What Is Economic Growth

what is economic growth

The issue of economic growth arouses some apprehension in Western democracies and Italy in particular. Although the advocates of the degrowth theory have criticized economic growth as the model underlying the market economy, in essence, this model still represents the primary method for measuring changes in the degree of financial OK – being of a population. If there is economic growth, the community will be better in the medium to long term. Simultaneously, if there is no growth because the economy is stagnating or in recession (i.e., stagnant or contracting), the population’s well-being is in decrease.

The topic of economic growth is part of the broader concept of economic development, which considers a more comprehensive range of statistical indicators, able to measure both the degree of development of an economy and the quality of life of the population (i.e., the surveys also include aspects and changes in the characteristics of the economic system).

What Is Economic Growth: The value of economic growth

Growth and distribution of wealth

Economic growth is a measure of the development of a country’s overall wealth. Still, it does not consider the distribution of wealth or its positive or negative variations.

There may be sections of the population that impoverish even in healthy economic growth and community areas that enrich a phase of economic recession. But it is also true that families are more likely to maintain or improve their living standards when sustained economic growth. While the risk of seeing their living conditions deteriorate significantly increases in the absence of change or during a phase of recession.

What Is Economic Growth: Growth and technological development

Economic growth should be seen as a necessary condition for maintaining and possibly improving the population’s welfare.

Indeed, several theories and economic models argue that a closed financial system, in the long run, grows automatically due to technological progress, i.e., economic growth is inherent in the design and does not depend on other variables. If the economy is working, it must grow or, conversely, if the economy is not growing, it means that it is sick and not working as it should.

Growth and globalization

Suppose economic growth in a closed economy is intrinsic, even more, so an open financial system should have a positive growth rate. A free economy is subject to the tensions generated by trade and international competition, so the lack of economic growth could compromise the financial system’s balance, making it more fragile and exposed to economic shocks coming from outside.

Furthermore, the increasing globalization of financial markets and capital mobility favors investments in countries with a high growth rate.

What Is Economic Growth: Growth and psychology of the masses

The socio-economic effects of growth are also the right motivation for maintaining a positive economic growth rate.

Since confidence and expectations play a fundamental role in economic performance, profitable economic growth generates a favorable climate and positive investment expectations that attract new investors and create a virtuous circle. Conversely, an economic downturn reverberates and amplifies its adverse effects by alienating investors and causing the financial crisis to spin on itself.

What Is Economic Growth: Growth and internal politics

From an internal policy perspective, economic growth represents a driving force without which it becomes tough to implement redistribution policies of wealth, reductions in public spending and tax pressure, and, in general, all those reforms that could have recessionary effects on the economy.

Therefore, supporting economic growth is a fundamental political goal for any democratic government, just as in the event of economic stagnation or recession, it becomes a top priority to regain a positive growth rate as quickly as possible. The permanence of a nation is a condition of severe economic downturn for long periods that could even compromise its democratic institutions’ stability, as demonstrated by recurring political situations throughout history, which have degenerated due to financial crises.

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Growth and the labor market

Economic growth is an essential variable for many political issues, but the labor market and social protection are of particular importance.

The absence of economic growth is almost always associated with an increase in unemployment, particularly youth unemployment, while determining the expansion of the social protection system’s interventions, which, in the event of a severe and persistent economic recession, could become unsustainable.

Among the effects on the labor market of prolonged stagnation or recession, we must also include the probable factual deterioration of working conditions and workers ‘ rights.

Growth and economic policies

The management of interventions aimed at stimulating or restarting economic growth has become one of the main tasks of modern states, which have generally adopted economic policies based on the Keynesian theory since the Second World War. This theory assigns state intervention and public spending a decisive role in supporting economic growth by expanding aggregate demand. This revised theory in some of its aspects is still valid today.

Public and private investment is the main driving force of economic systems. Through acquisitions in a broad sense, economies can expand their inputs to introduce technological innovations in processes. As previously mentioned, technological innovations can determine economic growth even with the same resources used since they choose productivity growth, that is, an increase in the production process’s efficiency.

Incidentally, it is necessary to highlight how technology and process innovations can generate growth in overall wealth that is not automatically transferred to most of the population; on the contrary, it could happen the opposite for which the redistributive function of the State becomes fundamental.

To increase investment and stimulate economic growth,

Modern states have developed a series of tools that are essential for three types:

  • monetary policies
  • fiscal policies
  • structural reforms
  • Monetary policies

They consist of using money management to foster economic growth. The modulation of the interest rate interbank is instead used by central banks to stimulate economic growth by lowering the cost of money (so it is possible to find the capital to invest at lower prices) or, on the contrary, by raising the value of money to keep inflation under control.

With the creation of the single European currency, the EU Member States have delegated the management of monetary policy to the European institutions and specifically to the ECB ( European Central Bank ), on the one hand giving up the possibilities that the autonomous management of the currency allows, from other by gaining monetary stability and free movement of goods and services. Indeed, the ECB has implemented expansionary economic policies both through long-term refinancing operations (LTRO) starting from 2011, and through Quantitative Easing procedures beginning in 2015 (QE is an unconventional monetary policy tool that replaces the classic lowering of interest rates, since these already very low).

Tax policies

The fiscal policies consist of state interventions that act on the state budget. Both in terms of its reduction by reducing. the tax burden, or the revenue (a substantial lowering of taxes for the same public spending would increase investments) and in sense of an expansion of public spending financed through an increase in public debt (financing higher public spending with an increase in the tax burden could erode the benefits of the increase in spending).

The increase in public spending, which also consists of direct investments. Increases aggregate demand which in turn increases public and private investment.

Also because the “roadmap” towards greater European integration requires compliance with regulations and budgetary constraints established for all EU countries. Including the progressive reduction of public debt for countries with a debt / GDP ratio greater than 60%.

On the other hand, a substantial reduction in the tax burden. Although desirable and to some extent necessary to bring the Italian tax authorities. Into line with that of other European countries, could not be financed. With further debt and would lead to immediate cuts. In public spending which would have a recessionary impact. on the economy.

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Structural reforms

The structural reforms consist of the State regulatory actions aimed, on the one hand. To increase the productivity of the public sector and private sectors regulated by state standards inefficient or ineffective. The other to improve the environment in which it operates the company making it more attractive to investors. For example, it is possible to improve the environmental context. In which companies operate by intervening in the organization of transport and the management of communication infrastructures.

Through regulatory interventions of reorganization and reform, it becomes possible to raise the overall productivity. Of the economic system and generate economic growth without necessarily increasing public spending. However, structural reforms need a certain amount of time to take effect.

In terms of reforms, Italy has many sectors in which to improve. As it lags far behind the more advanced European countries. As evidenced by the Italian productivity indices which are even below the European average.

In fact, in those years, politics was not even able to adequately defend Italian interests in European institutional settings. For example in the field of agriculture, typical products, and “made in Italy” in general.

Work and productivity

Creating quality jobs is one of the biggest challenges globally. In the last quarter of a century. Despite some progress in reducing the number of workers living in conditions of extreme poverty, very serious situations remain. Unemployment has risen to 202 million people, including over 75 million young people. This scenario puts communities and social relations at risk and forces. The various countries to reorganize their economic and social policies. A chronic lack of job opportunities hinders economic productivity, innovation, and technological progress. Furthermore, there is a significant gap not only in the employment rate but also in the inactivity rate. The percentage, according to data from the World Labor Organization (ILO), is over 21% globally.

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Protect the right to work

Objective 8 of the 2030 Agenda aims to develop aspects that are not always compatible with each other. Economic development and GDP growth can, in fact, favor social inequalities. If they are not accompanied by policies of inclusion. These agencies provide support to governments in creating policies geared towards sustainable development, countering forced labor, and eradicating child labor.

For sustainable work

Economic and sustainable growth requires all governments to create conditions. That stimulates various economies and at the same time do not harm the environment. One of the goals of the Agenda, in fact, is aimed at improving. By 2030, global efficiency in the consumption and production of resources. To achieve all the goals, support is also provided for commercial activities. With particular attention to new strategies for the promotion of sustainable tourism that creates jobs. Promotes culture, and enhances local products.

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International policies recognize the social enterprise as one of the most suitable organizational forms to satisfy. The growing need for services in the context of reduced public spending. Promoting new opportunities for good employment. That takes into account the evolution of welfare systems and the revaluation of the territory.

  • What is social enterprise? • How does a social enterprise enhance the local reality in which it operates?


Create a presentation with your classmates in which data and information. On the major national and international realities of social entrepreneurship emerge. The ultimate goal is to facilitate understanding of the conditions under. Which social enterprises are born, develop, and solve social challenges in a sustainable way.

  1. Start research on the topic together with your classmates. Paying attention to the following keywords: social enterprise, biodiversity, innovation poles, local governance.
  2. Analyze the official reports concerning social enterprises: after careful analysis. Extrapolate information on the employment structure for each selected entrepreneurial reality (sector of activity and number of employees).
  3. Choose at least one social enterprise per group and make a presentation for each. Structure it according to the following arguments: a. preparation and acceleration: what are the objectives of the entrepreneurial project? What are the strategies that the company has used to spread its proposal? How did you collaborate with the networks? b. events: how have social entrepreneurs encouraged the motivation to change and attract new partners?

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