Answer to Question #94566 in Macroeconomics for Ria

Question

Discuss five determinants of economic growth in an economy. (25)

Answer 1

There are five main factors, that determine the economic growth of a country:

1. Human Resources. The population size, the average age and qualification affect economic growth of a country.This factor can be improved, but all quantity and quality changes of population require a lot of time and capital investments.
2. Natural Resources. Natural resources include all resources produced by nature. It can be mineral resources, climate and environmental conditions, or sources of water. A good example of economic growth caused by natural resources is Saudi Arabia.
3. Capital Formation. This factor includes producing or acquiring land, building, machinery, power, transportation and communication infrastructure. Capital formation increases the availability of capital per worker, which further increases capital/labor ratio
4.  Technological Development. Technological development helps in increasing productivity with the limited amount of resources, therefore it is one of the important factors that affect the growth of an economy and its influence increases with technical progress.
5. Social and Political Factors. Its an institutional framework which regulates economic activity such as rules, laws, social and political conditions.