Economic Growth

These are my notes on the economic growth section in Economics.

Economic growth measures how much real GDP per capita grows over time.

Today’s high levels of GDP per capita in many nations are a result of rapid economic growth over the past two centuries. Sustained economic growth relies on technological progress. There are sizable differences in the historical growth rates of different economies, which are largely responsible for their differences in the levels of real GDP per capita. Economic growth is a powerful tool for poverty reduction.

Economic growth is the increase in GDP per capita of an economy. The growth rate is the change in a quantity, for example, real GDP per capita, between two dates, relative to the baseline quantity. Exponential growth refers to a situation in which the growth process can be described by an approximately constant growth rate of a variable such as real GDP or real GDP per capita.

Catch-up growth refers to a process whereby relatively poorer nations increase their incomes by taking advantage of knowledge and technologies already invented in other, more technologically advanced countries. Sustained growth refers to a process whereby real GDP per capita grows at a positive and relatively steady rate for long periods of time. 

The saving rate designates the fraction of income that is saved. Technological change is the process of new technologies and new goods and services being invented, introduced, and used in the economy, enabling the economy to achieve a higher level of real GDP for given levels of physical capital stock and total efficiency units of labor. 

The subsistence level is the minimum level of income per person that is generally necessary for the individual to obtaIn enough calories, shelter, and clothing to survive. Fertility refers to the number of children per adult or per woman of childbearing age. 

The malthusian cycle refers to the pre-industrial pattern in which increases in aggregate incomes lead to an expanding population, which in turn, reduces income per capita and ultimately puts downward pressure on population. 

The demographic transition refers to the decline in fertility and number of children per family that many societies undergo as they transform from agriculture to industry. The industrial revolution denotes the series of innovations and their implementation in the production process that began at the end of the eighteenth century in Britain. 

Many countries, including the United States, have experienced rapid economic growth over the past 200 years, increasing their real GDP per capita several times over. For example, the current real GDP per capita is about 25 times the U.S. real GDP per capita in 1820. In addition, U.S. growth has been relatively sustained, meaning that GDP per capita has grown relatively steady, with the exception of the great depression and the decade following it.

Economic growth can sometimes take place rapidly due to catch-up growth, whereby relatively poorer nations increase their real GDP per capita by taking advantage of knowledge and technologies already invented in other, more advanced countries.

Economic growth results from an economy increasing its physical capital, raising the human capital of its workers, and improving its technology. Because of the diminishing marginal product of physical capital and limits of how much each worker can invest in his or her human capital before joining the workforce, sustained growth is generally impossible to achieve just by building up human and physical capital. Rather, the most plausible driver of sustained growth is technological progress. Empirical evidence also suggests that technological progress accounts for the bulk of the increase in real GDP per capita in the United States. 

Though the past 200 years have been characterized by sustained economic growth in many parts of the world, the preceding centuries did not experience steady growth. Instead, most economies during these times experienced Malthusian cycles: increases in GDP fueled population growth, which reduced the standard of living and subsequently acted as a check on further population growth by reducing fertility and survival. The world broke out of the Malthusian cycle through the industrial revolution, which started a process of rapid technological progress, underpinning the sustained growth of the past two centuries.

Economic growth has the capacity to significantly reduce poverty, provided that such growth is not associated with increased inequality.