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Economic Growth and the Living Standards Report


Introduction

Economic growth refers to the process through which improvement in an individual’s standard of living is achieved (Baumol, Litan & Schramm 2007, 34). During the 20th century, most of the developed countries such as the United States, United Kingdom, Germany, France and Japan experienced a rapid improvement in the citizen’s living standards.

This arose from the high rate of economic growth as a result of the high rate of industrial revolution and technological progress. For example, industrial revolution led into an increment in the level of productivity and labor efficiency. On the other hand, technological innovation led improvement in other economic sectors such as communication, transport and other utilities such as medical services.

According to Mercurio (2007, 437), economic growth has resulted into numerous advantages, conveniences and improvements in individual’s daily lives. Despite these benefits, further economic growth is unnecessary. This arises from the fact that there are a number of costs associated with economic growth (Yemstov 2007, 1). The resultant effect is that economic growth can be counterproductive.

According to Clarke and Islam (2004, 35), economic growth should not be considered as a Pareto activity. This is due to the fact that there are costs and benefits involved. Some of these costs relate to increased pollution, rise in inflation, depletion of scarce natural resources, widening in the gap between the poor and the rich.

Aim

The aim of this report is to illustrate how economic growth contributes towards improvement in the individuals living standards. However, the report argues that currently the level of living standards is so high and therefore further economic growth is unnecessary and can be counterproductive hence outliving its usefulness.

Scope

The report evaluates the various ways through which economic growth results into improvement in individuals’ living standards. In addition, the report also evaluates the various ways in which economic growth can be counterproductive.

Some of the counterproductive aspects evaluated relate effect of economic growth on natural resources. In addition, the report also evaluates how property development is negatively affecting individuals’ living standards. Finally, a conclusion of the entire report is given.

Analysis

Economic growth and living standards

Economic growth can be determined by measuring the rate of output for every factor input. Economic growth leads into an increase in the level of productivity. This arises from the fact that the level of employment is increased through creation of jobs in different economic sectors. This means that accessibility to income which is a key component in improving individuals’ living standard is enhanced (Madsen 2010, 263).

As a result, economic growth leads into reduction in the level of poverty within an economy. Creation of jobs increases the consumers’ disposable income and hence their purchasing power. The resultant effect is that the rate of consumption is increased which is a sign of increased living standards.

Additionally, economic growth leads into a reduction in the rate of crime within the society. Economic growth can also lead into improvement in the ability of government to offer public services such as education, health and security. This arises from an increment in the level of government revenue as a result of increased revenue collection for example in form of corporate and income tax (McKerchar& Evans 2009, 23).

Costs associated with economic growth

Despite the fact that economic growth contributes towards improvement of the living standards, a high rate of economic growth can be counterproductive. This means that there are a number of demerits associated with economic growth.

Effect on the natural environment

Economic growth arises from organization of the available resources in the natural environment a valuable way. For example, availability of natural resources makes it possible for firms in a certain industry to undertake different industrial processes which contribute towards a countries economic growth. This means that natural resources available in the environment act as a catalyst towards attainment of economic growth.

There are different natural resources that a firm can exploit in an effort to stimulate a country’s economic growth. Some examples of these resources include the forest, crude oil and mineral deposits. Considering the fact that these resources occur naturally, they are scarce and have diminishing characteristic. This means that they are not renewable.

This presents a risk to firms which depend on these resources in their operation. Currently most economic sectors depend on natural environment as their core source of energy. For example, the main source of energy for production purposes is petroleum or fossil fuel. By utilizing these energy sources, firms are able to improve the living standards of the citizens.

Fossil fuels are a non-renewable energy source (Alam 2006 34). Overdependence on fossil fuel such as on petroleum has led into an increase in the rate of climate change. This arises from the fact that carbon dioxide is one of the gases which is emitted in the process of these gas combusting. Carbon dioxide is one of the greenhouse gases that lead to global warming.

The high rate of global warming being experienced in most economies is one of the reasons why most regions are experiencing climate change. If the rate of global warming is not controlled, there is a high probability that other economic sectors which have led to the high living standards in most economies will be negatively affected.

For example, some of the economic sectors which can be affected by increased global warming include the agriculture sector. For example, increased global warming may lead into a reduction the amount of rainfall thus affecting agricultural production (Brueckner 2011, 1).

Another way in which the environment may be affected relates to increase in the level of pollution. The high rate of pollution indicates that the need to improve the living standard through exploitation of the natural resources can lead into negative environmental impact. The resultant effect is an increase in the price of food commodities (Riley 2006, 127).

However, climate change as a result of global warming varies across countries due to existence of diversity with regard to needs and priorities. Despite this, climate change has a negative effect is in the living standards of citizens. Additionally, over dependence on fossil fuels such as petroleum and diesel by firms to undertake their production may result into price shocks.

For example, countries which do not have their own fossil fuel deposits have to depend on other countries. Considering the dynamic nature of the international business environment for example as a result of changes in geo-political environment, the price of petroleum fuel may be increased.

Currently Middle East countries which are major export of petroleum are experiencing political crisis. This may affect their ability to export petroleum to other countries. This may lead into an increment in the cost of production hence the price of commodities (Barro 2000, 1). The resultant effect will be a decline in the living standards.

In an effort to deal with the rising fuel price so as improve the living standards of their citizens, most economies are considering alternative sources of energy (Chong 2009, 2). Some of the common sources of energy being considered are nuclear energy and gasified coal. However, in the event of a disaster hitting nuclear plants such as the recent Tsunami in Japan which caused leakage in the country’s nuclear plants, the individuals’ health may be affected by nuclear emissions.

Such emissions may also affect the environment. Another illustration of how disasters may affect individuals’ living standards is the BP Deepwater Horizon oil rig explosion in the Gulf of Mexico. The leakage affected a number of economic activities in the Gulf of Mexico such as the fishing industry and wildlife hence their living standards.

Increase in the degree of inequality

Economic growth tends to increase the inequality (Smith 1999, 95). This is mainly so in the underdeveloped economies whereby there is a large gap between the rich and the poor. A study conducted by Adams (2004, 1) revealed that development is associated with a decline in average income especially amongst the poor. This means that economic growth can lead into an increase in poverty level.

According to Kuznets hypothesis, the relationship between economic growth and inequality can be explained using an inverted U-shaped curve. This is mainly so amongst the developing economies. Initially, a high rate of economic growth leads into an increase in the level of inequality until these economies attain middle-income status.

According to Adams (2004, 1), the high rate of economic growth leads into an increase in the countries Gross Domestic Product (GDP). However the associated benefits are not evenly distributed which makes inequality to persist.

The resultant effect is that the gap between the rich and the poor to be large (Hoeven & Shorrocks 2005, 23). This is mainly common amongst emerging countries such as those located in continents such as South America, Africa and Asia (Andersen and Dalgaard 2011, 3).

Property development

Over the past decade, the property industry has experienced a significant growth. This has arisen from the fact that a large number of individuals are considering the real estate as a viable investment vehicle. Most investors both local and international are considering the real estate industry as a less volatile sector to invest.

The high rate of property development in most economies has led to an improvement in the living standard of citizens. This arises from the fact that most the government is able to increase its revenue through tax levied to property owners. The tax collected from the property industry can be used to provide other social amenities thus improving the living standards of the citizens.

This illustrates that the property industry is a key contribute towards a country’s economic growth and hence the living standards. However, the high rate at which the real estates are being constructed is an issue of concern. For example, if the buildings are not constructed, maintained and used properly, there is a high probability of them experiencing a high rate of depreciation and deterioration.

The need to invest in property may affect a country’s food production. This arises from the fact that most of the agricultural land is devoted for property development. Additionally, some of the forest areas may be cleared to give way for construction of houses. This may increase the rate of deforestation and hence desertification.

The resultant effect is that the natural resources such as water catchment areas will be negatively affected thus negatively affecting the individual’s living standards. The high rate of property development has led into emergence of towns and cities. However, some of the urban centers are not regulated which makes them to sprawl haphazardly. Lack of planning is affecting the environment.

For example, some of the urban centers are contributing to environmental pollution due to lack of effective designing. For example, emerging town centers and cities may not have adequate sewerage systems and waste disposal facilities. The resultant effect is that they increase the rate of environmental pollution.

Conclusion

Economic growth is one of the macroeconomic objectives which most countries pursue. One of the core objectives of pursuing economic growth is to improve the living standards of the citizens. There are various ways through which individuals living standards can be improved. However, in order to achieve this, there are a number of factors which have contributed towards attainment of economic growth in most economies.

Some of these factors include technological advancement and stimulating investment in different economic sectors. The resultant effect has been creation of jobs hence providing a source of income for most individuals. Having a source of income is one of the ways through which an individual’s living standard can be improved.

Creation of employment contributes towards minimization of social problems such as crime which is in most cases necessitated by poverty (Tesfatsion & Judd 2006, 1613). Additionally, the high rate of economic growth in most countries is contribution into governments’ effectiveness in providing various utilities which improve individuals’ living standards. Some of these utilities relate to hospitals, schools, electricity and water.

This is due to the fact that the government is able to collect a substantial amount of revenue in terms of tax revenue. Despite the contribution of economic growth towards improvement of individuals’ living standards, there are negative effects of economic growth. For example, increased economic growth can result into externalities which may affect the natural environment.

One of the ways through which this may occur is increase in the rate of environmental pollution. For example, increased utilization of petroleum energy may lead into an increase in the amount of carbon dioxide emitted into the atmosphere hence causing global warming. The high rate of global warming is one of the major contributors of the current climate change.

Additionally, a high rate of economic growth can lead into a decline in the individuals’ living standards by negatively affecting natural resources such as agricultural land. For example, the high rate at which investors are venturing into the property industry presents a challenge to individuals’ living standards. For example, the environment can be adversely affected through encroachment.

This means that agricultural land will be reduced significantly. The resultant effect is that there will be a shortage of food products leading into an increase in price of commodities. Emergence of urban centers which are not well designed can result into rise in the rate of pollution. For example, there will be a high rate of petroleum consumption which means that global warming will be high.

In order to safeguard against economic the growth being counterproductive, it is important for the parties involved in implementing policies aimed at improving the living standard through economic growth to consider the possibility of counter productive effects.

With proper wise management of resources and technology, sustainable development is possible and economic growth is not counterproductive or has not outlived its usefulness but an opportunity. Economic growth provides a banquet of opportunities for companies, people and government, to coexist and to find equilibrium between sustainability and growth.

Reference List

Adams, Richard. 2004. Economic growth, inequality and poverty: estimating the growth elasticity of poverty. World Development Journal. Vol. 22, issue 12, pp. 1989-2014. London: Oxford.

Alam, Shahid. 2006. Bringing energy back into the economy: examining economic growth with energy. Journal of Alternative Energy. Vol. 3, issue 6, p.34. New York: New York University.

Andersen, Thomas and Dalgaard, Carl. 2011. Flows of people, ideas and inequality of nations. Journal of Economic Growth. Vol. 16, issue 1, pp. 1-32. London: Springer.

Barro, Robert. 2000. Inflation and economic growth. NBER Working Paper. No. w5632. New York: Harvard University.

Baumol, William, Litan, Robert and Schramm, Jude. 2007. Good capitalism, bad capitalism and the economics of growth and prosperity. Journal of Entrepreneurial Studies. Vol. 23, issue 4, pp.34-35. New York: New York University.

Brueckner, Martin. 2011. The business with the environment. A (different) reader. Melbourne: Cengage Publishers.

Chong, Alberto. 2009. Volatility and firm growth. Journal of Economic Growth. Vol. 14, issue 1, pp. 1-25. London: Elsevier.

Clarke, Matthew and Islam, Sardar. 2004. Economic growth and social welfare: operationalising normative social choice theory. Boston: Elsevier.

Hoeven, Rolph and Shorrocks, Eliud. 2005. Growth, inequality and poverty: prospects for pro-poor economic development; a study. Oxford: Oxford University Press.

Madsen, Jakob. 2010. Four centuries of British economic growth: the roles of technology and population. Journal of Economic Growth. Vol. 15, issue 4, pp. 263-290. Prentice Hall: Sydney.

McKerchar, Magrate and Evans, Chris. 2009. Sustaining growth in developing economies through improved taxpayer compliance: challenges for policy makers and revenue authorities. UNSW Law Research Paper No. 2009-17. South Wales: University of South Wales.

Mercurio, Bryan. 2007. Growth and development: economic and legal conditions. University of New South Wales Law Journal. Vol. 30, issue 2, pp. 437-476. South Wales: University of South Wales.

Smith, Harlan. 1999. Understanding economics. Armonk, N.Y: M.E Sharpe.

Tesfatsion, Leigh and Judd, Kenneth. 2006. Handbook of computational economics. Amsterdam, Oxford: Elsevier.

Riley, Goeff. 2006. AQA AS economics module 1 and 2 digital textbook. New York: Tutor2U Limited.

Yemtsov, Ruslan. 2007. Living standards and economic vulnerability in turkey. Working Paper Series. New York: World Bank.

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