Economic growth is the increase in the overall market value of a country’s goods and services. It manifests itself in higher incomes, inspiring consumers to open their wallets and buy more. This in turn drives a higher material quality of life and standard of living.
The main indicator of economic growth is gross domestic product (GDP), a measure of the total market value of all the goods and services produced in a country during a given period, adjusted for price inflation to provide a comparable basis for comparison. Other indicators of economic growth include labor productivity, which is the amount of output a worker produces per unit of time; and capital productivity, which is a measure of how efficiently or productively a piece of physical equipment—such as a computer or a fishing net—is used.
One way to generate economic growth is to grow the labor force—by either expanding existing numbers or attracting additional workers from abroad. This approach has yielded historically robust GDP growth, notably in developed economies during the last 50 years, when the world economy expanded sixfold and average per-capita income almost tripled.
However, this type of growth will become increasingly difficult to sustain in the future, as population growth slows and aging workers enter retirement. McKinsey Global Institute research shows that accelerating productivity is the key to maintaining growth. This can be achieved by encouraging bolder corporate action to prioritize efficiency, and by increasing the number of workers—by attracting new entrants into the workforce and making it easier for people to find jobs.