The Meaning And Measurement Of Economic Growth

Economic activity is concerned with the provision of goods needed to satisfy human wants, individual and collective.

Economic growth of a firm, a region, a nation, means (Whatever else it may imply a sustained increase into eh output of such goods. It must be nacres, if it is to represent growth rather than decay or stagnation. And the incise must be in the volume of product, form the standpoint of nicety based on rationale for economic activity. Furthermore, the incise must be sustained over a period of time long enough to reflect more than a cyclical emphasis, an unusually large harvest, a post-calamity recovery, or some other transient rise.

This definition is quite general. Being so general, it sis hardly useful as a preliminary lesson to the topic of central interest i.e. the growth of nations in the last one and a half or two centuries .modern economic growth has two distinctive features: in all cases it involves a sustained and substantial rise in population. In the more distant pat, economic growth meant, in many cases, a substantial rise in population and in total product, but not in per capita product; it was usually a result of reduced population pressures following drastic decline numbers. TO repeat, the distinctive feature of modern economic growth is the frequent combination of high rates of growth of ht total population and of per capita product, implying even higher rates of growth of total product.

The emphasis on a sustained and substantial rise in per capita product is particularly important because of its implications for the structure and conditions of modern economic growth. Given the structure of human wants, a cumulatively large rise in a country’s per capita product necessarily means a shift in relative proportions of various goods demanded and used, and hence major changes in combination soft productive factors, impatiens of life, and in intentional reactions. Furthermore, arise nipper capital product usually means an even larger rise in product per unit of labor input-since some of the  extra products ordinarily exchanged for more leisure, a concomitant of a higher standard living .However, marked rise I product per unit, when population and therefore labor force are increasing, are usually possible only though major innovations, i.e., applications of new bodies of tested knowledge to the processes of economic production of tested knowledge to the processes of economic production . Indeed, modern economic growth is, in substance, an application of the industrial system, i.e., a system of production based on increasing guise of modern scientific knowledge. But this also means structural change as new industries appear and old industries recede in importance-which in turn calls for the capacity of the society to absorb such changes; society must beagle to accommodate itself to adopt the successive innovations than traipse per capital productivity. Thus these in the structural changes than necessarily accompany it, and all that these changes imply because of their origin technological innovation and because of their requirements in the of society’s adaptability to change. 

Difficulties in measuring economic growth, supply of empirical data apart, lie precisely in this point; modern economic growth implies major structural changes and correspondingly large modifications in social and institutional conditions under which greatly the increases product per capita is attained. Yet for the purposes of measurement, the exchanging coronets of the structure musket be resourced to common denominator; otherwise it would be impossible to compare the product of the economy of a prosperous country like the United States to than of a developing country like China, or the product of advanced country today, with the output a century ago before many of the good s and industries than loom so large today were not known.

The numerous problems than arise n an attempt to reduce national  products of differing composition, originating under different social condition, to comparable agrees that are divisible into additive parts, can scarcely be mentioned, let alone discussed. We can assume familiarity with the questions of scope, in respect of net sales distinguished form gross sales as the basis of evaluation, that are usually treated in discussing conceptual problem in measurement of national product; and by subdivision of industry of origin, etc, that yield  the component classifications usually distinguished. It is important, however, to point our the major assumptions on the basis of which these thorny, and essentially insoluble problems are solved in actual measurement.

The basic assumption is the community of human nature in than the weights attached to various outputs, or production factors, although taken forms one or a few societies, have meaning for all or at least most of them. This is clearly a prerequisite for all comparisons over space or time. If we assumed that people today are radically differ for their forebears of fifty to hundred years ago, no meaningful comparisons over time could be made. Or it we assumed that the inhabitants of the USA and those of the Russian Federation are so different that food, clothing etc., or layout and capital goods, mean quite different things to them, comparison of this national product of the two countries would be impossible-unless it referred to some exogenous base of valuation with no specified meaning in either country.

Secondly, in actual applications, the sets of concepts and weights employed are those of one or a few economies. Or of one or a few point sin time. The weights chosen are those of the more developed rather than the less developed economies, of the more recent points of time, rather than the earlier? In the measurement of changes over retime, a product is usually expressed in constant prices in recent years and not in prices of the past. There is a rationale for these choices, over and above the practical convenience of ht greater availability of data for the advanced economies and or recent years. We evaluate economic growth form the vantage point of ht higher levels already attained-both in looking back into time and in  looking a t the lower levels of less advanced economies; we live today and not in the Eastland the less advanced economized aspire to the level so the more advanced, not vice versa. In other rewords the more advanced economies and the more recent times yield the criteria of economic growth.

Thirdly , it has generally been emphasized than the use of weights and concepts topical of advanced economies or of recent decades, introduces a bias into comparisons than favors these more advanced units or more fecent periods. This upward bias has been ascribed to the obvious danger of excluding fromth emeasures non-markey-bound activities that are proportionately much greater in less than I more advanced the fact that our measures do not man  full allowance for the costs of the higher levels of output-greater costs of urban life, of accommodation to the job etc.- which may be proportionately greater for advanced economies and for the more recent decades. There are also factors making for an opposite bias. Thus the use of recent price weights tends to yield a lower rate of growth, in so far as the goods that grow more rapidly are also those whose prices usually decline. Likewise, the use of the price weights of the advanced countries tends to give many raw materials and simpler goods in the underdeveloped countries higher standing (relative to the complex manufacture products) than they in fact have, and since the proportion of such goods is larger in these countries, there is an upward bias in valuation relative to that in the more advanced economies. One should not, therefore, jump to the conclusion the common basis of valuation is and treatment in the international and interposal comparisons produces a bias that favors uniformly the more advanced economy or the more recent period. Indeed from the standpoint of the less procedures may underestimate the differences across space or the growth over time.

Whatever the case, the conceptual and other difficulties of measurement do not justify the refusal to measure and the substitution of a cavalier treatment of uncontrolled impression (even if embodied in apparently precise mathematical models) for the strenuous task of empirical corroboration and testing. Despite the limitations resulting from a scarcity of basic, underlying data, and from concepts than tare outmoded because or a serious cultural lag, much can be learned by a determined scrutiny of the data- provided that one looks at them with significant questions in mind and is sufficiently familiar with the characteristics of both the data and the underlying processes. Whatever mistakes one may make in the process-and they will be many-can at least be corrected.