Economic growth refers to an increase in the overall market value of additional goods and services produced over a period compared with a previous one. This increase is typically measured using a country’s gross domestic product (GDP). It generally corresponds with rising national incomes and higher material standards of living.
The rate of economic growth is often influenced by the availability of natural and mineral resources, labor, capital equipment, and technology. Increasing the supply or quality of any of these can lead to faster economic output. For example, the discovery of petroleum fuel opened new markets for transporting goods. Technology also allows workers to make better use of their available capital and raw materials by combining them in novel ways. The rate of technological progress is highly dependent on the savings and investment required to engage in research and development.
During an expansion, employment, industrial production, and sales all rise, and real GDP increases. At some point, the economy peaks, and then enters a contraction phase as demand for goods falls and businesses shed employees. Once excess unemployment is eliminated and capacity utilization returns to normal, a recovery phase begins. Economic growth in this phase can be sustained by increased savings, greater investment in tangible assets, and direct foreign investment.
Economic growth is important for the prosperity of individuals and countries, but how widely the fruits of growth are shared is equally critical to societal health and progress. McKinsey research shows that racial economic parity is possible through policies and business practices that foster inclusive economies and societies.