The task of formulating a precise formula for economic growth is a difficult one. The basic problem is of determining an objective which is to be realized in the process of a change in economic structure.
Economic growth is not an end in itself. It is rather a means to an end. A necessary requirement of economic growth is an increased output of goods and services. Perhaps with this idea, economic growth has been defined in terms of national income aggregates. Economic growth is a process whereby an economy’s gross national product (GNP) increases over a long period of time.
In a closed economy no distinction is to be made between GNP and GDP whereas in an economic open to foreign trade, national product may be greater or less than domestic product depending upon the net inflow or outflow of income.
A country may record an increase in it GNP if its people have invested massive capital outside the country and earn big profits therefrom.But this does not mean that the economy has developed.
Economic growth of a nation may be defined as a sustained increase in its population and product per capita.
Some economic believe that the essence of economic growth is an increase in product per head of population.
Economic activity involves many dimensions .Therefore many patterns of economic changes are possible. In the absence of any scientific norm, it is difficult to determine the extent of growth. In the process of economic growth, all the variables do not move in the same direction and with same speed.GDP or GNP may rise, while per capita product may decline, while per capita consumption may go down.
So we select a crucial variable which may be used as an index of growth. The index to be chosen must depend upon the problem to be studied. Most of the variables are interrelated and move in the same direction.
In a closed economy per capita domestic product and per capita national product are identical, but they may not be equal to per capita consumption. In an expanding economy, improvement in per capita consumption will be far less than the rise in per capita product for the simple reason that over time the rate of capital formation has to be stepped up.
Noted economist Kuznets underlines three poins.First, the sustained increase in national product per capita is a manifestation of economic growth. Second advancing technology provides the basis for sustained economic growth .Third institutional and ideological adjustments must be made, failing which growth potential that is created by growth productive forces will not be realized
