Economic growth can be defined as the increase in the capacity of an economy to produce goods and services. There is no agreed-upon ideal growth rate for a country or best way to achieve it.
Factors of Economic Growth
Different economists and sources have different ideas as to what drives economic growth. The following are a few explanations.
The following are several measured that the United States has employed to promote economic growth:
- Consumer spending
- Business investment
- Tax cuts and tax rebates
- Deregulation (to relax the rules imposed on an industry or business)
- Increasing infrastructure spending (creates jobs for those who build the infrastructure and increases productivity by enabling businesses to operate efficiently)
Another way to look at how to achieve economic growth is by increasing the quality and quantity of the four factors of production. The factors of production are the resources used in creating goods and services in an economy. These factors are:
Additionally, the four following methods can lead to economic growth:
- Increase the amount of physical capital
- Make technological improvements
- Grow the labor force
- Increase human capital (increase the skillfulness of the labor force)
Measuring Economic Growth
Economic growth is most commonly measured by real gross domestic product (GDP). GDP is the total monetary value of all goods and services produced in a specific period within a country’s borders. GDP provides a snapshot of a country’s overall economic health. Real GDP means that GDP has been adjusted for inflation.
Growing an economy means manufacturing more goods and providing more services than during a previous period. To do so, it is important to consider not only the number of goods but their value as well. For example, a smartphone is worth more than a t-shirt. Additionally, not all individuals place the same value on certain goods as others do.
1. South Sudan
South Sudan’s real GDP growth rate is 11.3%. South Sudan’s economic growth is largely attributed to its oil sector. The country’s exports are projects to increase by 23% during fiscal year 2019/2020. Despite South Sudan’s economic achievements, it remains to be one of the poorest countries in the world. Additionally, South Sudan needs to address its underlying causes of conflict and focus on peace and stability to continue steady economic growth.
Rwanda’s real GDP growth rate is 10.1%. Rwanda’s economy was nearly destroyed by the genocide of 1994 but has since rehabilitated both its economy and its political stability. Rwanda’s economy has actually bounced back to a better standing than before 1994. Rwanda was in an economic boom before the COVID-19 pandemic, which has caused large disruptions in Rwanda's exports and tourism. The country is hoping to become a middle-income country by 2035 and a high-income country by 2050.
Libya’s real GDP growth rate is 9.9%, making it the third-fastest growing economy in the world. Libya’s economic growth was largely attributed to a substantial increase in crude oil production that averaged over one billion barrels per day over 2017-2019. Libya’s economic growth is expected to be delayed as political rivals have failed to maintain peace in the country. The conflict has taken a heavy toll on the economy, which has also taken a hit from the COVID-19 pandemic, as the production and exportation of oil have stopped since January 2020.
Dominica’s real GDP is growing at a rate of 9.2%. Dominica’s economy is driven by agriculture and tourism, with its government promoting the nation as an “ecotourism” destination. In recent years, the government has focused on making Dominica a major offshore financial services center. It is also one of five East Caribbean nations that have a citizenship by investment program, which grants foreigners citizenship for a fee. Despite Dominica’s high real GDP growth rate, the country faces very high debt, which equated to about 77% of GDP in 2016.
Ethiopia’s real GDP is currently growing at 9.0%. The country’s real GDP is $84.36 billion. From 2006/2007 to 2016/2017, Ethiopia experienced growth averaging 10.3%, which has since decreased. The country still struggles with low per capita income but is striving to become a lower-middle-income country by 2025.