FACTORS AFFECTING ECONOMIC DEVELOPMENT

Economic development implies an improvement in economic welfare through higher real

incomes and other welfare indices such as improved literacy, better infrastructure, reduced
poverty and better health care.

Economic development requires a degree of political stability, investment and mixture of public
and private initiatives to increase economic potential.

1. 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.

2. 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.

3. 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.

4. Improvements in Technology

Improvements in technology have a high impact on economic growth. As the scientific

community makes more discoveries, managers find ways to apply these innovations as more
sophisticated production techniques.

The application of better technology means the same amount of labor will be more productive,
and economic growth will advance at a lower cost.

5. Technical Know-How and General Education:

It has never been, doubted that the level of technical know-how has a direct bearing on the pace

of development. As the scientific and technological knowledge advances, man discovers more

and more sophisticated techniques of production which steadily raise the productivity levels.

6. Political Freedom:
Looking to the world history of modern times one learns that the processes of development and
underdevelopment are interlinked and it is wrong to view them in isolation. We all know that the
under-development of India, Pakistan, Bangladesh, Sri Lanka, Malaysia, Kenya and a few other
countries, which were in the past British colonies, was linked with the development of England.
England recklessly exploited them and appropriated a large portion of their economic surplus.

Countries that recognize the importance of the above factors that affect economic growth will
have higher growth rates and improved standards of living for their people. Technological
innovation and more education for workers will improve economic output which lead to a
better living environment for everyone. Increases in labor productivity are much easier to
achieve when investments are made on better equipment that require less physical work from
the labor force.