Economic growth can be defined as the increase in the capacity of an economy to produce goods and services. There is no agreed-upon ideal growth rate for a country or best way to achieve it.
Factors of Economic Growth
Different economists and sources have different ideas as to what drives economic growth. The following are a few explanations. The following are several measures that the United States has employed to promote economic growth: Consumer spending, Business investment, Tax cuts, and tax rebates, Deregulation, and Increasing infrastructure spending.
Another way to look at how to achieve economic growth is by increasing the quality and quantity of the four factors of production. The factors of production are the resources used in creating goods and services in an economy. These factors are Land, Labor, Capital, and Entrepreneurship. Additionally, the four following methods can lead to economic growth:
Increase the amount of physical capital, Make technological improvements, Grow the labor force and Increase human capital
Measuring Economic Growth
Economic growth is most commonly measured by real gross domestic product. GDP is the total monetary value of all goods and services produced in a specific period within a country’s borders. GDP provides a snapshot of a country’s overall economic health. Real GDP means that GDP has been adjusted for inflation. Growing an economy means manufacturing more goods and providing more services than during a previous period. To do so, it is important to consider not only the number of goods but their value as well. For example, a smartphone is worth more than a t-shirt. Additionally, not all individuals place the same value on certain goods as others do.
Here are the fastest growing economies in the world
India: With an estimated average growth of 7.2 percent from 2021 to 2025, India is expected to record the fastest economic growth among the 132 countries over the next five years. While the country was hit hard by the Covid 19 pandemic and an ensuing harsh lockdown last spring, infection rates have fallen sharply in recent months, the domestic vaccination campaign is now underway, and recent economic signs such as PMI readings and trade data are encouraging. Surging consumption, investment, and exports will spur growth in the coming years, while a supportive base effect in 2021 following 2020’s collapse will also play a role. Moreover, recently announced structural reforms, such as the aim of privatizing state-owned banks, allowing greater foreign participation in the insurance sector, and market-oriented agricultural reforms, pose upside risks. That said, there are doubts over the political commitment to see the reforms through, while poor infrastructure will continue to impede growth. In addition, the decision in late 2019 to bow out of the Regional Comprehensive Economic Partnership a free trade pact recently agreed between ASEAN countries, Australia, China, Japan, New Zealand, and South Korea could hamper the external sector somewhat.
With Covid 19 in check, the economy has already normalized faster than expected. Front-loaded and higher government spending lagged effects of easier financial conditions, faster global trade, and ongoing vaccinations should all combine to lead to a sharp pickup in cyclical growth.
Bangladesh: With an estimated average growth of 6.9 percent from 2021 to 2025, Bangladesh has weathered the Covid 19 crisis comparatively well While growth momentum was hit last year by lower garment exports, robust remittance inflows, and recovering industrial production have aided the recovery in recent months. Looking forward, rapid export growth and stronger domestic demand should drive the economy. Moreover, the country will continue to be blessed with favorable demographics: Past success at reducing fertility rates has seen the dependency ratio of the working age population to the population not in the labor force plummet in recent decades, aiding productivity and boosting public coffers. That said, slow progress in vaccination poses a downside risk.
The expected return of Bangladeshi workers to their workplaces abroad will prevent remittances from plummeting; this, in turn, will keep private consumption elevated. Higher investment spending stemming from a raft of ongoing infrastructure development projects and a pick up in domestic activity will also support growth. The ongoing domestic recovery will be flattered further by positive base effects in the second half of the fiscal year, compared with the period of coronavirus-induced lockdown in the same period in 2020. Downside risk to our forecast comes from a potential rise in the coronavirus caseload in Bangladesh, which could prompt the government to deploy blunt containment measures once again. We do not expect growth to match the pre-pandemic range of 7 to 8 percent before 2022 to 2023 according to Economist Intelligence Unit.
Rwanda: With an estimated average growth of 6.7 percent from 2021 to 2025, Rwanda’s economy has come a long way since the genocide of the early 1990s, which ripped apart the country’s economic, political and social fabric. Nominal GDP has risen from 2 billion dollars in 2000 to 10 billion dollars in 2019. While the Covid 19 crisis has certainly truncated progress over the last twelve months amid lower FDI and business closures, our panelists see real GDP growth averaging 6.7 percent from 2021 to 2025. Activity should be supported by surging investment. However, a fragile fiscal position, low domestic savings, and expensive energy pose downside risks. Moreover, the country’s impressive development in recent decades has relied heavily on the leadership of Paul Kagame: An eventual end to his premiership could spell greater uncertainty. Regime stability appears assured over the short to medium term. The disruptions and economic impact of the Covid 19 pandemic do not appear to have altered public sentiment significantly, but challenges remain. Developments in and relations with neighboring countries remain a potentially destabilizing factor. Questions over President Padestabilizinguccession remain important and factionalism within the Rwandan Popular Front could arise over the long term. A managed transition to greater democracy remains a priority if the country hopes to avoid any shocks. according to Jee A van der Linde an economist at Oxford Economics
Vietnam: With an estimated average growth of 6.7 percent from 2021 to 2025, Vietnam has been one of East Asia’s star performers in recent years, spurred by a stable political climate, low labor costs, and a relatively skilled workforce. The country has been highly successful at luring FDI, particularly into the fast-growing electronics and garments sectors. Vietnam is also an attractive base for firms looking to relocate from China due to the U.S.-China trade spat and has signed a host of trade deals that boost market access for its goods, including recently the RCEP and an FTA with the European Union. Moreover, the country has impressively handled Covid 19, virtually stamping out the virus domestically, which allowed the economy to expand at one of the fastest paces globally last year. Over the coming years, the manufacturing sector should propel activity. However, a potentially slow recovery in visitor arrivals, exposure to external shocks, and the fragile health of leader Nguyen Phu Trong pose downside risks. Successful and early containment of the Covid 19 pandemic locally has allowed business activities to gradually resume normally in Vietnam, and this is reflected in the sequential improvements in various data releases. While the upward trend of economic activities is likely to continue in 2021, this outlook is highly dependent on the containment of the pandemic globally and the rolling out of vaccines. Other factors in Vietnam’s favor include the spate of free trade agreements that would help drive exports and investments further. Vietnam’s current efforts in digital transformation and promoting E-commerce, as well as the dynamic and abundant workforce are further positive drivers for the outlook.
Cambodia: With an estimated average growth of 6.6 percent from 2021 to 2025, economic activity has been spurred in recent years by surging garment and construction sectors, although the economy was hard hit by the pandemic in 2020 and likely contracted notably, amid income losses and lower tourism revenue. The economy should return to a strong growth trajectory this year as the impact of the pandemic fades and FDI remains strong, although high unemployment, tense relations with the EU the key market for garment exports, and elevated twin deficits pose downside risks. Longer-term growth prospects remain strong, with FDI continuing to promote new sector development as global production relocates away from China. The forecast shows GDP growth staying close to 7 percent in 2023 as international demand recovers, fuelling a rebound in investment with a strong FDI component. Resultant productivity gains can enable domestic income growth which defuses discontent, even if politics remain repressive, and promotes the expansion of net exports that keeps the current account deficit on its gradual downward course.