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What Factors Affect GDP Trends?

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  • Written By: Ray Hawk
  • Edited By: E. E. Hubbard
  • Last Modified Date: 18 September 2016
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Gross domestic product (GDP) output levels or GDP trends can be affected by a number of different internal and external national factors. These include technological innovation that affects the market value of goods and services on the import/export market; social trends in society such as a rise in literacy rates, population growth, and improved demographics for the labor pool; and cultural trends such as the rate of per capita consumption. Many GDP trends also go hand-in-hand in terms of reinforcing each other, and China is a good example of this in the 21st century. Strong growth in technological innovation, consumer spending, and population in China gave it a GDP growth rate of 9.3% in 2009 versus an average of only 3.3% for the rest of the world economy at that time. In the past two centuries of human history, GDP trends have also spiked upwards during periods of large scale warfare, such as during World War I, and with the advent of engineering accomplishments that have facilitated international trade, such as with the completion of the Panama Canal in 1914.

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Macroeconomics often looks at a broad scale of income and investments across industries or societies to first get an understanding of the direction of GDP trends. In first-world industrialized nations, these economic indicators are often based on the production and sale of high-value capital goods such as automobiles, housing, and heavy construction equipment. Production of these goods in such traditional sectors of the economy is directly tied to unemployment figures and interest rates that drive trends in banking and capital investment, and together they can be used as a fast method of calculating national GDP trends on a quarterly basis.

Long-term GDP trends are more difficult to accurately calculate because they are an attempt to predict changes in the overall standard of living for population groups across multiple generations of a society. The Organisation for Economic Co-operation and Development (OECD) centered in France, is a group that attempts to track world trade and economic conditions for 34 participating nations from the European Union, to those of North America, Japan, Australia, and more. Such calculations include average life spans for residents of each nation as well as time devoted to leisure activities, and more direct and immediate impacts on GDP such as foreign debt, investment in research and development, and hidden environmental costs that can make current GDP levels unsustainable for a society as pollution or resource scarcity increases.

Another key component of changes in GDP trends is based upon the Maslow hierarchy of needs promoted by Abraham Maslow, a 20th century US professor of psychology who wrote about it in his 1943 paper, A Theory of Human Motivation. Basically, the Maslow hierarchy states that, as affluence increases in a society in general, the society turns its focus to self-actualization needs, which can include large-scale exploratory and engineering projects such as the the building of the Panama Canal at the start of World War I. The Panama Canal initially only had annual traffic of up to 1,000 ships, but, as of 2008, over 14,000 cargo vessels were passing through the canal annually.

Such Maslow "windows of economic growth," as they are called, have been charted for global events of the past 200 years. Almost universally, every spike upward in GDP trends has been preceded by a world financial panic and downturn. This suggests that GDP growth follows societal perceptions of economic well-being based on current events that affect GDP trends as much as the raw economic data does.

Tracking national GDP across many nations often involves trying to gauge consumer confidence, therefore, as it can directly affect consumption rates even when such beliefs don't fall in line with reality. An example of this is a survey of working-age Canadians in 1998 that asked them to compare their financial condition or level of prosperity to that of their parents when they were the same age. Only 44% of Canadians surveyed felt that their economic condition had improved over that of their parents, while GDP per household in Canada had actually grown by 60% over the past 25 years, reflecting much improved levels of average economic prosperity.

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