As we know, economic growth is the increase in the production of goods and services in an economy over a period. It is measured by the rise in real Gross Domestic Product (GDP). In Australia, economic growth is driven by several key sources, each contributing differently over time.

What are the Sources of Economic Growth in Australia?

From the following graph we can see that major sources of economic growth in Australia stem from three different categories: investment, consumption and exports.

From the graph, we can see that all three contributions are fairly even. However, in Australia's most recent economic landscape, we see that consumption has mostly driven economic growth. Thus, the more specific sources of Australia's economic growth are as follows:

Natural Resources

Australia is rich in natural resources, particularly minerals and energy resources. The mining sector has been a significant contributor to economic growth, through an increasing amount of exports. For example, in 2022-2023, the resources sector contributed 14.3% to Australia's GDP, reflecting its critical role in the national economy. Under this sector, iron ore exports alone were worth $133 billion, demonstrating the importance of this commodity in Australia's export profile.

Population Growth and Immigration

Australia's population growth, driven partly by immigration, contributes to economic growth by increasing the labour force and domestic demand. For example, Australia's population grew by 1.5% per year on average between 2010 and 2020. Additionally, net overseas migration accounted for around 60% of population growth in this period. As a result of a higher population, consumption in the economy increases. Household consumption is the largest component of aggregate demand. Thus, an increase in consumption will lead to an increase in aggregate demand. This is because consumption $(C)$ is a component of aggregate demand $(AD=C+I+G+(X-M))$. As we know, an increase in aggregate demand will lead to an increase in economic growth. More about this relationship can be found in our article about aggregate demand: Aggregate Demand

Investment in Human Capital

Australia's investment in education and training enhances the skills and productivity of its workforce, contributing to long-term economic growth. For example, in 2020, 46% of Australians aged 25-34 had a bachelor's degree or higher, up from 35% in 2010. As a result of achieving higher education, individuals in the economy are able to obtain higher wages. Their increase in income can encourage a higher rate of consumption, thus increasing aggregate demand. As a result, economic growth is boosted.

Main Effects of Economic Growth in Australia

Now that we have explored the sources of economic growth in Australia, we can examine their effects:

Increased Employment

Growth typically creates job opportunities and can reduce unemployment. Economic growth typically leads to job creation as businesses expand and new industries emerge. Higher employment rates improve living standards and reduce poverty. For example, the annual GDP growth rate in the United States averaged 2.4% from 2010 to 2019. It then experienced a sharp decline of 2.4% in 2020 due to the COVID-19 pandemic, but showed a strong recovery, rebounding to 4.2% in 2021 and 3.1% in 2022, before stabilising at 2.8% in 2023. Correspondingly, the unemployment rate, which stood at 5.6% in 2010, gradually decreased to 5.1% by 2019. The pandemic caused a spike to 7.5% in 2020, but robust economic recovery efforts drove it back down to 3.8% by 2023, demonstrating the close relationship between economic growth and employment levels.

Increased Government Revenue

Economic growth often leads to increased tax revenue, allowing for greater public spending or debt reduction. This is done without having to raise tax rates, allowing the government to invest in public services and reduce public debt. For example, between 2020 and 2023, Australian government revenue increased from $469 billion in 2019-20 to approximately $540 billion in 2022-23, representing a growth of about 15% over this period. During the same timeframe, Australia's real GDP grew by approximately 8%, from $1.8 trillion to $1.94 trillion.

Infrastructure Development

Leading on from increased government revenue, we see that economic growth enables greater investment in infrastructure, such as transportation, healthcare, and education. This in turn supports further economic expansion. For example, major infrastructure projects like the Sydney Metro and various road upgrades have been possible due to consistent economic growth, improving connectivity and productivity.

Income Distribution

The benefits of economic growth are not always evenly distributed, potentially leading to income inequality. As Australia is a well-established economy, with very little to no corruption, it often maintains a fairly equitable distribution of income. For example, Australia's Gini coefficient (a measure of income inequality) has remained relatively stable, moving from 0.34 in 2010 to 0.323 in 2023.