Economic Factors Affecting Economic Growth
Introduction
Economic elements that influence economic growth and development, according to most economists, include: human resources, physical capital, natural resources, technology development, entrepreneurship, population expansion, and social overheads. The many economic causes and the steps that must be taken to ensure economic growth will be covered in length in this article.
Economic Elements That Influence Economic Growth
Natural Resources
• The most significant factor determining the growth of an economy is its access to natural resources.
• Natural resources include things like land area, good soil, abundant forests, a healthy river system, mineral and oil resources, a good climate, and so on.
• Natural resource wealth is essential for economic expansion. A nation without sufficient natural resources might find it difficult to advance quickly.
• Natural resource abundance is a necessary but not sufficient condition for economic growth, though.
• In developing nations, natural resources are misused, underutilized, or wasted. This is the only factor contributing to their backwardness.
• On the other side, albeit they lack an abundance of natural resources, nations like Singapore, Japan, and others are among the most developed in the world.
• These nations have shown a dedication to protecting the supply of resources, making every effort to manage resources, and reducing resource waste.
Capital Formation
• A country's productive capacity and worker efficiency are increased through capital formation, which is the process by which a society invests its savings in capital goods like machinery, equipment, and plant. This process also ensures a greater flow of products and services throughout a nation.
• The idea behind capital creation is that a society doesn't spend all of its money on commodities for immediate consumption, but instead saves some and invests it in capital goods that greatly boost the country's capacity for production.
Technological Advancement
• Research into the application of novel and improved manufacturing techniques, or the enhancement of current techniques, is the main component of technological growth.
• Technology advancement can occasionally increase the availability of natural resources. But generally speaking, technical advancement boosts productivity.
• In other words, when technology advances, it becomes possible to employ natural resources and other resources more effectively and productively to boost output.
• Using more advanced technology, it is feasible to increase the output from a given set of resources or decrease the number of resources needed to produce a particular output.
• The ability to better utilize natural resources is enhanced by technological advancement for instance, the use of power-driven farm equipment has considerably increased agricultural output.
• Through the use of cutting-edge technology, the United States, United Kingdom, France, Japan, and other advanced industrial nations have all increased their industrial might.
• In reality, implementing innovative industrial methods helps the economy develop.
Entrepreneurship
• The capacity to spot fresh investment opportunities is a prerequisite for entrepreneurship, as is the desire to take calculated risks and finance emerging and expanding company entities.
• The bulk of the world's poorest nations suffer from extreme entrepreneurship shortages, not from a lack of capital, infrastructure, unskilled labour, or natural resources.
• Therefore, it is crucial to promote entrepreneurship in emerging nations by putting a priority on education, fresh research, and scientific and technical developments.
Human Resource Development
• The rate of economic growth depends heavily on the population's quality.
• Therefore, it is vitally beneficial to invest in human capital through social, medical, and educational programs.
• The improvement of people's knowledge, abilities, and skills leads to a rise in productivity.
Population Growth
• Population growth expands the market for products and services, which leads to a rise in the labor supply. Therefore, more labor generates more output, which a bigger market can consume.
• As a result of this procedure, output, income, and employment keep growing, and economic growth gets better.
• However, it is reasonable to anticipate typical population increase. The economic progress will be stifled by a rapid rise.
• Population expansion is only desired in a country with a low population density. However, in a nation with a high population density like India, it is unreasonable.
Social Overheads
• Another significant factor influencing economic growth is the availability of social overheads such schools, universities, technical institutions, medical colleges, hospitals, and public health facilities.
• These facilities promote the health, productivity, and responsibility of the working people.
• Such individuals have the capacity to advance the economy of their nation.
Steps To Ensure Economic Growth
• When a country's population is growing faster than its total output is growing, economic growth is possible.
• To accomplish economic growth, a nation's human resources must be large enough and possess the requisite knowledge and skills.
• Natural resource utilization and exploitation depend on human resource skills and talents, the technology employed, and the availability of funding. A nation's economy advances when it has a highly educated workforce and a wealth of natural resources.
• The availability of capital per worker rises as a result of capital formation, thus increasing the capital-to-labor ratio. As a result, labor productivity increases, resulting in higher output and economic expansion.
• With less resources available, production can be increased thanks to technological innovation. Countries that have worked on technology development expand more quickly than nations that haven't given it as much attention. The development of an economy also depends on the choice of the right technology.
Conclusion
These economic concerns are a top priority for governments in industrialized nations. Even nations with an abundance of natural resources that are less developed will lag behind if they do not support technological innovation and raise the education and skill levels of their workforce.