DriversGlobally, countries are continually seeking ways to stimulate economic growth as a means of providing jobs and improving living standards. At the most basic level, economic output depends on population size and output per person; each has accounted for about half the global economic growth since 1700.[1] Show
While population growth is linked to fertility, mortality and migration rates (GMT 1), productivity has more complex determinants. Today it is understood to depend on the development of four key forms of capital: human (knowledge, skills and health); social (trust, norms and institutions); manufactured (machinery and infrastructure); and natural (resources and ecosystems).[2] Often these capitals are complements, with the value of one dependent on the presence of another. For example, if natural resource wealth is not accompanied by effective state institutions, it can fuel corruption and weaken competitiveness, thereby undermining economic growth.[3] Equally, investments that augment manufactured capital are likely to be counter-productive if they degrade essential environmental systems. As Daly has observed, 'what good is a sawmill without a forest?'[4] Technological and social innovation plays a key role in the development of capital stocks, driving long-term growth. Examples include the development of tools and machinery, and aggregation of labour and businesses in urban settings, and the division of production processes into multiple stages handled by different workers. Such innovation increases productivity – enabling society to maximise the economic returns on finite inputs of labour and resources. Innovation is also at the core of structural economic change – the transition from largely agrarian economies through industrialisation to largely service-based structures. As a result of innovation and investment, several of the capital stocks underpinning economic output have been increased markedly in recent decades. In developed countries, manufactured capital was worth 2.0–3.5 years of national income in 1970 but increased to 4.0–7.0 years of national income by 2010.[5] Workforces also expanded. The global population of those aged between 15 and 64 tripled to 4.54 billion in the period 1950–2010.[6] Education, skills and human health are also improving, particularly in developing regions (GMTs 1,3). At the same time, however, natural capital is increasingly under pressure (GMTs 8, 9, 10). TrendsThe spread of global growthRapid economic growth is a comparatively recent phenomenon. Productivity increases were negligible before 1700, implying that economic output rose no faster than the very modest rate of population growth — about 0.1 % annually. In the 18th century, however, the agricultural and industrial revolutions in Western Europe caused a fundamental shift, initiating a steady acceleration of economic growth. By the first half of the 20th century, average annual global GDP growth had reached 2 % and this rose to 4 % in the period 1950–2008. As a result, world economic output increased 25-fold in the period 1900–2008.[1] Global growth in recent decades was made possible by the exceptionally rapid economic expansion in some very large developing countries, which were able to import knowledge, practices and technologies rather than going through the slower process of developing them domestically. China is the most important example – its economy grew by an average of 9.8 % per year in the period 1980–2013, doubling in size every seven years.[7] The financial crisis of 2008 and subsequent economic turmoil had a major impact on economic growth globally. Developed regions were hit hardest. In 2013, for example, the EU's economic output was still 1 % below its 2007 level.[7] Major developing countries including Brazil, Russia and South Africa also endured recessions, while others — notably China, India and Indonesia — faced an appreciable slow-down in growth. Many emerging economies have since proven to be remarkably resilient, however, sustaining global growth despite stagnation is most advanced economies. In 2007–2013, India's GDP increased by 46 % and China's by 68 %.[7] As a result, the financial crisis greatly advanced the rebalancing of economic production across the world (GMT 6). Decelerating growthFollowing the 2008 financial crisis, many uncertainties surround the short-term outlook for global growth. These include, for example, concerns about the quality of the domestic investment that have helped sustain China's growth since 2008, and worries about the prospects for continued economic integration in Europe, especially among the countries using the euro. Although annual growth rates may remain volatile, however, the broad direction of global growth appears clearer in the medium and long term. World economic growth is projected to remain robust in coming decades as investment in human, social and manufactured capital enable other countries to follow in China's footsteps. The Organisation for Economic Co-operation and Development (OECD) projects that global GDP will almost triple in the years 2010–2050 (Figure 1). In 2013, GDP per capita (PPP) in China stood at 22 % of the US level, while India's stood at 10 %. As those countries' huge populations continue to shift towards the systems of production and consumption present in today's advanced economies, the expansion in GDP is likely to dwarf even that achieved by the US during the past century. By 2050, India's economic output is projected to be just 14 % smaller than US economic output while China's is projected to be 40 % larger. Global economic growth is expected to decelerate steadily in the coming decades, however, from a post‑crisis peak of 4.3 % in 2017 to just under 2 % a year in 2050. Economic expansion in China is projected to slow particularly sharply, from an average of 7.9 % a year in 2010–2020 to 1.9 % in 2040–2050. Meanwhile, India is expected to become the fastest growing economy among Brazil, Russian, India, Indonesia, China and South Africa (BRIICS), with an average annual increase of 5.9 % in 2010–2050, although there too it is projected to slow to below 4 % by the end of the period. In the EU, demographic trends are projected to contribute to a fall in GDP growth, from 1.7 % a year in 2020 to 1.3 % in 2050.[8] Figure 1: Past and projected global economic output, 1996–2050 |