Firstly, here are a few extremely important definitions:
Gross Domestic Product (GDP) - The total value of Goods and Services produced within a country in a given period of time.
Gross National Product (GNP) - This is similar to GDP. The difference is that the total value includes Goods and Services produced by a nation's assets domestically and across international boundaries. Think about an Eastern European Tesco being controlled from the UK.
Economic Growth - When the value of what we produce year by year changes in some way. This means the GDP figure will change.
Note that although Growth implies a positive effect on GDP, the growth figure could also be negative if GDP decreases.
What factors contribute to GDP Growth?
Globalisation - 'Increasing the integration and dependence through trade of the World's Economies.' The idea here is that countries will develop from Specialisation. Taiwan specialise in manufacturing products and so attract Multinational corporations (MNCS or TNCs) from overseas. The UK specialise in banking and so people from all over the world are willing to open an account in the UK as it is more secure option. And so economies are reliant on each other.
Technology - If updated machinery is invested in this should improve efficiency and productivity and so output / capacity of G & S increases.
Capital Accumulation -Investment is required to increase production. Capital investment means cash is spent on goods used to make other goods which will boost output.
Natural Resources - It's great if you have an abundance of resources to use. If you manufacture cars, an abundance of iron ore deposits would be beneficial as raw materials don't have to travel far to be processed, and you don't have to import vast quantities of iron and steel from abroad. It also provides employment in the primary sector of the economy so everyone is a winner. Look at Saudi Arabia with its oil supplies...
However in some LEDCs such as Nigeria there is a paradox of plenty ('Resource Curse') which could decrease growth. Africa is mineral rich. There are diamonds, gold, coal and even oil but due to government mismanagement and corruption there are large conflicts as to whom has the rights to the resource deposits. Also due to large inward investments, the exchange rate makes other sectors of the Economy less competitive for obvious reasons.
Labour - Labour is a factor of production so is particularly relevant here.The size of the workforce and the skills and qualities that they possess will all influence GDP.
The size of the workforce will vary through Migration as workers from overseas seek work in your Economy. Also incentives such as low unemployment benefits and tax breaks for new workers encourage more to work as opposed to being voluntarily out of work. Finally structural changes will influence output. An ageing population has been a problem in the UK as it means there are more people consuming and a decreased number of the population are of working age. Baby Boomers are those who were born after the Second World War when the Birth Rate rapidly increased. Now pensioners, there is a huge strain on the government (e.g. state pensions) and less people are of working age.
Size has definitely assisted the Chinese Economy with their workforce of 1 billion people. 'Many hands make light work' or 'Many hands can produce more in a given time period.'
Savings - Don't let this one trip you up! Savings are usually a bad thing for the economy, right? In the Circular Flow of Income Savings are leakages. Surely we want investment in capital goods by firms and demand for these goods from households? Well, in theory a country needs a stable, safe and secure environment where people can save their money and hopefully this money will be used to boost growth in the long term.
Even with Positive GDP Growth, some groups argue against the figures...
UNSUSTAINABLE GROWTH - Say an economy relies on Logging. Although Lumberjacks may be producing loads of wood at the moment, it is unsustainable as wood is a non-renewable resource. It takes time to grow more trees. As the Economy here is built on an unsustainable source, there will be problems in the long term. So is this really Growth???
EXTERNALITIES - These are the effects on a third party arising from the production and consumption of a G or S. For example at Heathrow Airport, the producers ( Airlines) and the consumers (passengers) don't see any negative externalities but the local residents are affected by air and noise pollution. This is particularly relevant with the ongoing Third Runway Debate.
So fast growth causes negative externalities.
