The Factors Affecting Economic Development

The Factors Affecting Economic Development

CHAPTER ONE

INTRODUCTION

• Background of the study

Factors Affecting Economic Development

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