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Unit 2: Sources of Economic Growth
Hitesh Jhanji, Lovely Professional University

Unit 2 : Sources of Economic Growth Notes

CONTENTS
Objectives
Introduction
2.1 Sources of Economics Growth
2.2 Factors of source of Economic Growth
2.3 Summary
2.4 Key-words
2.5 Review Questions
2.6 Further Readings

Objectives

After reading this unit students will be able to:
• Explain about the sources of economic growth.
• Describe about the factors of source of economic growth.

Introduction

Economic growth is the continuous improvement in the capacity to satisfy the demand for goods
and services, resulting from increased production scale, and improved productivity (innovations in
products and processes). Factors improving productivity are particularly important sources of
growth for developed economies with mature industries, but facing increasing global competition
and rapid technological progress. Consumption has made a strong contribution to the growth of
UK demand in recent decades, but the negative impact of the global financial crisis on consumer
expenditure will persist for some time. Business investment is likely to become an increasingly
important driver of growth. The UK’s net trade position is expected to improve. Specialised and
knowledge-intensive service and manufacturing sectors are likely to contribute strongly to future
growth, building on the UK’s relative specialization in Finance, Business Services, Communications,
and Computer and Information Services.

2.1 Sources of Economic Growth
There are different concepts of economic growth and ways of measuring it, but the core definition
is in terms of growth in the long run productive capacity of the economy, typically measured by real
growth in Gross Domestic Product GDP.
Broader concepts of growth such as sustainable or balanced growth, or growth in measures of
wellbeing are closer to welfare objectives but more complicated and harder to measure. Lets know
the sources of economic growth.

2.1.1 Growth Accounting
Policy tends to focus on growth in output per capita, because it is more closely related to social
welfare objectives. Growth in output per capita can be broken down into growth in the employment
rate and in output per worker (a measure of productivity).

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