Growth and De-Growth in Power, Economy and Demography
Economic growth refers to an increase in the size of a country's economy over a period of time. The size of an economy is typically measured by the total production of goods and services in the economy, which is called gross domestic product (GDP).
Economic growth can be measured in nominal or real terms. Nominal economic growth refers to the increase in the dollar value of production over time. This includes changes in both the volume of production and the prices of goods and services produced. Economists normally talk about real economic growth – that is, increases in the volume produced only, which takes away the effect of prices changing. This is because it better reflects how much a country is producing at a given time, compared with other points in time.
What's not Captured in GDP Statistics?
While GDP is the main measure of economic growth, it doesn't capture everything that adds value to the economy. One example is that caring for children is not included in GDP if carried out by their parents (but is if it is done by a paid childcare worker).
GDP doesn't capture broader aspects of economic welfare of the nation's population. For example, if GDP rose by 2 per cent one year, but the population grew by 4 per cent, then average GDP per person would have decreased. Similarly, GDP doesn't tell us anything about how evenly national income is split across the population. Income may have increased for everyone, or may have been concentrated in certain groups.
Finally, there are things that raise GDP but don't make the country better off. One example is the initial spending to replace buildings and infrastructure after a natural disaster, which boosts measures of economic growth.
Analysis of Growth (Encyclopaedia Britannica)
To explain why some countries grow more rapidly than others or why a country may grow more rapidly during one period of history than another, economists have found it convenient to think in terms of a production function. This is a mathematical way of relating some measure of output, such as GNP, to the inputs required to produce it. For example, it is possible to relate GNP to the size of the labour force measured in man-hours, to capital stock measured in dollars, and to various other inputs that are considered important. An equation can be written that states that the rate of growth of GNP depends upon the rates of growth of the labour force, the capital stock, and other variables. A common procedure is to assume that the influence of the separate inputs is additive—i.e., that the increase in the growth of output caused by increasing the rate of growth of, say, capital is independent of the rate of growth of the labour force. This is the starting point of a great deal of current empirical work that attempts to quantify the importance of different inputs.
Under certain assumptions, some reasonable and some patently false, it is possible to conclude that what labour and capital receive in the form of wages, profits, and interest is a fair measure of what they contribute to the productive process. Thus in the United States in the period following World War II the share of output going to labour was approximately 79 percent, while the share of output distributed as profits
was 21 percent. If we assume that these proportions determine how much we should weight the rate of growth of the labour force and of capital respectively in determining their contribution to the rate of growth of output, we must conclude that the relative contribution of capital is slight. Alternatively, we may say that some given percentage increase in the rate of growth of the labour force will have a much larger influence on the rate of growth of output than the same percentage increase in the rate of growth of capital. This is a puzzling result and can be traced to the assumption that the influence of separate inputs is additive.