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Chapter 8
ITS and economic growth:
investment, stakeholders, and
relations
8.1 Introductory definitions related to economic growth
Looking at the existing literature worldwide, one will notice that the term “eco-
nomic growth” or otherwise “growth” is a very complex concept and can be
difficult to define and analyze. The term growth in finance refers to the growth
of the real production of products and services in an economy over time.
By definition, the measure or indicator of growth is the long-term medi-
um percentage growth of the real gross domestic product (GDP). The index is
calculated in real terms, that is, inflation-adjusted, and not in nominal terms.
Growth refers to the long-term trend (decades and centuries) and not in the
short-run (quarters, semesters, and years) of the output of the product.
Economic growth is an important area of macroeconomic study. One of the
most valid theories that have been developed in this regard is the Solow-Swan
model (Solow, 1956; Swan, 1956). This model quantifies long-term growth as
a product of four factors:
- Production,
- Gross domestic product,
- Growth population, and
- Personal income.
Nevertheless, several researchers include also technological development and
other factors in the economic-growth equation. To avoid confusion in terminol-
ogy, most economists use the term “growth” in conjunction with the English term
economic growth and the term “development” in conjunction with the English
term development economics. In this more accurate sense, economic growth is
the long-term GDP growth rate, while growth is defined as the growth—at some
point—of the prosperity enjoyed by the people of a country. The most important
indicator of growth is the long-term growth rate of GDP per capita, while other
indicators are also widely used, such as indicators related to the level of health,
education, and longevity. However, when a country’s population tends to remain
balanced in size in a period of time then economic growth and growth do not differ.