Economic growth has long been a central issue in public policy, with elected officials in advanced and developing countries all striving to increase the prosperity of their citizens. But the underlying dynamics of economic growth remain poorly understood.
A common explanation of economic growth is that as physical capital (machines, buildings, etc) accumulates over time, they become more productive and produce greater amounts of goods and services. But to generate more productivity, someone must first save or invest to create the new capital, and then that capital needs to be activated by workers in ways that make it useful. That requires a lot of entrepreneurship, and it is not always easy to do.
Another way to generate economic growth is by increasing the labor force. More workers mean more economic goods and services. This can work under certain conditions, such as when a large influx of cheap, productive immigrants is available to do the work. But more generally, for a country to grow by generating labor-driven output, it must have the capacity to support the additional workers by creating the jobs and providing the raw materials they need to survive.
Finally, some economists also think that economic growth is facilitated by technological progress that makes it possible to achieve more output with the same amount of labor and capital. This is why some poor ‘follower countries’ can catch up to rich ‘leader countries’ despite starting modern economic growth later.