Compound annual growth rate
Also called: CAGR, Compound rate of growth · Topic: Economic Data: Census, NSS, Surveys and Statistical Tools · NCERT: Class 11, Ch 8 "Comparative Development Experiences of India and its Neighbours"
Meaning
The compound annual growth rate (CAGR) is the steady yearly rate at which a value would have to grow, with compounding, to go from its starting level to its ending level in n years. The formula is CAGR = (end/start)^(1/n) − 1. It is a geometric mean of growth. It smooths out ups and downs, so growth over periods of different lengths can be compared. It is used for GDP, trade, output and population.
Example
India's population grew 17.7% in the decade 2001-11. The CAGR is 1.177^(1/10) − 1 ≈ 1.64% a year.
Don't confuse with
- Simple average growth: dividing 17.7% by 10 gives 1.77%. That overstates the yearly rate, because it ignores compounding (growth on growth).