Economic growth is important for the average person—whether you want to know how much more money is in your bank account or whether your house is worth more than when it was bought. It’s also important for governments, whose policies affect the overall size and strength of an economy and the material standard of living that citizens enjoy.
There are several ways to boost economic growth. One is to increase the number of workers—which requires that someone save enough to employ them or to invest in their training and education. Another way is to increase the productivity of existing workers. This can be accomplished through capital goods—machines, factories, and offices—or intangibles like research and development. Laborers can also become more skilled at their work—which increases productivity through practice, training, and better tools.
But even if all these factors are in place, there is one fundamental requirement for economic growth: A sufficient amount of energy must be available to produce the added output. This can be supplied by a combination of native population growth and international investment.
Currently, the global economy is growing at an exceptional rate. But if that pace is not maintained, the world’s prosperity could start to falter. The McKinsey Global Institute recently published a report on the future of productivity and growth that points to the need for increased worker productivity for GDP to continue to grow at its current fast pace. That’s because as the population ages, the potential labor force will shrink relative to the total population and each worker will have to produce more output for GDP to keep growing.