What Are the Benefits of Economic Growth?

Many of the financial or fiscal policies set in place by government agencies are designed to spur economic development, or encourage economic growth. While the effects of economic growth are widespread, one of the primary benefits is an improvement in the standard of living. As the economy grows, the people in that economy enjoy greater income levels, increased confidence and ultimately, a better quality of life. In a developing country, the benefits of economic growth may be as simple as greater nutrition and greater access to education or housing. In a more highly developed country, the benefits of economic growth typically include increased employment, higher income per capita and greater confidence on the part of businesses and investors.

One of the first benefits of economic growth is an increase in employment levels, and a reduction in unemployment. This means that more people who want to work are able to find jobs. As unemployment levels decrease, the demand for skilled workers puts natural pressure on wages, causing them to rise. When the economy grows, people are not only more likely to find jobs, all workers benefit from the general increase in wages.

An increase in income levels is another of the most important benefits of economic growth. With rising wages and lower unemployment rates, people have more money to spend. Whether this money is spent on things like groceries and housing or luxury goods, an increase in income levels generally results in an increase in aggregate demand. In a free-market economy, companies react to this increased demand by expanding production. This helps to perpetuate the increase in new jobs and further improve income levels.

A drop in unemployment and a higher rate of income often leads to increased tax revenue. This means that the government has more money to spend on things like roads, police, and social services. Government leaders may also decide to invest this revenue in economic development or education, both of which can spur further economic growth.

Perhaps one of the greatest benefits of economic growth involves an increased sense of confidence that comes with higher income. As people make more money, they are more likely to invest in stocks and other financial instruments. They also have more money available for savings. Both investment and savings can be used to fund new businesses, or to help existing businesses finance new capital improvements. Both of these types of funding lead to job creation, a rise in income, and sustained economic development.