Economic growth is the change in the total market value of goods and services produced by a country over a period. It is usually measured as the annual percentage change in gross domestic product (GDP).
This is HL-only content from subtopic HL.b Environmental economics, particularly the relationship between economic growth, prosperity and environmental welfare.
How Economic Growth Is Calculated
GDP measures the monetary value of final goods and services produced within a country during a given period. The percentage growth rate can be calculated using:
For example, if GDP increases from billion units of currency to billion:
The economy therefore experienced annual economic growth of .
| Measure or concept | Meaning | Limitation |
|---|---|---|
| GDP | Total market value of goods and services produced within a country | Excludes many unpaid activities and does not show how income is distributed |
| Annual GDP growth | Percentage change in GDP over one year | A positive rate does not necessarily mean improved human well-being |
| GDP per capita | GDP divided by population | An average that can conceal inequality between social groups |
Economic growth may be viewed as evidence of increasing prosperity because it can support employment, tax revenue and investment in services. However, production and consumption also require energy and natural resources, so growth can increase pollution, waste and the depletion of natural capital.
A common misconception is that GDP growth automatically means sustainable development. GDP does not account fully for ecosystem degradation, environmental justice or whether benefits are distributed equitably. Costa Rica, for example, illustrates why indicators of social welfare and environmental protection should be considered alongside GDP.
Exam Technique
For an explain question, define economic growth, identify annual percentage change in GDP as its usual measure, and show the calculation. For evaluate or discuss, balance economic benefits against GDP's social and environmental limitations, use a named example, and reach a supported conclusion.
