Economic Growth Over Time and Around the World

You live in a world that is very different from the world your grandparents lived in when they were young.
  • You can listen to music on your smartphone, while your grandparents played vinyl records on a record player.
  • You can buy a DVD and watch your favorite movies as many times as you want to, or download a movie from the Internet, while your grandparents could see movies only in a cinema.
  • You can send an email to someone in another city, state or country, while your grandparents posted letters that took days or weeks to arrive.

More importantly, you have access to health care and medicines that have prolonged life and improved its quality.

In many poorer countries, however, people endure grinding poverty and some do not even have the bare necessities of life, just as their great-grandparents did not.

The difference between you and people in poor countries is that you live in a country that has experienced substantial economic growth.

With economic growth—growth in real gross domestic product (GDP)—an economy produces increasing quantities and types of goods and services.

Real GDP per capita is the best measure of a country’s standard of living because it represents the ability of the average person to buy goods and services.

We recognized that economic growth Opens in new window is not the only contributing factor to an increased standard of living; leisure time, health, education, environmental quality and other factors are also very important.

However, it is only through economic growth that living standards can increase. Through most of human history no economic growth took place. Even today, billions of people are living in countries where economic growth is extremely low.

Economic Growth from BC to the Present

For thousands of years BC our ancestors survived by hunting animals and gathering edible plants. Farming was many years in the future, and production was limited to food, clothing, shelter and simple tools.

Economist Bradford DeLong estimated that in these primitive circumstances GDP per capita was only the bare amount necessary to sustain life, and remained that way until the year 1300 AD.

In other words, no sustained economic growth occurred for thousands and thousands of years. Peasants toiling on farms in France in the year 1300 were no better off than their ancestors thousands of years before.

In fact, for most of human existence the typical person had the bare minimum of food, clothing and shelter necessary to sustain life. Few people survived beyond the age of 40, and most people suffered from severe tooth decay, lice and debilitating illnesses.

Significant economic growth did not begin until the Industrial Revolution, which started in Britain during the mid to late 1700s.

Industrial Revolution designates the application of mechanical power to the production of goods, beginning in Britain during the 1700s.

The production of cotton cloth in factories using machinery powered by steam engines marked the beginning of the Industrial Revolution.

Before that time production of goods had relied almost exclusively on human or animal power. The use of mechanical power spread to the production of many other goods, greatly increasing the quantity of goods each worker could produce.

First Britain, and then other countries, such as the United States, France and Germany, experienced long-run economic growth Opens in new window, with sustained increases in real GDP per capita that eventually raised living standards in these countries to the high levels of today.

Australia was colonized by the British in 1788, from which time onwards production techniques and mechanization from Britain was adopted, which became the major contributor to Australia’s path of long-run economic growth.

Figure I shows how growth rates of real GDP per capita for the world have changed over long periods.
Figure I, Average annual growth rates for the world economy Figure I, Average annual growth rates for the world economy | Source: the Internet

Prior to 1300 AD there were no sustained increases in real GDP per capita. Over the next 500 years to 1800 there was very slow growth. Significant growth began in the nineteenth century as a result of the Industrial Revolution.

A further acceleration in growth occurred during the twentieth century as the average annual growth rate increased from 1.3 percent per year to 2.3 percent per year.