A robust economic growth boosts employment, reduces poverty and inequality and helps to spur innovation. It also leads to higher living standards, as shown by the remarkable reduction in global poverty over the past two centuries.
Economic growth is essential to people’s well-being, and most of us want the world to grow at a reasonable pace. But that’s not always easy. Growth requires that the amount of goods and services produced increase faster than the amount of money available to buy them. If demand increases faster than supply, prices rise – this is known as inflation and can eat into people’s purchasing power.
This is why many economists seek to understand the drivers of economic growth – and there are many. Technological advances explain a good portion of growth, but better resource allocation and economies of scale also contribute, as does the elimination of discrimination in hiring practices and lower tariffs and trade barriers.
But even when policies are in place to promote growth, it’s not always easy to make that happen. As a recent pair of papers (Hertzman and Siddiqi, 2019; Cole, 2022) demonstrate, the benefits of consistent economic growth are not always broadly shared.
For example, a growth-focused policy that prioritizes foreign investment may lead to more jobs in the extractive sector – and hence more income for those involved – but it can come at the cost of social services such as education and healthcare. It might also encourage a “disease of affluence” such as high-fat, sugary diets and pollution that harms health.