FACTORS THAT INFLUENCE ECONOMIC GROWTH

Economic Growth

Factors That Influence Economic Growth

All countries want economic growth.Several factors influence a country’s

economic growth.One is its ability to invest in human capital.Another is the investment made in capital

goods.Still another factor is the natural resources

available.Entrepreneurs are an economic factor as

well.

Economic Growth Factors – Human Capital and Gross Domestic Product

Human Capital refers to investments in the welfare and training of human workers.

Providing for employees’ health care or education are investments in human capital. So are programs to improve people’s job skills.

Investment in Human Capital usually produces a healthier, more satisfied, more productive workforce.

More developed nations often invest more in Human Capital than the less developed nations do.

Economic Growth Factors – Human Capital and Gross Domestic Product

Gross Domestic Product (GDP) is defined as “The value of all the goods a nation produces in a year.”

The more human capital a nation has, the higher its GDP tends to be.

For example, healthier and more educated/skilled workers (Human Capital) results in more productivity , which then results in a higher Gross Domestic Product (GDP).

When countries use resources to help its people, they are investing in human capital.

Economic Growth Factors – Capital and Gross Domestic Product

Capital goods are human-made resources that are used for production (factories, machinery, and technology).

The more a country invests in capital goods, the higher its Gross Domestic Product (GDP) tends to be.

Again, a nation’s GDP is equal to the value of all the goods it produces in a year.

The Gross Domestic Product is lower for command economies due to the setbacks of being under communism and a command economy.

Economic Growth Factors – Natural Resources

Natural resources also affect economic development. Oil is a valuable natural resource.So are precious metals and various other resources.Nations rich in natural resources can produce

revenue (money).Certain nations might allow foreign investors to enter

their country to mine, drill, and extract certain resources in exchange for money that helps the country’s economy.

Foreign investments produce a great deal of wealth and help economies develop.

Economic Growth Factors – Natural Resources

Abundant natural resources increase a country’s Gross Domestic Product (GDP).

Natural resources impact industry and trade.The more natural resources nations have, the

more their industries and manufacturing tend to develop, thus resulting in a higher Gross Domestic Product.

Economic Growth Factors – Entrepreneurs

Entrepreneurs are people who start and own private businesses.

They contribute to economic development.Nations with free-market economies encourage

entrepreneurship since those nations need privately owned businesses to strengthen the economy.

Entrepreneurship is important to economic development.

Entrepreneurs often improve and increase production.

Economic Growth Factors – Entrepreneurs

Entrepreneurship creates market competition (competition between private businesses).

Competition tends to inspire innovation (new and better ways of doing things) and invention (new technology and products).

Innovation and invention lead to economic growth because they often produce profits, more jobs, and economic development.

Economic Growth Factors – Entrepreneurs

Where entrepreneurship is discouraged, people receive fewer financial rewards for new ideas.

Less incentive exists for people to invent things or be innovative.

Usually countries that do not encourage entrepreneurship may not be highly developed and also may have a lower Gross Domestic Product (GDP).

Economic Growth Factors – Entrepreneurs

For many years, western European economies have encouraged entrepreneurship.

More and more eastern European nations have encouraged entrepreneurship since the fall of communism.

They recognize that entrepreneurship is key to improve their nation’s economies.

Abundant natural resources and entrepreneurship increase a country’s Gross Domestic Product (GDP).

Enduring Questions From This Presentation –

1. What is the relationship between human capital, capital investment, and gross domestic product (GDP)?

2. What is an entrepreneur?