COST & BENEFITS OF

ECONOMIC GROWTH
INSTRUCTOR
..



GROUP MEMBERS
..






Page 2 of 8

CONTENT
Introduction..........3
Economic growth.....3
Factors of economic growth........3
Human Capital.....4
Capital Goods......4
Natural Resources ...4
Entrepreneurship.........................4

Benefits of economic growth...4
Higher employment.........5
Improved business confidence.....5
Increased tax revenues.........5
Improved living standard.....5
Higher investment........5
Potential environment benefits........5
Improvement in welfare ......5

Costs of economic growth...6
Inflation ...6
Environmental concerns...6
Inequalities of income & wealth..6
Balance of payment deficit..6
Loss of land .....7

Conclusion ..7
References....8



Page 3 of 8

INTRODUCTION
In this report general information about economic growth has been covered. We have also briefly
discussed the various advantages and benefits arising from the growth of an economy as well as
the contributing factors and agents which are helpful in expansion of such economy. The
economy of a country also faces certain negative impacts of such increased growth. These
impacts are named as costs of economic growth.
ECONOMIC GROWTH
Economic growth is the increase in the amount of the goods and services produced by an
economy over time. The measure of economic growth in a country is its GDP (gross domestic
product). The increase in GDP calculated annually at national level shows that the countrys
economy has grown over a period of one year. GDP is the total amount of final goods and
services produced in one year within a country. Through economic growth the output level
expands.


FACTORS OF ECONOMIC GROWTH
There are 4 factors that influence economic growth within a country
Human Capital
Capital Goods
Natural Resources
Entrepreneurship

Page 4 of 8


HUMAN CAPITAL:
It includes education, training, skills, and healthcare of the workers and the value that they bring
to the countrys economy. Nations that invest in the health, education, & training of their people
will have a more valuable workforce that produces more goods & services.

CAPITAL GOODS:
All of the goods that are produced in the country and then used to make other goods & services
are called capital goods. The more capital goods a country has, the more goods & services they are
able to produce and the more money they can make.
Examples: tools, equipment, factories, technology, computers, lumber, machinery, etc.

NATURAL RESOURCES:
All of the things found in or on the earth; gifts of nature are called natural resources. Countries
that have a lot of natural resources are able to use them to produce goods & services cheaper than a
country that has to import natural resources. And if these natural resources are in excess then the
country can export them in order to make more money ultimately resulting in increased economic
growth.
ENTREPRENEURSHIP:
People who take the risk to start and operate a business are called sole owners or entrepreneurs.
These people risk their own money and time because they believe their business ideas will make
a profit. They bring together natural, human, and capital resources to produce foods or services
to be provided by their businesses. Entrepreneurship creates jobs and lessens unemployment.
Encourages people to take risks, and in doing so, they create better healthcare, education, &
welfare programs. The more entrepreneurs a country has, the higher the countrys GDP will be.

BENEFITS OF ECONOMIC GROWTH
The main advantages of economic growth are discussed as below:
Higher employment
Improved business confidence
Increased tax revenues
Improved living standard
Higher investment
Potential environment benefits
Improvement in welfare
Page 5 of 8

HIGHER EMPLOYMENT:
Growth stimulates higher employment. With higher output firms tend to employ more workers
creating more employment. And more employment results in gradual increase in economic
growth.

IMPROVED BUSINESS CONFIDENCE:
Improvement of business lies greatly on economic growth of a country. The increase in growth
results in positive outcomes of business and has a positive impact on companys profit and
business confidence. It provides great opportunities for growth of small business enterprises.

IMPROVED LIVING STANDARD:
Increases economic growth results in increase of per capita income which ultimately results in
improvement of living standard of people. One of its outcomes is that low poverty rates can also
be achieved.

INCREASED TAX REVENUES:
Economic growth creates higher tax revenues. This provides government with extra money
which can be for financing various projects. In this way there are fewer chances for government
to borrow from other countries.

HIGHER INVESTMENT:
When the economic condition of a country is stable then there are great chances of higher
investments due to high consumer demand. Rate of foreign investment could also increase.

POTENTIAL ENVIRONMENT BENEFITS:
When the economic growth is good and the countries are generating more revenues and can
invest their resources in cleaner technologies. Environment friendly products could be produced
and many activities for the welfare of natural environment can be done.

IMPROVEMENT IN WELFARE:
When the economic condition of any country is good and there is a noticeable increase in
economic growth, it leads to the countrys ability to provide support for homeless, needy and
orphans.



Page 6 of 8

COSTS OF ECONOMIC GROWTH
Economic growth does not come risk-free. If the economy grows too quickly, it can bring about
short and long-term problems. These problems are called costs of economic growth. Few of them
are briefly discussed below:
Inflation
Environmental concerns
Inequalities of income & wealth
Balance of payment deficit
Loss of land

INFLATION:
There is the danger of demand-pull and cost-push inflation if demand grows faster than long run
productive potential High and rising inflation can be destabilizing for an economy because it puts
pressure on interest rates to rise and can cause a loss of competitiveness for domestic businesses
in international markets.

ENVIRONMENTAL CONCERNS:
Expansion and growth brings with it the problems of pollution and congestion. Often developing
countries do not have the infrastructure to cope with the waste generated nor the legislation or
regulation to influence those who produce it. This will cause health problems such as asthma and
therefore will reduce the quality of life. Over farming results in reduced productivity of soil and
slowly and gradually there will be less available soil for production purpose. Deforestation is
another issue leading to low rate of rain fall and resulting in increased temperature. Growth of
economic structure also damages the eco system.

INEQUALITIES OF INCOME & WEALTH:
Not all of the benefits of growth are evenly distributed. We can see a rise in real GDP but also
growing income and wealth inequality in society which is reflected in an increase in relative
poverty. Growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to
the economically weak. This will widen the income distribution in the economy. Although
average living standards may be rising, the gap between rich and poor can widen leading to an
increase in relative poverty and a widening of the gap between different regions.

BALANCE OF PAYMENT DEFICIT:
Increased Economic growth causes an increase in spending on imports therefore causing a deficit
on the current account.
Page 7 of 8


LOSS OF LAND:
Increased output puts further pressure on the available land. This may gradually erode the
available countryside. For the construction of new roads, buildings etc available land is used or
forests are being cut down. In this way a lot of land gets wasted.

CONCLUSION
We have specifically discussed the different aspects of economic growth in a country. The rapid
industrialization, increase in output level, increase in education, health and skills of citizens
exhibits the expansion of an economy. Apart from these factors and agents there are various
other growth inhibitors stimulating economic progress. All these factors are on one side but the
cost which the countries get to pay in order to gain this progress in not negligible. As we say
with every power comes responsibility, the companies do use their power to gain maximum
profit but sadly forget to keep the environment safe and clean for good and healthy life.

Page 8 of 8

REFERENCE
1) http://en.wikipedia.org/wiki/Economic_growth#Definitions_and_history
2) http://www.economicshelp.org/macroeconomics/economic-growth/costs.html
3) http://www.economicshelp.org/macroeconomics/economic-growth/benefits-growth.html
4) http://tutor2u.net/economics/revision-notes/a2-macro-economic-growth-costs-benefits.html
5) http://tutor2u.net/economics/revision-notes/as-macro-economic-growth.html