By Jim Woodruff Updated February 12, 2019
Economists generally agree that economic development and growth are influenced by four factors: human resources, physical capital, natural resources and technology. Highly developed countries have governments that focus on these areas. Less-developed countries, even those with high amounts of natural resources, will lag behind when they fail to promote research in technology and improve the skills and education of their workers.
The Impact of Human Resources
The skills, education and training of the labor force have a direct effect on the growth of an economy. A skilled, well-trained workforce is more productive and will produce a high-quality output that adds efficiency to an economy.
A shortage of skilled labor can be a deterrent to economic growth. An under-utilized, illiterate and unskilled workforce will become a drag on an economy and may possibly lead to higher unemployment.
Investment in Physical Capital
Improvements and increased investment in physical capital – such as roadways, machinery and factories – will reduce the cost and increase the efficiency of economic output. Factories and equipment that are modern and well-maintained are more productive than physical labor. Higher productivity leads to increased output.
Labor becomes more productive as the ratio of capital expenditures per worker increases. An improvement in labor productivity increases the growth rate of the economy.
Quantity and Availability of Natural Resources
The quantity and availability of natural resources affect the rate of economic growth. The discovery of more natural resources, such as oil or mineral deposits, will give a boost to the economy by increasing a country's production capacity.
The effectiveness of a county at utilizing and exploiting its natural resources is a function of the skills of the labor force, type of technology and the availability of capital. Skilled and educated workers are able to use these natural resource to spur the growth of the economy.
Improvements in Technology
Improvements in technology have a high impact on economic growth. As the scientific community makes more discoveries, managers find ways to apply these innovations as more sophisticated production techniques.
The application of better technology means the same amount of labor will be more productive, and economic growth will advance at a lower cost.
Countries that recognize the importance of the four factors that affect economic growth will have higher growth rates and improved standards of living for their people. Technological innovation and more education for workers will improve economic output which lead to a better living environment for everyone. Increases in labor productivity are much easier to achieve when investments are made on better equipment that require less physical work from the labor force.
FAQs
Economic factors affecting growth and development are: natural resources, capital formation, technological progress, entrepreneurship, human resource development, population growth and social overheads.
What are the 4 main factors that influence economic growth within a country? ›
The factors of production are the inputs used to produce a good or service in order to produce income. Economists define four factors of production: land, labor, capital and entrepreneurship. These can be considered the building blocks of an economy.
What are the factors influencing growth and development? ›
Environmental factors affecting growth and development include a wide variety of influences such as socio-economic circ*mstances, access to quality education and healthcare, family dynamics, cultural norms, community support, and exposure to toxins or hazards.
What are the three factors influencing economic growth? ›
There are three main factors that drive economic growth:
- Accumulation of capital stock.
- Increases in labor inputs, such as workers or hours worked.
- Technological advancement.
Economic growth is an increase in the production of goods and services in an economy. Increases in capital goods, labor force, technology, and human capital can all contribute to economic growth.
What five major factors determine the economic growth and development of countries? ›
Important economic factors include:
- Natural resources.
- Power and energy resources.
- Capital accumulation.
- Technological resources.
- Available labor force.
- Transportation and communications.
- Education and training.
The three main determinants of economic growth are capital accumulation (physical capital development), technological progress (advancements and innovation), and labour force growth (increase in skills and size of workforce).
What are the effects of economic development? ›
Economic development results in higher levels of education, greater employment opportunities, and higher income levels. Communities are strengthened with economic development because increasing numbers of jobs result in higher income levels.
What are the causes of economic growth? ›
Broadly speaking, there are two main sources of economic growth: growth in the size of the workforce and growth in the productivity (output per hour worked) of that workforce. Either can increase the overall size of the economy but only strong productivity growth can increase per capita GDP and income.
What are the two major influences on growth and development? ›
Genetic and environmental factors influence the growth and development in a perplexing interrelated pathway.
Environmental, economic, social and political factors affecting development – global imbalance of trade between different parts of the world. Environmental factors affecting development – the impact of natural hazards. The physical environment can have a direct impact upon the development of a place.
What are the three aspects of growth and development? ›
Physical, emotional, and intellectual changes are all part of the development process. It's a broader and more inclusive term than "growth” that also includes the physiological development of humans. It is also possible without expanding physically.
What are the four factors that stimulate economic growth? ›
The four main factors of economic growth are land, labor, capital, and entrepreneurship.
What are the deep determinants of economic growth? ›
Deep determinants of economic growth: institutions, geography and openness to trade.
How do economic factors affect development? ›
Factors Affecting Economic development
This will increase labor productivity and in turn, will result in the economic development of a nation. Increase in the capital – Increase in capital formation will result in more productive output in an economy and this will affect the economic development positively.
What economic factors affect child growth and development? ›
This may be because of factors such as a poor diet, a lack of access to goods and services that aid child development and reduced access to good play areas. For adults, managing on a low income can be stressful and feeling at the bottom of the social ladder can have negative effects on self-esteem.
What are the determinants of economic growth and development? ›
The three main determinants of economic growth are capital accumulation (physical capital development), technological progress (advancements and innovation), and labour force growth (increase in skills and size of workforce).
What are the factors affecting economic development in environment? ›
If we think about the environment then we might consider the water supply, the temperatures in winter and summer, as well as the resources available to an area, like rivers, coastline, and so on. Each of these factors has an impact upon economic development in a country.
