Factor Affecting Economic Growth -Economic growth is a highly complicated process that is influenced by a wide variety of elements, including political, social, and cultural considerations. These factors include the following:
10 Factors affecting Economic Growth
Human Resource Development
Social and Psychological factor
Desire for material advancement
The 10 factors affecting Economic Growth have been divided into two major part as in the following-
Non Economic Factor
Natural Resources: The primary factor impacting an economy's development is its natural resources. Natural resources include land acreage and soil quality, forest wealth, a healthy river system, mineral and oil resources, and a favorable climate, among others. Natural resources in abundance are necessary for economic growth. A country with insufficient natural resources may be unable to expand swiftly. However, the availability of abundant natural resources is a necessary but not sufficient prerequisite for economic expansion. Natural resources are underutilised, overutilized, or misutilized in less developed countries. This is one of the factors contributing to their backwardness.On the other hand, countries such as Japan, Singapore, and others lack abundant natural resources but rank among the world's industrialized nations. These countries have demonstrated a commitment to conserving available resources, making best efforts to manage them effectively, and limiting resource waste.
Capital Formation: Another critical aspect in an economy's development is capital formation. Capital formation is the process through which a community's savings are invested in capital goods such as plant, equipment, and machinery that boost a country's productive capacity and worker efficiency, hence insuring a greater flow of products and services within the country. Capital creation suggests that a community does not spend all of its money on current consumer goods, but rather saves a portion of it and uses it to develop or acquire capital goods that significantly increase the nation's productive capacity.
Technological Advancement: Technological advancement has a critical role in determining the rate of economic growth. Technological progress primarily entails the pursuit of new and improved techniques of production or the enhancement of existing processes. Occasionally, technological advancement results in an increase in the availability of natural resources. However, technological advancement generally results in an increase in production. In other words, technical advancement enhances our ability to make more efficient and beneficial use of natural and other resources for the purpose of expanding production. It is possible to acquire a higher output from a given set of resources by utilising improved technology, or a given result can be attained by utilising a smaller set of resources. Technological advancement enhances our ability to make more efficient use of natural resources, for example, by utilising power-driven field equipment, agricultural production has increased significantly. The United States of America, the United Kingdom, France, and Japan, as well as other sophisticated industrial nations, have all developed industrial strength through the use of superior technology. Indeed, economic development is promoted by the adoption of new manufacturing techniques.
Human Resource Development: The population's quality is critical in determining the rate of economic growth. Thus, investing in human capital through educational, medical, and other social programs is highly beneficial. Human resource development improves people's knowledge, skills, and capabilities, hence increasing their productivity.
Population Growth: Population growth generates labour and creates an expanding market for goods and services. Thus, increased labor results in increased output, which a larger market absorbs. This process results in continued increases in output, income, and employment, as well as improved economic growth. However, population growth should be expected to be typical. Rapid population growth stymies economic progress. Only in a sparsely populated country is population expansion beneficial. It is, however, unjustifiable in a country as densely populated as India.
Social Overheads: Another critical factor affecting economic growth is the availability of social overheads such as schools, colleges, technical institutions, medical colleges, hospitals, and public health facilities. Such facilities contribute to the health, efficiency, and responsibility of the working population. Such individuals are capable of propelling their country forward economically.
Non-economic factors such as socioeconomic, cultural, psychological, and political considerations all play a role in economic development on an equal footing with economic factors. We cover some of the critical non-economic elements that affect an economy's economic growth in this section.
Political Factors: Political stability and effective governance are necessary and beneficial for modern economic progress. Stable, robust, and efficient government, ethical administration, clear policies, and their effective implementation foster investor confidence and attract both domestic and foreign capital, resulting in quicker economic growth.
Social and Psychological Factors: Social factors include social attitudes, social ideals, and social institutions, all of which alter as education expands and culture transforms from society to society. Modern ideology, values, and attitudes contribute to new discoveries and breakthroughs, resulting in the emergence of new entrepreneurs. Social conventions that are out of date impede vocational and geographic mobility, impeding economic progress.
Education: It is widely acknowledged that education is the primary means of growth. Greater progress has been made in countries with widespread education. Education is critical for human resource development because it increases labor efficiency and reduces mental barriers to new ideas and knowledge, hence promoting economic progress.
Desire for Material Advancement: Desire for material advancement is a necessary but not sufficient prerequisite for economic development. Societies that place a premium on self-satisfaction, self-denial, and confidence in fate, for example, restrict risk and enterprise, so holding the economy behind.