Economic growth is a key factor for improving the quality of life and eliminating poverty. However, it cannot occur on its own and requires a combination of factors such as education, health care and technological progress.
The most common measure of economic growth is Gross Domestic Product (GDP). It is calculated by adding up consumer spending, business investment, government spending and net exports. A growing economy is also characterized by a stable or increasing inflation rate, low unemployment and steady wages.
A country can achieve economic growth through a variety of mechanisms such as higher labor productivity, increased capital productivity or more efficient use of natural resources. Technology can improve the efficiency of an economy by enabling workers to do more work with the same amount of labor. The development of computers, for example, has led to a dramatic increase in labor productivity and allowed many people to work from home.
Alternatively, countries can achieve economic growth by expanding their resource base. This can be done by finding new oil or mineral deposits or by investing in technology, education and other human capital. The discovery of natural resources can help shift a country’s Production Possibility Curve (a model used to predict the rate of long-run economic growth).
This study explores the major determinants of economic growth in a panel of 20 world economies with data over a 39 year period (1980-2018). The results suggest that international trade, energy use, capital, labor and foreign direct investment are significant determinants of economic growth. A one percent increase in any of these variables leads to a 1.23 percent increase in GDP. The estimated results ratify the long run cointegration among these variables and indicate that their impact on GDP is positive and significant.
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