What Are the Different Methods of Economic Growth Analysis?

John Lister
John Lister
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Businessman giving a thumbs-up

Economic growth analysis is the practice of keeping track of changes in an economy's output and using this data to assess the effects of policies and events and make future forecasts. There are several ways of calculating economic growth, based on production, income and expense, though theoretically the results should be the same. Differing forms of economic growth analysis contrast the production within a country with the production by a country's businesses, and between the absolute production figures and the figures per head.

The most common form of economic growth analysis involves calculating gross domestic product, which is the total value of all services and goods that are produced in an economy during a particular time. Most measures only use final goods, meaning for example that if a chair manufacturer bought timber and turned it into a chair to sell to a customer, only the value of the chair would be included.

There are three main ways of measuring GDP. One is to add up the total of all sales, then deduct the total expenses of producing those goods and services. Another is to add up all the money people receive in wages, money received in rent or interest, and company profits. A third is to calculate all the money that has been spent, whether that be consumers buying products or services, companies making investments, or government spending. In theory at least, these are simply three ways of looking at the same overall set of transactions relating to production, and thus should come to the same total value.

Some forms of economic growth analysis involve dividing the GDP by the number of people living in the country to produce GDP per capita. This is often presented as a measure of the standard of living in the country, allowing comparison to that of other countries. Critics of such analysis argue that it only measures production and doesn't take into account how evenly the results of that production are spread among the population. This may mean that the majority of people in a country with a higher GDP actually have lower living standards than the majority in a country with lower GDP but more evenly distributed wealth.

One variation of economic growth analysis looks at countries as a political or social grouping rather than just an area of land. This involves using a slightly different measure named gross national product. This discounts products made by foreign firms within the country's borders, but includes products made by domestic firms in overseas facilities.

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