What Is Sustainable Economic Growth?

Generally, when real output increases steadily over time, Economic growth is said to have occurred. This real output is measured at constant prices by the Gross Domestic Product (GDP). Sustainable economic growth, therefore, means a rate of economic growth which can be kept constant, without creating any further problems in the economy that can affect future generations.

There exists a trade-off between economic growth in the future and rapid growth of the economy today. If there is a rapid economic growth today, natural resources could be exhausted, which will create diverse problems for the environment of future generations. Some of these resources could be Fish stocks, oil, natural forests, and much more, some of which may accelerate the rate of global warming, worsening the situation for the coming generations.

Growth is often triggered by demand such as that of increase in consumer spending. Sustained economic growth usually involves an increase in output as demand levels go up. In case the rate of output does not match an extra demand, the price levels will have to be pushed up which will cause a suppression of the economy.

In any economy, the living standards of citizens are indicated by the Gross Domestic Product (GDP) per capita. Most economies officially use GDP as a base measure of output. The output of goods and services are recorded using gross measurements, which includes capital goods purchased for replacing existing capital goods. The net output which is the alternative of Gross output ensures an accountability of depreciation which is deducted from the gross measurement.

Economic growth can be measured in terms of a general trend and in the form of an increase in the annual percentage of real GDP. The long-term average and non-inflationary economic rate of growth are referred to as the trend rate of growth. If economic growth rises below or above the trend rate significantly, the economy is said to be experiencing low growth or excessive growth. The economy goes to recession if this rate becomes negative in succession for two quarters.

Economic growth is often associated with quite a number of material benefits which generally increase the welfare of an economy. These include:

• A high Gross Domestic Per Capita, which promotes a rise in real national income. This means that profits and wages will rise. The GDP per capita will increase if the population remains somehow stable.

• Stable growth of an economy means an increased tax revenue for the public sector, and more resources can, therefore, be allocated to public amenities such as schools, hospitals, and roads.

• Positive externalities attributed to the growing economy means a better-educated and healthier population, which will, in turn, provide other economic benefits such as an effective labor force. This will increase a long-term and constant aggregate supply and will impact positively on the economy of future generations.