Benefits of economic growth

Economic growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure.

real-gdp-1955
UK real GDP since 1955. Shows the magnitude of increased national output.

The benefits of economic growth include:

  1. Higher average incomes. This enables consumers to enjoy more goods and services and enjoy better standards of living. Economic growth during the Twentieth Century was a major factor in reducing absolute levels of poverty and enabling a rise in life expectancy.
  1. Lower unemployment. With higher output and positive economic growth, firms tend to employ more workers creating more employment.

unemployment-total

UK unemployment rises during a recession – falls during periods of economic growth.

  1. Lower government borrowing. Economic growth creates higher tax revenues, and there is less need to spend money on benefits such as unemployment benefit. Therefore economic growth helps to reduce government borrowing. Economic growth also plays a role in reducing debt to GDP ratios.

uk-national-debt

A long period of economic growth in the post-war period helped reduce the UK debt to GDP ratio.

  1. Improved public services. With increased tax revenues the government can spend more on public services, such as the NHS and education e.t.c.
  2. Money can be spent on protecting the environment. With higher real GDP a society can devote more resources to promoting recycling and the use of renewable resources
  3. Investment. Economic growth encourages firms to invest, in order to meet future demand. Higher investment increases the scope for future economic growth – creating a virtuous cycle of economic growth/investment.
  4. Increased research and development. High economic growth leads to increased profitability for firms, enabling more spending on research and development. Also, sustained economic growth increases confidence and encourages firms to take risks and innovate.

Evaluation of economic growth

  • For developing economies in Sub-Saharan Africa, economic growth enables countries to escape the worst levels of poverty. Even a small level of economic growth can facilitate higher living standards and an improvement in life expectancy. In the developed world, economic growth is less essential.
  • It depends on the nature of economic growth. For example, if economic growth leads to more pollution and congestion, then living standards may not seem to hit. It also depends on the distribution of economic growth – who benefits from the economic growth. If growth benefits primarily the richest in society, growth may do little to overcome poverty

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