economic growth is a measure of the overall increase in the value of all the goods and services produced by a country over time.
It’s influenced by factors like population growth, capital accumulation, technological advances, and institutional frameworks. It’s a measure of the potential output of an economy and can be volatile due to changes in consumer spending and global economic conditions.
There are several ways to measure economic growth, but the most common is gross domestic product (GDP), which shows how much a nation’s citizens have earned in a year by working or importing goods and services. GDP is a good indicator of a nation’s economic health but doesn’t tell us what types of products were produced or how they were used, which limits its usefulness as a gauge of productivity.
We also use measures of human and material productivity to determine the overall efficiency of an economy. Examples include labor productivity, which relates to worker performance and output, and capital productivity, which measures how well each dollar of investment is used to create goods and services. Human productivity is another important measurement; it can be measured by measuring the amount of work performed per person or unit of resources, and McKinsey research has found that improving racial economic parity is a critical way to spur economic growth.
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