Economic growth


Economic growth is defined as the rate of increase of the Gross Domestic Product (GDP). In economics, economic development is synonymous with economic growth, measured by the rate of increase in GDP per capita.

Notice on the chart the spectacular increase in China's GDP.




Such rapid increase in GDP is due to 1) fast economic growth every year and 2) "compounding", i.e. because during each year the increase in GDP comes on top of the increase in GDP during the preceding year.

For example, China's GDP in 2008 was about 4.5 trillion dollars. Then in grew by about 10 percent to almost 5 trillion dollars. Then, it grew again by about 10 percent to 5.9 trillion. The economic growth in both years was similar but, while in 2009 this added 5 trillion dollars to its economy, in 2010 it added 9 trillion. The 10 percent growth in 2010 came on top of the growth in 2009.

The question then is not only how to achieve rapid economic growth but how to sustain it over time. When one looks across many countries and many years, economic growth is on average 2.5 to 3 percent per year. If an economy grows by 7-8 percent per year for several years, as the Chinese economy, that is extraordinary.


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