Economic Growth: Benefits, Risks, and Environmental Impacts

1. AS Economics PowerPoint Briefings 2006 Benefits and Costs of Economic Growth tutor2u™

2. UK Economic Growth

3. Economic benefits from growth More tax revenue Higher investment Consumer confidence

4. Benefits of Economic Growth • Boosts average living standards through higher real GDP per head – important in reducing poverty • Increased output generates new jobs and reduces unemployment • Good news for shares and the housing market – boosting household wealth • Increased tax revenues for Government – growth provides a “fiscal dividend” – can be used to fund extra public spending • Improved business confidence – attractive to foreign investment inflows • Higher consumer demand can lead to higher investment • Growth acts as spur to introduce new technology (the virtuous circle of growth) which spurs further innovation

5. Income and spending per head

6. Risks from Economic Growth • Environmental impact • Depletion of non-renewable resources – “resource poverty” • Concern about sustainability of growth for future generations • Increased levels of pollution / waste / congestion • Increasing inequalities in income and wealth • Widening gap between rich and poor – The “Wealth Gap” • i.e. a richer society but with higher levels of relative poverty • Unbalanced growth – danger of inflation • Risk of inflation if aggregate demand is too strong • Increased demand for imports – larger trade deficit

7. GDP per capita in 2004

8. Economic Growth and the Environment • Some economists believe that growth provides a basis for environmental improvements • As per capita incomes rise, a share of the new wealth can be used to buy cleaner fuels like natural gas • Higher real household incomes are associated with lower fertility rates which has an impact on the natural rate of population growth • Richer countries also have the resources to devote research and development • The positive spill-over effects of R&D might include the development of cleaner and less resource-intensive production technologies

9. Growth Pessimists • Questions over the long-term sustainability of growth • Renewable resources depleted • The Tragedy of the Commons • Examples include the destruction of rain forests, the over-exploitation of fish stocks and loss of natural habitat created through the construction of roads, hotels, retail malls and industrial estates • Growth contributes to growing environmental threats • Expansion of waste from both production and consumption • Over-population (particularly in urban areas) putting increased pressure on scarce land • Pollution of the environment both by producers and consumers including reductions in air quality • Species extinction

10. The environmental cost of growth?