1.0 Introduction
The increase in the capacity of production of goods and services from one period to another is defined as economic growth. Economic growth is narrowly referred to the Gross Domestic Product (GDP) or Gross National Product (GNP) growth of a country. GDP is the market value of all finished goods produced within a country in a particular time. It usually refers to a sustained increase in the level of per capita output (or per capita income) of a country over a long period. GNP is the total value of all finished goods produced by the citizens of a particular country in a certain period. The level of economic growth reflects the total economic growth rate of a country in a particular period. In addition, it is also a measure of the overall economic growth rate of a country. Economic growth can be measured in two terms, which are real or nominal. The real economic growth is adjusted for inflation.
In other words, economic growth means there is a rise in total productivity. In general, the total productivity is related to the increase of average marginal productivity. This represented the average labor force is more effective on average. The other ways to achieve the economic growth are through higher birth rate or extra immigration. The factors that determine the economic growth directly are investment, labor and productivity levels. The economic growth can increase the wealth of a country as well as increase the job opportunities. Positive economic growth is generally seen as a manifestation of the overall economy. If a country's economic growth is negative, that means the economic growth is lower than previous years, it is called a recession. Often, only when the economic growth continues to decline for two consecutive quarters, it is known as a recession.
To generate economic growth, better economic resources need to be discovered. For example, gasoline has become more effective resource after its energy-generating power was discovered. Furthermore, growing the labor force is one of the ways to enhance economic growth because more workers can produce more goods and services. The other method is to create excellent technology. Saving and investment rates are being dependent on the technology growth and capital growth. Hence, savings and investment are necessary for research and development. On the other hand, to generate economic growth, specialization must be practiced. Specialization means raising the effectiveness and efficiency of production as well as improve the skills of the workers.
2.0 Importance of Economic Growth
Analysis of economic growth is very important to a country. It enables the government to predict the rate of future consumption of the population. This will push forward the job creation, any rise or drop in the standard of living as well as the country’s fiscal and monetary policy. The population of a country will keep increasing over time, thus the economy needs to grow continuously. Fewer jobs will be offered to a large number of people when there is a stagnancy of the economy or a decline in the economic growth rate. Finally, the poverty will rise and the standard of living will drop due to the inefficiency used of the limited resources.
Economic growth is a measure of the efficiency of production and the ability to innovate. As an example, every dining cup in the restaurant needs a different size cover, and then it was considered necessary to create different capacity cups with the same cover. Both efficiency and innovation are applied to this resource-constrained problem to save money as well as increase the output.
The ability of a country to ensure its citizens is more prosperous than in the past few decades, it is the value of economic growth. This involves ensuring that the unemployment rate and poverty maintain in a low percentage and the purchasing power always keeps abreast of the inflation rate. Economic growth is measured by the Gross Domestic Product (GDP) or Gross National Product (GNP) growth of a country.
When government examines the gross domestic product, some certain issues will be analyzed. The issues are including whether the rate of economic growth is keeping pace with population growth or higher than the inflation rate. These indicators show the importance of economic growth, which enables the government to plan well for the future. The government and the central bank use these figures to set and implement the fiscal and monetary policy in order to enhance the economic condition of a country.
Enterprises made use of the economic growth rate to determine the potential markets that have a boom consumer base with strong purchasing power. As an example, economic rate of China (6 percent) is double the rate of the other countries in the last ten years of 20th century. As a result, there is a large number of businesses invest in China’s markets. This emphasizes the importance of economic growth to the commercial sector.
3.0 benefit of economic growth
What is meant by economic growth? An increase in production for goods and services or an increase in aggregate productivity is known as economic growth. Gross National Product (GNP) and Gross Domestic Product (GDP) is used to calculating the aggregate economic growth.
How to decrease poverty and increase the quality of one life in a country? The best solution is economic growth. Growth can give rise to prosperity and opportunity. Strong economic growth can boost human development, which thereby increases economic growth in return. For instance, strong growth increases employment, employment opportunities will increase the incentive for parents to invest in education by sending their children to school. This may create a high possibility of growing new entrepreneurs which will therefore influence the governance. By comparing the experience of a range of developing countries, rapid and sustainable economic growth is the best solution for all countries to reduce poverty. According to Ian (2015), in three years decades, China has reduced poverty by increasing its economic growth, pulling out about 700 million people. The economic growth will also increase job opportunity (lower unemployment) which leads to the higher demand of labor force, where the poor have the most. In return, the economy will grow stronger due to the increase in employment. In the early 1990s, global employment has given rise about 400 million; almost all new jobs were generated in the developing countries such as China and India.
Besides, the economic growth will benefit other species. When the human being gets wealthier, they will start behaving well towards others species. The Economist (2013) stated that ‘as countries grow they become cleaner, more urban, more peaceful, more efficient and better-informed, and their people have fewer children’. These effects and the growth of science and technology will then give benefits to other species. For example, in 1858 London started to build the sewage system, for the city become unbearable and people are dying from cholera. The sewage system has benefits others species in London for having a clean water.
Moreover, the economic growth will improve health and education. Evidence has proved that higher income will influence a better quality of life. Julio (2004) stated that health performance and economic performance are interlinked; wealthier countries often have healthier populations for a start. For instance, the public spending and insurance coverage, the development of health systems is influenced by the national income. According to HMT DFID (2005), the enrolment rates in primary and secondary school are higher with higher levels of per capita income.
Economic growth is the most powerful instrument that can use for improving the quality of life in developing countries. There is only has health’s role in this process become a focus of serious academic inquiry recently when human capital clearly contributes significantly to economic growth. In this case, human are able to supply and accumulate capital only while they are physically and mentally healthy. Health is scarce because it cannot be traded and transferable. In Grossman’s model, health is considered a capital good since it can affect a person’s ability to work, hence the linkage between health and economic growth.
In the workplace, healthier workers can be more energetic and robust in physically and mentally. They will less likely to be absent from work because they are healthy. Consequently, the healthier workers are more productive and able to earn a higher amount of wages compare to weaker workers. Due to the higher wages, they can have a better standard of living. In fact, the economic growth and health are a mutual influence.
The improvement in health has already taken place over the last 2 centuries that resulted from 3 sets of forces. The first force is an improvement in the standard of living of human. In particular, improve the standard of living is meant to provide a better nutrition to human. When the time of economic growth, human are able to choose some nutritious foods to buy and eat. Secondly, the force is a change in the public environment which included sanitation and the supply of clean water. The government will able to enhance the quality of water and ensure the standard of cleanliness of the water during the economic growth. Besides that, the government has enough money to provide sanitation to the environment. Lastly, the force is an improvement in medical technology. The government will able to provide antibiotics and other treatments to the human in order to make human become healthier and have an opportunity to avoid dangerous diseases. Once the human is getting healthier, they have the ability to work. Therefore, the productive will increases and finally the economic growth. Obviously, this is a win-win situation all around.
Furthermore, healthier children tend to perform better in school. That is due to they will not be annoyed by illness or other diseases. They can concentrate on their school work and get a good academic record in their school achievement. When they grow up, the children are able to get a good job and higher salary. In the other hand, the children have been a great asset to the country. From the benefits that mentioned above, our country will enjoy economic growth constantly as long as human and government always supportive of each other.
4.0 The Harmful of Economic Growth
One of the circumstances represents economic growth is the aggregate demand (AD) increase. Aggregate demand increase will cause the price of the product increase, it calls inflation. Inflation is happening in most of the countries in the world. In normal inflation’s circumstances, people can adapt to an increase of product’s price at a suitable percentage (< 3%). But in extreme circumstances, aggregate demand in an economy is growing faster than aggregate output supply (>5%), it becomes hyperinflation.
In extreme situation, hyperinflation can eliminate people saving and cause great instability. That is some of the problems will happen at below:
1. Discourage investment
In the hyperinflation period, the investor will feel confusion and uncertainty are that it is bubble economy or it is real. The investor will not take the risk to do the decision, they will reduce the number of investment.
2. Make an economy uncompetitive
Hyperinflation will lead the price of product increase rapidly, the product will lose competitiveness in the global market, the export rate will decrease causes GDP reduce.
3. Reduce value of saving
One of the hyperinflation circumstances is inflation rate higher than the interest rate, it makes saver worse off because of the value of money will drop in this situation.
4. Fall in real wages
When inflation is higher than nominal wages, then real incomes will fall. If price value rising faster than income value, it will cause a recession. The recession happens will make economy become worst.
Besides, rising of GDP causes economic growth but also growing income and wealth inequality in society. Inequality influences by institution, policy, industrial relation, labor market institution, welfare, and tax system to a country and it results from exploitation, discrimination, and exercise of monopoly power.
In the company, the income of CEO or other management increase not intended to reward effort, normally they are related to the performance of stock but the float of it can depend on many factors, like interest rate, the price of oil, even control by CEO. So, that income of management will become higher and higher, the GDP of the country will also increase time to time. GDP increase represents that the economy is growing. But in this situation, the growth of the economy is because of the rising income of rich man, not the whole society. So, the economic growth not represents that the income level of society increase it just shows that the income of rich man increase only, the rich man will become richer and the poor will still in poor, the disparity will become large.
If the government just focused on the average income of society and not focused on each level of society, the inequality will keep increasing. The economic growth will lead the product’s price rising, it will cause lower classes people become hard in life.
The environment Kuznets curve (EKC) hypothesis is the environmental harm first increases with income, then falls. This might be taken to recommend that economic growth that no environmental limits to growth and is not a threat to global sustainability. Economic growth is not the cure-all for environmental quality; indeed it is not even the main problem.” There are several major problems with hypothesis testing and evaluation is related to the environmental Kuznets curve. That is the assumption the unidirectional the relation between causes and effects from growth to environmental quality, the assumption that varies in trade relationships with development have no effect on environmental quality and their implications and data problems. In simultaneity, the EKC hypothesis obtains from a model of the economy in which there is no response from the lay out of the environment to economic growth. Rising trend of deforestation and pollution are having destructive effects on the quality of life but not on production probabilities. In any such response to the production, if the EKC hypothesis were verified, this would recommend growth maximization as the solution to the quality of life problem in a poor country. However, given such responsibility, attempting to grow fast in the early stages of development when environmental degradation is ascending may be biased, that is unsustainable (Barbier, 1994). Exceeding assimilative capacity gives the rise to pollution, which along with being directly offensive and/or harmful to human, can lower the availability and productivity of renewable resources, and connector with the operation of environmental life support services (Common, 1995). In international commerce, standard trade theory recommends that under free trade in developing countries cause specialize toward the production of goods which are exhaustive in the causes that they are gifted with in relative abundance that is labor and natural resources. The developed countries causes specialize toward human capital-intensive activities. The environmental emphasis on domestic production depends in part on the environmental intensity of imports and vice versa. For the data problems, data on environmental problems are particularly patchy in analysis and/or poor in quality. The EKC relationship thus valuable cause be misleading, but, for the intention of projecting the acid burden from nitrogen and sulfur oxide emissions on natural and agricultural ecosystems. From the view of sustainable development, these burdens are at least as crucial in direct effects on human health. Panayotou used emissions instead of concentrations, but rare data for developing countries ask him to value their emissions using simplifying assumptions.
5.0 Conclusion
This article is showing the economic growth. It is important to our country because it enables government to predict the rate of future consumption of the population in other to push forward job creation. Besides, economic growth also can examine the efficiency of production and ability of innovation to ensure the citizen is more prosperous then past.
There are few benefits if a country is having economic growth. It increases the employment rate, health, and education in order to increase the quality of life in the country. So, if the country is facing economic growth it is a good situation for it. But, when the economic growth is growing too fast it will cause many problems. The first problem is hyperinflation. Inflation is a good circumstance of the country, but when the inflation is growing too fast, it will become hyperinflation. Hyperinflation will cause economy become overheat form economic bubbies. Besides, economic growth also causes inequality in society, it is because the government neglects the social problem, the rich will become richer and the poor will become poorer. In addition to this, over economic growth will effects environment problem. Toxic from factories will harm the environment, especially in developing countries because their government cannot take care of that problem comprehensively. It will harm the citizen health.
In the article shows that the economic growth will increase the health of citizen but if over growth of the economy is going to harm citizen it is because of the negligence of government and immoral of business. So, the government should take action to prevent the problem of environment.