Introduction to Economic Growth

 Economic growth is a vital component of national development, driving improvements in living standards, employment, and public services. However, it is not an end in itself. The ultimate goal should be sustainable, inclusive, and equitable growth—where the benefits are broadly shared, and the natural environment is preserved for future generations.

                                         

1. Introduction

Economic growth is one of the most fundamental indicators of a nation’s economic performance and development potential. It represents an increase in the quantity of goods and services produced in an economy over a period of time, typically measured as the percentage change in real Gross Domestic Product (GDP). While the concept appears straightforward—producing more than before—economic growth is a complex phenomenon shaped by multiple factors, ranging from technological innovation to institutional quality.

Understanding economic growth is crucial because it influences living standards, employment opportunities, public finances, and a country’s geopolitical standing. However, growth is not automatically synonymous with well-being, and modern discussions increasingly focus on its quality, sustainability, and inclusiveness.

 

2. Definition of Economic Growth

Economic growth can be defined as “An increase in the capacity of an economy to produce goods and services, compared from one period of time to another, adjusted for inflation.”

Key points in this definition:

·       Capacity to produce: Growth can occur from more inputs (labor, capital, land) or better use of those inputs (productivity improvements).

·       Inflation adjustment: Measured in *real* terms to remove the effect of rising prices.

·       Time comparison: Measured over quarters or years.

 

3. Measurement of Economic Growth

3.1 Gross Domestic Product (GDP)

The most common measure, GDP calculates the total market value of all final goods and services produced within a country’s borders in a specific period.

3.2 Real GDP vs. Nominal GDP

Nominal GDP: Measured at current market prices, not adjusted for inflation.

Real GDP: Adjusted for inflation, reflecting actual changes in output.

3.3.GDP per Capita

To assess average living standards, GDP is divided by population. A country may have high total GDP growth but stagnant GDP per capita if its population grows rapidly.

3.4 Alternative Indicators

·                Gross National Product (GNP) : Includes net income from abroad.

·     Human Development Index (HDI): Combines income, life expectancy, and education indicators.

·              Green GDP: Adjusts GDP for environmental costs and resource depletion.

 

4. Types of Economic Growth

4.1 Extensive Growth

Occurs when output increases due to adding more inputs—more workers, more machinery, or more natural resources. For example, a country might grow by employing more labor without improving productivity.

4.2 Intensive Growth

Driven by improvements in productivity—better technology, higher skills, and more efficient use of resources. Intensive growth is generally more sustainable because it is not limited by physical resource constraints.

4.3 Short-Run vs. Long-Run Growth

Short-run growth: Movement towards full capacity, often stimulated by increased demand.

Long-run growth: Expansion of the economy’s productive capacity over time through investment and innovation.

 

5. Theories of Economic Growth

5.1 Classical Growth Theory

Proposed by economists like Adam Smith, David Ricardo, and Thomas Malthus, this theory emphasized capital accumulation, labor, and natural resources. Malthus predicted that population growth would outpace resource growth, leading to diminishing returns.

5.2 Neoclassical Growth Model (Solow-Swan Model)

Highlights capital accumulation, labor force growth, and technological progress. It predicts that economies converge to a steady-state growth rate determined by technology.

5.3 Endogenous Growth Theory

Emphasizes that technological progress and innovation are results of intentional investment in human capital, research, and knowledge. Growth can be sustained through policy and institutional support.

5.4 Schumpeterian Growth Theory

Focuses on innovation and “creative destruction,” where old industries are replaced by new, more productive ones.

 

6. Determinants of Economic Growth

6.1 Capital Accumulation

Investment in physical capital—machinery, infrastructure, factories—expands production capacity.

6.2 Human Capital

Education, training, and health improve labor productivity, enabling workers to produce more and better-quality goods and services.

6.3 Technology and Innovation

Advancements in processes, products, and organization drive productivity gains.

6.4 Natural Resources

Availability and efficient use of land, minerals, water, and energy influence output, though resource-rich countries are not always the fastest-growing (resource curse phenomenon).

6.5 Institutions and Governance

Rule of law, property rights, political stability, and transparent regulatory systems encourage investment and innovation.

6.6 Trade and Global Integration

Access to global markets facilitates specialization, technology transfer, and economies of scale.

6.7 Macroeconomic Stability

Low inflation, sustainable public debt, and sound fiscal/monetary policies create a predictable environment for growth.

 

7. Benefits of Economic Growth

·       Higher Living Standards: More goods and services per person increase material well-being.

·       Employment Opportunities: Expanding production requires more workers.

·  Public Revenue Expansion: Growth increases tax bases, enabling more spending on infrastructure and social services without raising tax rates.

·      Poverty Reduction: Sustained growth can lift millions out of poverty.

·     Technological Advancement: Growth encourages innovation and adoption of new technologies.

·  Global Competitiveness: Strong economies attract investment and exert greater influence internationally.

 

8. Costs and Limitations of Economic Growth

·     Environmental Degradation

Unchecked growth can lead to pollution, resource depletion, and biodiversity loss.

·     Inequality

Growth may disproportionately benefit certain groups, widening income gaps.

·     Overreliance on Certain Sectors

If growth depends too heavily on one industry (e.g., oil), it can be vulnerable to shocks.

·     Inflationary Pressures

Rapid growth without capacity expansion can lead to rising prices.

8.5 Short-Term vs. Long-Term Trade-Offs

Pursuing growth at the expense of sustainability can undermine future prosperity.

9. Sustainable and Inclusive Growth

Modern economic thinking stresses that growth should be:

Sustainable: Environmentally responsible and resource-efficient.

Inclusive: Broad-based, benefiting all segments of society.

Resilient: Capable of withstanding shocks like pandemics or financial crises.

 

9. Role of Policy in Promoting Economic Growth

9.1 Fiscal Policy

Public Investment:  Infrastructure, education, and healthcare.

Tax Incentives:  Encouraging private investment and innovation.

9.2 Monetary Policy

Maintaining low, stable inflation.

Ensuring adequate credit availability.

9.3 Trade Policy

Promoting exports and reducing unnecessary trade barriers.

Encouraging foreign direct investment (FDI).

9.4 Industrial Policy

Supporting strategic sectors with potential for high growth.

Promoting research and development (R\&D).

9.5 Institutional Reforms

Strengthening property rights and legal frameworks.

Reducing bureaucratic red tape.

 

10. Measuring Quality of Growth

GDP growth alone may not reflect well-being. Economists use complementary indicators:

·       Genuine Progress Indicator (GPI): Adjusts GDP for social and environmental factors.

·   Multidimensional Poverty Index (MPI): Considers deprivations in health, education, and living standards.

·       Environmental Performance Index (EPI): Measures ecological sustainability.

 

11. Challenges to Future Economic Growth

·                 Climate Change

                      Extreme weather events, sea-level rise, and resource stress can disrupt

                     production.

·                 Technological Disruption

                      Automation and artificial intelligence may displace workers, requiring adaptation

                      through reskilling.

·                 Demographic Shifts

                      Aging populations in advanced economies and rapid population growth in

                     developing economies present different challenges.

·                 Geopolitical Tensions

                     Trade wars, conflicts, and political instability can disrupt global supply chains.

 

12. Conclusion

Economic growth is a vital component of national development, driving improvements in living standards, employment, and public services. However, it is not an end in itself. The ultimate goal should be sustainable, inclusive, and equitable growth—where the benefits are broadly shared, and the natural environment is preserved for future generations.

Policymakers must balance the pursuit of higher output with considerations of distribution, environmental sustainability, and long-term resilience. History shows that growth is not automatic; it requires sound policies, strong institutions, and adaptability to changing circumstances. When these conditions are met, economic growth becomes a powerful engine for human progress.

 

 

Read More

Review of Global Cannabis Market

 

Although consequences are there, Cannabis is useful wider range of recreational, personal care, medical and industrial purposes. Estimated global market size of the industry was US$ 34.0 billion in 2024, and it was predicted that global legal Cannabis market will increase up to US$ 134.4 billion in 2030. Further, it is expected that the global Cannabis market will grow at CAGR of 25.5 percent from 2023 to 2030.

Compression of price is a visible character of the industry. From 2021 to 2023, the average THC index in Canadian market has declined by 21 percent. Increase in supply and slow growth of demand due to medical and social reasons are the main causes for price contraction. High policy uncertainty and regulatory gaps may also affect the growth of the industry.

 

1. Introduction

Three main types of Cannabis varies has been identified such as Cannabis sativa, Cannabis indica, and Cannabis ruderalis. Cannabis plant uses for wide range of purposes including medical, recreational, personal care and industrial purposes.  In medicine, Cannabis products are used for various medical purposes including treatment for chronic pain, alcoholism and drug addiction, depression, post-traumatic stress disorder, and social anxiety, cancer, multiple sclerosis, epilepsy (Rush, 2025). However, Cannabis has various medical risks also. Although hundreds of bioactive molecules are available in Cannabis plant, Delta-9-Tetrahydrocannabinol (THC) and Cannabidiol (CBD) are main active constituents that are used for medical purposes (The University of Sydney).

 

2. Industry trend

The legal cannabis industry has grown from a niche, reform-driven experiment into a multi-billion-dollar global market spanning medical, adult-use (recreational), wellness/CBD, and industrial hemp. Gains have been propelled by law changes, shifting public attitudes, and product innovation; yet the sector also faces sharp price compression, fragmented regulations, and capital constraints. Recent developments—Germany’s landmark legalization steps in 2024, Thailand’s 2025 move to re-criminalize recreational use, and deliberation in U.S.A.—show how fast the policy ground can move.

Grand View Research, 2025 mentioned that the global market size of the industry was US$ 27.4 billion in 2022 and US$ 34.0 billion in 2024. Further, it was predicted that global legal Cannabis market will increase up to US$ 134.4 billion in 2030. As mentioned in the above web site, the Global Cannabis Market will grow at a CAGR of 25.5% during the period 2023-2030.

3. Industry structure

Across these layers, business models vary by legal channel (medical vs. adult-use), product type (flower, oils, edibles, beverages, topicals, pharmaceuticals), and go-to-market (vertically integrated vs. specialized). Industrial hemp sits partly outside the psychoactive discussion, feeding into textiles, construction materials, foods, and wellness inputs.

 

4) Trend in key markets

North America

Canada remains the world’s most mature national adult-use market. In the United States, the federal government is weighing a rescheduling of marijuana from Schedule I to Schedule III of the Controlled Substances Act—an administrative step that wouldn’t legalize adult use nationwide, but would meaningfully reshape tax, research, and financing conditions , while leaving interstate commerce constrained unless Congress acts.

 

Europe

Germany’s Cannabis Act (in force April 1, 2024) decriminalized possession for adults, allowed limited home-grow, and created pathways for non-commercial “cannabis clubs,” with a separate pilot phase for regional commercial supply. This is Europe’s most consequential shift and is expected to catalyze reforms elsewhere, even as domestic debates continue about enforcement and health safeguards.

 

Asia-Pacific 

Thailand, which decriminalized in 2022, is reversing course: in mid-2025 the government moved to re-criminalize recreational use and curb the booming retail scene, shaking an industry valued around a billion dollars. Elsewhere in the region, medical channels (e.g., Australia) continue to develop under tighter controls.

 

Latin America & Africa

Countries including Colombia, Uruguay, Mexico, Lesotho, and South Africa are pursuing medical cultivation/export or incremental domestic reforms, often eyeing job creation and exports.

5) Demand, Supply and Price trend

(Data Source: Canadian Cannabis Exchange)

It was observed that average THC Index and all other indices except index 1 have gone down from 2021 to 2023 in the Canadian market. Following table shows the representative Tetrahydrocannabinol level in each THC index and average price change from 2021 to 2023.

Table 1:THC Indices, respective Tetrahydrocanabinol % and price change

(2021-2023)

Tetrahydrocanabinol ( %)	THC Index	Price Change %
30%+	6	-13%*
25-30%	5	-35%
20 - 25%	4	-32%
15 - 20%	3	-18%
10 - 15%	2	-21%
0 - 10%	1	68%
Average	Average	-21%

 

   (Data Source: Canadian Cannabis Exchange)

*Considered only price change from 2022 to 2023 because unavailability of data for 2021.

As cultivation capacity scaled faster than retail access and consumer growth, wholesale and retail prices fell. This dynamic squeezed margins and forced consolidation or exits. Analysts note that the combined market value of major North American public operators fell dramatically from the 2021 peak, reflecting slower revenue growth, regulatory uncertainty, and ongoing oversupply. 

6) Policy risks

This a very socially sensitive industry and policy shifts may happen quickly. Thailand’s U-turn shows how quickly policy winds can change. Macroeconomic shock may also severely effect on this industry. If taxes are high and enforcement uneven, many consumers stay unlicensed. Operators and regulators must co-opt illicit demand with quality, safety, and convenience. Product safety incidents (e.g., contaminants) or youth-use concerns can spur restrictive rules—marketing curbs, potency caps, flavor bans.

7) Country level strategic models

Country level policies and strategies are different from country to country. Germany’s three stage model show a path for decriminalization & home/community cultivation in first stage and regional commercial pilot projects that will study the supply chain under controlled conditions in second stage before any national rollout. For companies, this means: near-term opportunities in clubs and medical, medium-term prospects in pilot regions (with strict compliance and research partnerships), and longer-term optionality should pilots justify broader commercialization. Domestic debate continues (e.g., road-safety thresholds, youth protection). It will be a good strategic model which take actions step by stem examine the development, consequences and behaviors of agents.

 

A diagram: Germany’s staged approach

8) Conclusion

Although consequence are there, Cannabis is useful wider range of recreational, personal care, medical and industrial purposes. Estimated global market size of the industry was US$ 34.0 billion in 2024, and it was predicted that global legal Cannabis market will increase up to US$ 134.4 billion in 2030. Further, it is expected that the global Cannabis market will grow at CAGR of 25.5 percent from 2023 to 2030.

Compression of price is a visible character of the industry. From 2021 to 2023, the average THC index in Canadian market has declined by 21 percent. Increase in supply and slow growth of demand due to medical and social reasons are the main causes for price contraction. High policy uncertainty and regulatory gaps may also affect the growth of the industry.

Read More

Management of Monetary Policy: Theory, Frameworks, and Implementation

 

1.Introduction

Monetary policy is the process by which a nation’s central bank manages the supply of money and the cost of borrowing (interest rates) to achieve macroeconomic objectives such as price stability, full employment, and sustainable economic growth. The management of monetary policy involves the careful calibration of policy instruments, the interpretation of macroeconomic indicators, and the anticipation of both domestic and global economic developments. Effective management requires balancing short-term stabilization goals with long-term economic stability.

2. Objectives of Monetary Policy

The primary objectives vary across economies but often include:

1. Price Stability – Controlling inflation to preserve the purchasing power of the currency.
2. Full Employment – Encouraging economic conditions that foster job creation.
3. Economic Growth – Promoting sustainable and balanced growth in output.
4. Exchange Rate Stability – Maintaining a stable currency to support trade and investment.
5. Financial Stability – Ensuring resilience in the banking and financial system.

Many modern central banks, such as the Federal Reserve (U.S.), European Central Bank (ECB), and Reserve Bank of India (RBI), prioritize price stability as their core mandate, often expressed through explicit inflation targeting frameworks.

3. Types of Monetary Policy

Monetary policy can be broadly categorized into:

1. Expansionary Monetary Policy
2. Contractionary Monetary Policy
3. Neutral Monetary Policy

3.1.Expansionary Monetary Policy

Expansionary monetary policy is a macroeconomic tool used by a country’s central bank to stimulate economic activity during periods of slow growth, high unemployment, or recession. Its primary aim is to increase the money supply and reduce the cost of borrowing in order to encourage consumption, investment, and overall demand in the economy.

Under this policy stance, the central bank typically lowers policy interest rates (e.g., repo rate, federal funds rate), purchases government securities through open market operations, and may reduce reserve requirements for commercial banks. These measures inject liquidity into the financial system, making credit more accessible and cheaper for businesses and households.

The expected effects include:

1.     Increased borrowing and spending by businesses and consumers.

2.     Higher investment in productive capacity.

3.     Boost in aggregate demand, leading to higher output and employment.

4.     Mild upward pressure on prices, which can help counteract deflationary trends.

However, if used excessively or maintained for too long, expansionary monetary policy can lead to overheating of the economy and higher inflation. Therefore, central banks must balance the short-term benefits of stimulating growth with the long-term goal of price stability.

 

3.2.Contractionary Monetary Policy

Contractionary monetary policy is a strategy used by a country’s central bank to reduce the money supply and increase borrowing costs in order to slow down economic activity. The primary objective is to control inflation, prevent the economy from overheating, and maintain long-term price stability.

It is typically implemented by raising key interest rates (such as the repo rate or federal funds rate), selling government securities through open market operations to absorb liquidity from the banking system, and increasing reserve requirements for commercial banks. These measures make credit more expensive and less accessible, which discourages borrowing and reduces consumer spending and business investment.

The expected effects include lower aggregate demand, slower economic growth, and a reduction in inflationary pressures. However, if applied too aggressively, contractionary monetary policy can also lead to reduced output, higher unemployment, and even a recession. Therefore, central banks aim to strike a balance—tightening monetary conditions just enough to control inflation without causing excessive harm to economic growth.

 

3.3.Neutral Monetary Policy

Neutral monetary policy is a stance adopted by a central bank when it aims to maintain existing monetary conditions without actively stimulating or slowing down the economy. In this approach, policy settings—such as interest rates, reserve requirements, and liquidity levels—are kept at a point considered neither expansionary nor contractionary.

The main goal is to support steady economic growth, keep inflation near the target, and maintain financial stability without creating upward or downward pressure on demand. Central banks often associate this stance with the neutral interest rate (also called the natural or equilibrium rate), which is the rate that balances savings and investment when the economy is operating at full capacity and inflation is stable.

Neutral policy is typically adopted when:

• The economy is growing at a sustainable pace.
• Inflation is within the target range.
• Employment is close to its natural level.

While this stance avoids major disruptions, it still requires active monitoring, as economic conditions can change quickly—requiring a shift to either an expansionary or contractionary approach.

 

4. Instruments of Monetary Policy

Central banks manage monetary policy using two categories of tools:

4.1 Quantitative (General) Instruments

These affect the overall money supply and credit conditions in the economy.

• Open Market Operations (OMO) – Buying or selling government securities to adjust liquidity in the banking system.
• Policy Interest Rates – Examples include the repo rate, reverse repo rate, and federal funds rate.
• Cash Reserve Ratio (CRR) – The portion of deposits that commercial banks must hold as reserves with the central bank.
• Statutory Liquidity Ratio (SLR) – A minimum percentage of net demand and time liabilities that banks must maintain in the form of liquid assets.

 

4.2 Qualitative (Selective) Instruments

These target credit allocation to specific sectors.

• Credit Rationing – Limiting credit to speculative or non-priority sectors.
• Margin Requirements – Adjusting the proportion of collateral required for loans.
• Directives and Moral Suasion – Persuasion or guidelines to influence lending patterns.

 

5. Policy Frameworks

Modern monetary policy management typically follows one of these frameworks:

1. Inflation Targeting – Setting explicit inflation targets (e.g., 2% ± 1%) and using policy rates to achieve them.
2. Monetary Aggregate Targeting – Controlling money supply growth to match economic output growth.
3. Exchange Rate Targeting – Pegging the domestic currency to a stable foreign currency.
4. Dual Mandate – Simultaneously targeting inflation and employment levels.
5. Taylor Rule Framework – Setting interest rates based on deviations of inflation from target and output from potential.

 

6. Implementation Process

Effective management involves:

1. Economic Assessment – Analyzing indicators such as GDP growth, inflation rates, employment levels, and balance of payments.
2. Policy Formulation – Deciding on stance (expansionary, contractionary, neutral) based on macroeconomic goals.
3. Operational Execution – Implementing through market operations, interest rate adjustments, and reserve requirements.
4. Communication Strategy – Forward guidance to shape market expectations and reduce uncertainty.
5. Policy Review – Continuous assessment to adjust policy based on evolving data.

 

7. Challenges in Managing Monetary Policy

Central banks face several constraints:

• Time Lags – Policy effects take time to influence the economy.
• Global Shocks – External crises (oil price shocks, geopolitical tensions) can override domestic measures.
• Policy Transmission Weaknesses – Structural banking or credit market issues can blunt the impact.
• Conflicts with Fiscal Policy – Expansionary fiscal measures can counteract contractionary monetary actions.
• Uncertainty in Economic Forecasting – Inaccurate projections can lead to policy misalignment.

8. Conclusion

The management of monetary policy is a complex, dynamic process that requires balancing competing macroeconomic objectives in an environment of uncertainty. Modern central banks increasingly rely on data-driven approaches, transparent communication, and flexible frameworks to navigate challenges. In the globalized economy, domestic monetary policy must also account for cross-border capital flows, currency volatility, and international economic trends.

An effectively managed monetary policy fosters stability, sustains growth, and enhances resilience against shocks, making it a cornerstone of sound macroeconomic governance.

 

 

Read More