Economic growth is the rate at which a country’s economy (or, in more technical terms, its gross domestic product) increases over time. It can result from the accumulation of more physical capital or more labor, but sustainable long-run growth requires better use of existing capital and labor — that is, it must be based on growing productivity.
The economy’s overall growth reflects its ability to supply goods and services. It can pick up from a weak start in the first quarter of the year as businesses more fully utilize productive capacity that was idled during recession.
Another source of growth comes from consumer spending, which picked up last quarter as consumers bought more cars and appliances. But a surge in imports, which are subtracted from GDP, shaved nearly a percentage point off growth.
The determinants of economic growth are complex and not entirely understood, but researchers have a number of theories. They include the effect of education, a more efficient distribution of wealth and infrastructure and economic policy reforms that boost growth.
Some of these factors are difficult to measure, such as the effects of health and safety regulations that may slow measured GDP growth, but that may be offset by improved worker conditions. More importantly, there are some characteristics that seem to be common to countries with high rates of economic growth. Those traits are related to the design of a nation’s economic institutions. They provide the proper incentives to save, invest and expand.