Economic growth is a long run concept. It is usually defined as an increase in real Gross Domestic Product (GDP), that is, GDP adjusted for inflation. In other words, it is as an increase in the real value of goods and services produced in the economy. For comparing one country’s economic growth to another, GDP or GNP per capita should be used as these take into account population differences between countries.
Economic growth can be shown by an outward shift of the Production Possibility Curve (PPC). Economists see dissimilarity between potential and actual growth rates. Potential economic growth represents maximum efficiency with resources. It is determined by the factors of production that a country has as its command. However, actual growth represents resource utilization in practice and shows the result. This is determined by how effectively factors of production available to a nation are developed and combined. There are many factors which determine economic growth in a country.
Determinants of Economic Growth
Countries which are gifted with natural resources are expected to have rapid economic growth, assuming that these resources are employed for the production of goods and services. However a large amount of natural resources is not adequate to guarantee economic growth. There are a number of less-developed countries which have high natural resources, but still due to various reasons, they have not been successful in exploiting them. To benefit from economic growth, these natural resources must be converted to useful forms, which will need people to be equipped with appropriate skills.
Human capital and education are considered to be necessary conditions for economic growth. The rise in productivity needed for economic growth can be achieved by increasing domestic human resources through education and training. Skills acquisition and the ability to keep on learning throughout the lifecycle are needed to develop individuals. Developing human resources through education and training is considered to be a long term process which will upgrade the innovative capacity of an economy. Apart from affecting factor of production, education and human capital can also have impact on factors such as physical capital and natural resources. There is a proposition that the economy can experience long-run economic growth if the government designs policies toward the promotion of education and human capital. It is also pointed out that the accumulation of human capital – specially, knowledge – is a key factor in explaining the growth experiences of countries.
Capital accumulation refers to buildings, machinery, infrastructure and the amount of tools available to the economy. A necessary prerequisite for economic growth is a large capital stock. Developed countries do spend a significant amount on capital formation. For example, in UK in the year 1998 and 1999, 12% of annual GDP was spent on fixed capital. Capital is a major factor affecting growth. The more an economy has as capital, the more it can produce and the higher will be real income. If there are few machines available, a nation will be able to make fewer goods and services. More machines will mean more income can be generated.
The most important determinant for an economy to grow is associated to its pace of technological progress. This is because with technology, we can obtain more output from same amount of input as before. Neoclassical economists regarded technological progress as a critical source of economic growth. Economies must invest in knowledge just as they must invest in fixed capital. The productivity of capital can be increased if machinery is updated so that firms use the latest technologies available. Technological advances are encouraged when there is investment in research and development.
Zimbabwe's Economic Growth
The government of Zimbabwe had looked towards economic reforms under the Transitional Stabilisation Programme (TSP), including re-engagement and investment promotion efforts to put Zimbabwe on a firm pedestal for economic growth from 2020 onwards. "Implementation of reforms outlined in the TSP is on course, with notable milestones on fiscal consolidation, monetary policy restoration, liberalisation of the foreign exchange market, structural and governance reforms, re-engagement, investment promotion and support for the productive sector," he said.
The government had hope that maintaining stable exchange rates and increasing the availability of fuel and electricity was part of efforts to achieve 3 percent economic growth in 2020. Improving commodity prices for major exports, especially the gold price which rose to US$1 545,50 a troy ounce (just under US$50 a gramme) in January 2020, were also primed to spur economic growth by boosting export earnings.
Incentives such as the $500 million Venture Capital Fund and $240 million allocated to the Industrial Development Corporation (IDC) were to be exploited by industry to drive economic growth. Further, a fiscal incentive — Youth Employment Tax Incentive (YETI) — was introduced through the 2020 National Budget to support employers who generate jobs for people under 30 years.
- Africa Moyo, , Herald, Published: 15 January, 2020, Accessed: 28 October, 2020