Economic growth means that people and businesses are earning more, spending more, and generally feeling better off. But measuring this phenomenon at the global scale is a lot harder than simply checking your bank account. This is the realm of macroeconomics, where economists use tools from a wide range of disciplines—including statistics, mathematics, and history—to study how economies grow.
A key tool is GDP, which measures the total market value of all final goods and services produced in a country over time. It can be measured in either nominal or real terms, and economists typically talk about’real’ economic growth – increases in the volume of production without the impact of price changes.
The rate at which a country grows depends on a variety of factors, including population growth, technological progress, and institutional frameworks. Increasing economic growth can lead to positive or negative output gaps, which reflect the amount of potential GDP that is underutilized.
The growth gap is one of the greatest challenges facing the world today, according to Indermit Gill, World Bank Group Chief Economist and Senior Vice President. He writes that international discord—particularly around trade—has upended the policy certainties that helped shrink extreme poverty and expand prosperity in the decades following World War II. He calls for a reset, including renewed global cooperation, restored fiscal responsibility, and a relentless focus on creating jobs. Across the globe, governments are struggling to generate growth by lowering debt and interest rates and expanding infrastructure. But these policy levers will have a limited effect on growth unless they are coupled with policies that encourage healthy aging and bridging gender disparities, promote economic mobility, and align skills with labor market demands.