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Economic Factors Determining Economic Development

Capital Formation The root of the trouble of economic growth in a developing economy lies in a rapid growth of the speed of its capital investment so that it accomplishes a rate of development of production which goes beyonds the rate of population growth by a considerable margin. Simply with such a speed of capital investment will the standard of living start on to get better in an under-developed nation.

Economic Factors determining economic development

From the point of view of economic examination, the most significant factors influenting the speed of economic growth are:

(i)                 Accessibility of natural reserves;

(ii)               Speed of capital formation;

(iii)              Capital-output ratio;

(iv)             Technological development;

(v)                Lively entrepreneurship;

(vi)              Rate of population increase and

(vii)           Social expenditure.

Accessibility of Natural Reserves

If natural reserves are accessible in great quantity, economic development is guaranteed and a rapid one too.

Capital Formation

The root of the trouble of economic growth in a developing economy lies in a rapid growth of the speed of its capital investment so that it accomplishes a rate of development of production which goes beyonds the rate of population growth by a considerable margin. Simply with such a speed of capital investment will the standard of living start on to get better in an under-developed nation. No economic growth is achievable without the development of irrigation works, the creation of agricultural gear and equipment, land repossession, constructions of bridges, dams and factories with instruments mounted in them, railways, airports and roads, ships in addition to harbours — all the "created means of additional manufacture" connected with high intensitys of efficiency.

Capital-Output Ratio

 Besides the ratio of capital formation to the total national income, the development of productivity relies upon the ratio of capital and output. The capital-output ratio establishes the speed at which productivity develops as a consequence of a specified amount of capital investment. A reduced capital-output ratio is inclined to guide to a moderately elevated speed of development of productivity as an effect of a specified quantity of capital investment than an augmented capital-output ratio.

 

Growth of Population

 For carrying out an important development in income standards, the speed of capital formation and the subsequent rate of development of productivity must be seen in relation to the speed of population expansion. It might be that the population may be growing so quick as to counterbalance even a rapid speed of capital formation and the consequential boost in productivity. It is, as a result, essential to make sure that the speed of capital formation is good enough to produce a good per capita-output.

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