Economic growth is an increase in the production of economic goods and services over time.

Basic Requirements

Economic growth generally requires a specific set of factors.

• Rule of law - Laws must be clear, public, fair, and enforced
• Protection of property rights
• Contractual rights

Contributors to Economic Growth

Increase in labor productivity

Sustained long-term economic growth comes from labor productivity. It is the value that each employed person creates per unit of their input.

It is based on these factors:

• Human capital
• Technological change - A combination of invention and innovation
• Economies of scale

Increase in physical capital

Physical capital includes the plant and equipment that firms use as well as infrastructure.

An increase in physical capital can affect productivity in two ways:

1. Increase in quantity
2. Increase in quality