Sources of the economic growth

Economic growth : go further...


A/ Key ideas : the economic growth... to what end ?!



The economic growth is a long-term expansion of a country's productive potential. It is measured by the gowth rate, which is the percentage change of the GDP (Gross Domestic Product) between two years.

1/ Scarcity – the condition we face with limited resources to satisfy unlimited wants, which compels us to choose among alternatives.


2/ Economic growth raises standards of living, even in the continuing face of scarcity.


3/ The history of world economic growth raises important questions about the ability of nations to deal with the ever-present problem of scarcity:

  • Why are some countries rich and others poor? The cross-sectional evidence shows a fairly wide disparity in per capita income between countries.
  • Why have some countries experienced economic growth and others have not? That is, looking back over a country’s history, what factors have led to economic growth?
  • Why are some countries growing rapidly today and others are not, even though they may have experienced significant growth in the past?
  • What can be done to promote economic growth and reduce poverty, and respect the environment ? How can the growth be sustainable ?

4/ Economic growth is a sustained increase in a nation’s production of goods and services.

  • Increases in productivity, as the result of investments in human and physical capital, raise incomes and standards of living.
  • Innovation, technological advances, and education are the major sources of increases in productivity.


5/ Institutions matter for economic growth. Nations that experience economic growth have established institutions that provide incentives for innovation and technological advance. Nations with stagnant economies where poverty persists lack the institutional incentives that encourage growth and increases in productivity.


Institutional arrangements define the formal and informal rules of the game that govern how people interact. These arrangements shape incentives and outline expected and acceptable forms of behavior in social interaction.


The institutions that foster growth and economic development include:

  • Open Markets – “Trade creates wealth.”
  • Property Rights – “Rights of ownership facilitate exchange.”
  • Rule of Law – “Consistent legal arrangements applied uniformly encourage long-term investment.”
  • Entrepreneurship and Innovation – “Increasing the gains from creative endeavors adds to economic activity.”

6/ Economic growth creates benefits throughout the economy.

Economic growth expands a nation’s productive capacity.

Historically, all segments of the economy have benefited from economic growth; hence the rise of the middle class.

Ideas To Take Away From This Lesson

  • Scarcity forces us to choose among alternatives.
  • Economic growth gives us more to choose from, and raises standards of living.
  • Certain institutions and institutional arrangements encourage economic growth and this growth improves the human condition, by reducing infant mortality, lengthening lives, reducing hunger, improving environmental quality, cutting the incidence of debilitating diseases, etc.

Apply and test yourself!
1. Read this article about the growth in the USA.
2. Make your comments in the margin
3. Sum it up schematically.
Document Adobe Acrobat 314.6 KB

B/ GDP is often used to measure the growth

What is GDP ?

How to calculate growth rates thanks to the GDP ? 

Assets of the GDP ? 

Drawbacks of the GDP ?