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Section 5.2 Consequences of growth - notes

'Growth is good'. This is the standard view of economic growth, and it tends to be treated as the 'Holy Grail' of economic policy for both developed and developing countries. However, it may not always be good. Possible costs of growth include:

  • Inequality of income - growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to the economically weak. This will widen the income distribution in the economy. In developing economies income distribution can already tend to be unequal and many of the benefits of growth may go to the better-off in society and flow overseas as increased profit for multinational corporations.
  • Pollution (and other negative externalities) - the drive for increased output tends to put more and more pressure on the environment and the result will often be increased pollution. This may be water or air pollution, but growth also creates significantly increased noise pollution. Deforestation and environmental degradation are likely to result from growth. This is particularly true in developing countries as they tend to have little legal protection of the environment.
  • Loss of non-renewable resources - the more we want to produce, the more resources we need to do that. The faster we use these resources, the less time they will last.
  • Loss of land - increased output puts further pressure on the available land. This may gradually erode the available countryside. In many developing economies there will also be additional problems resulting from the movement of people from country to urban areas.
  • Lifestyle changes - the push for growth has in many areas put a great deal of pressure on individuals. This may have costs in terms of family and community life in many economies.

In this section we consider the following topics in detail:

  • Externalities
  • Income distribution
  • Sustainability