Economic growth is an increase in the real value of goods and services produced by a country. It is usually measured as GDP or GDP per capita (or equivalently, national income or national product).
An economy’s potential for growth is determined by two things: growth in the labor force and growth in productivity. The former is accomplished through native population growth and immigration, and the latter is accomplished by business investment in tangible assets such as factories and offices, and intangible assets like R&D and management efficiency. Other sources of economic growth include improvements in human capital through education and training, and technological advances that improve production capacity. The resulting increased production translates into higher material standards of living and, eventually, into higher real GDP per capita.
The rate of economic growth varies over time and between countries. For example, an economy recovering from a recession can achieve relatively high rates of “catch-up” economic growth as demand for goods and services rebounds from weak recession levels. These rapid growth rates are the result of businesses hiring new workers and more fully utilizing their existing productive capacity.
While many factors affect economic growth, the one most critical is improving productivity. In the long run, this requires developing a knowledge base that generates innovative ideas for making better use of existing resources. A simple example of this is Johannes Gutenberg’s invention of the printing press, which allowed workers to produce a book in a day instead of months.