Determinants of Economic Growth and Development

A country's pace of growth and development is shaped by a combination of economic and non-economic factors.

Economic Determinants

• Natural resources: the availability and effective utilisation of land, minerals, water, and forest resources provide the raw-material base for production. Mere abundance is not enough — resources must actually be exploited efficiently.
• Capital formation: the rate of saving and investment determines how fast an economy can build up its stock of machinery, infrastructure, and factories. Higher capital formation raises productive capacity.
• Technological progress: improvements in techniques of production raise output from the same quantity of resources and open up new goods and industries.
• Human capital: an educated, skilled, and healthy workforce is more productive; investment in education and health is itself an investment in growth.
• Occupational and industrial structure: a shift of resources from low-productivity agriculture toward higher-productivity industry and services generally accompanies faster growth.

Non-Economic Determinants

• Political factors: a stable government, sound economic policies, and the rule of law create the confidence needed for investment.
• Social and cultural factors: attitudes toward work, savings, entrepreneurship, and the status of women influence how effectively economic factors are used.
• Institutional factors: well-functioning legal, financial, and administrative institutions — secure property rights, an efficient banking system, contract enforcement — reduce the cost of doing business and encourage investment. …