Benefits of economic growth – Economics Help

economic growth means an increase in real GDP, an increase in the value of production, income and national spending. Essentially, the benefit of economic growth is a higher standard of living: higher real incomes and the ability to devote more resources to areas such as health care and education.


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Reading: Benefit the economy?

the benefits of economic growth include

  1. higher average income. economic growth enables consumers to consume more goods and services and enjoy higher standards of living. Economic growth during the 20th century was an important factor in the reduction of absolute poverty levels and allowed an increase in life expectancy.
    1. lower unemployment. with higher production and positive economic growth, companies tend to employ more workers creating more jobs.
    2. us-unemployment-2001-2021-markings

      Unemployment in the UK rises during a recession and falls during periods of economic growth.

      1. less government indebtedness. economic growth generates higher tax revenue and there is less need to spend money on benefits such as unemployment benefits. therefore, economic growth helps reduce government indebtedness. economic growth also plays a role in reducing the debt-to-gdp ratio.
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        A long period of economic growth in the postwar period helped reduce the UK’s debt-to-GDP ratio.

        1. improving public services. Higher economic growth leads to higher tax revenues and this allows the government to spend more on public services such as health care and education etc. this can allow for higher standards of living, such as longer life expectancies, higher literacy rates, and a greater understanding of civic and political issues.
        2. Money can be spent on protecting the environment. With higher economic growth, a society can devote more resources to promoting recycling and the use of renewable resources. The Kuznets curve suggests that initially economic growth worsens the environment, but after a certain point of growth, the damage to the environment will decrease. this theory is controversial. but higher growth may be consistent with better environmental outcomes.
        3. investment. Economic growth encourages companies to invest 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 higher profitability for companies, which allows greater spending on research and development. this can lead to technological advances, such as improved medicine and greener technology. In addition, sustained economic growth increases confidence and encourages companies to take risks and innovate.
        5. economic development. The most important factor in promoting economic development is sustained economic growth. Economic growth in Southeast Asia over the past several decades has played a significant role in reducing poverty levels, increasing life expectancy, and promoting greater economic prosperity.
        6. more choice. In less developed economies, a large proportion of the population works in agriculture/subsistence farming, economic growth allows for a more diverse economy with people able to work in the farming sector. services, manufacturing and have a greater variety of lifestyles.
        7. reduction in absolute poverty. economic growth has played a crucial role in reducing absolute poverty (people with insufficient income to meet basic needs)
        8. economic growth and poverty reduction

          poverty since 1820

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          evaluation of economic growth

          • For the developing economies of sub-Saharan Africa, economic growth enables countries to escape the worst levels of poverty. even a small level of economic growth can facilitate better living standards and an improvement in life expectancy. in the developed world, economic growth is less essential.
          • depends on the nature of economic growth. for example, if economic growth creates more pollution and congestion, the standard of living may fall.
          • It also depends on the distribution of economic growth: who benefits from economic growth? if growth primarily benefits the richest in society, growth may do little to overcome poverty.
          • Economic growth can be very detrimental to the environment. if it leads to increased use of non-renewable resources and carbon emissions, then it will contribute to potentially very serious environmental problems that will increasingly affect future generations.
          • when countries have low gdp, economic growth brings a high marginal benefit. But for developed countries with high GDP, the marginal benefit of economic growth is less. there is a diminishing marginal utility of additional income and, at higher levels, the growth problems may outweigh the benefits.
          • related

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            • costs of economic growth
            • causes of economic growth
            • does economic growth bring better living standards?
            • latest UK growth figures

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