2.5- Economic Growth

def export led growth

where a significant part of the increase in real GDP is generated by exports of goods + services

ADV of export - led growth

• exports are injections to the circular flow of income → rise in AD

  • increasing incomes + reducing poverty in emerging economies

• export sales generate profit for firms

  • can lead to increased investment + productivity improvements

DIS of export - led growth

• over - dependence on the economic cycle of trading partners can lead to vulnerability to external economic + political shocks

• rapid export - led growth may lead to demand pull inflation

  • damages international competitiveness

  • possibility of higher interest rates

• export - led growth might be unsustainable if reliant on natural resource exports

  • e.g: deforestation

def output gap

difference between actual real GDP and the maximum potential real GDP

ADV of economic growth

• higher standards of living → average incomes rise, so, more goods and services available for consumption

• increased revenues + profits for firms → growth of firms → increased investment

• increased consumer + business confidence → more investment + consumption

DIS of economic growth

• sustainability

  • growth uses up non - renewable resources

• widening inequalities

• opportunity cost → work life balance

• negative externalities

  • reduces social welfare → market failure

  • growth that leads to environmental damage can have a negative effect on people’s quality of life