Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of increase in the real and nominal gross domestic product (GDP).
Growth is usually calculated in real terms – i.e., inflation-adjusted terms – to eliminate the distorting effect of inflation on the prices of goods produced. Measurement of economic growth uses national income accounting. Since economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure. The economic growth-rates of countries are commonly compared using the ratio of the GDP to population (per-capita income)
The “rate of economic growth” refers to the geometric annual rate of growth in GDP between the first and the last year over a period of time. This growth rate represents the trend in the average level of GDP over the period, and ignores any fluctuations in the GDP around this trend.Economists refer to economic growth caused by more efficient use of inputs (increased productivity of labor, of physical capital, of energy or of materials) as intensive growth. In contrast, GDP growth caused only by increases in the amount of inputs available for use (increased population, for example, or new territory) counts as extensive growth.Development of new goods and services also generates economic growth. As it so happens, in the U.S. about 60% of consumer spending in 2013 went on goods and services that did not exist in 1869The economic growth rate is calculated from data on GDP estimated by countries’ statistical agencies. The rate of growth of GDP per capita is calculated from data on GDP and people for the initial and final periods included in the analysis of the analyst.Living standards vary widely from country to country, and furthermore, the change in living standards over time varies widely from country to country. Below is a table which shows GDP per person and annualized per person GDP growth for a selection of countries over a period of about 100 years. The GDP per person data are adjusted for inflation, hence they are “real”. GDP per person (more commonly called “per capita” GDP) is the GDP of the entire country divided by the number of people in the country; GDP per person is conceptually analogous to “average income”.
Economic growth by country
Country Period Real GDP per person at beginning of period Real GDP per person at end of period Annualized growth rate
Japan 1890–2008 $1,504 $35,220 2.71%
Brazil 1900–2008 $779 $10,070 2.40%
Mexico 1900–2008 $1,159 $14,270 2.35%
Germany 1870–2008 $2,184 $35,940 2.05%
Canada 1870–2008 $2,375 $36,220 1.99%
China 1900–2008 $716 $6,020 1.99%
United States 1870–2008 $4,007 $46,970 1.80%
Argentina 1900–2008 $2,293 $14,020 1.69%
United Kingdom 1870–2008 $4,808 $36,130 1.47%
India 1900–2008 $675 $2,960 1.38%
Indonesia 1900–2008 $891 $3,830 1.36%
Bangladesh 1900–2008 $623 $1,440 0.78%
Seemingly small differences in yearly GDP growth lead to large changes in GDP when compounded over time. For instance, in the above table, GDP per person in the United Kingdom in the year 1870 was $4,808. At the same time in the United States, GDP per person was $4,007, lower than the UK by about 20%. However, in 2008 the positions were reversed: GDP per person was $36,130 in the United Kingdom and $46,970 in the United States, i.e. GDP per person in the US was 30% more than it was in the UK. As the above table shows, this means that GDP per person grew, on average, by 1.80% per year in the US and by 1.47% in the UK. Thus, a difference in GDP growth by only a few tenths of a percent per year results in large differences in outcomes when the growth is persistent over a generation. This and other observations have led some economists to view GDP growth as the most important part of the field of
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