Factors of economic growth include increased investment in assets and infrastructure, innovation, efficient use of natural resources, expansion of the workforce, and capital investment. Efficient use of factors of production can be increased by promoting competition between firms. Successful resource exploitation and diversification of the industrial base can lead to sustained growth.
The factors of economic growth are the engines that lead to an increase in the productivity capacity of a country. These factors may include increased investment in assets and infrastructure to increase the efficiency of production and transportation of goods. Growth can also come from increases in the quantity or quality of inputs for production or innovations to improve the efficiency of production processes. More efficient use of the earth, including natural resources and minerals such as oil and gas, can promote economic growth. Labor and capital are other factors of production that can generate economic growth if their capacity is increased, as well as technological improvements and innovations that can reduce the production costs of existing goods and make it possible to invent new products.
Greater exploitation of land and natural resources is one of the factors of economic growth. This can foster growth by increasing production potential. Many oil-rich countries have reached a higher level of development by exploiting their mineral resources to increase their national income. However, the level of growth achieved may depend on how resource exploitation is managed. For example, if the country remains dependent on one resource, growth could eventually slow down; if it successfully diversifies the industrial base, the country can achieve growth in numerous sectors.
The expansion of the quantity and quality of the workforce is another factor in economic growth. Education and training policies can improve people’s skills and productivity, enabling the country to develop high-tech enterprises and sophisticated service industries. Many countries also expand their workforce by allowing more women to join the workforce, giving the workforce a boost. If businesses in a country are to innovate and expand, the workforce must contribute ideas for innovation, such as by pointing out weaknesses in the production process.
Increased capital investment in a country is another factor in economic growth, provided it is aimed at productive sectors of the economy rather than supporting non-productive industries. Infrastructure can be developed to enable goods to be transported more efficiently within national borders and to other countries. It is possible to create favorable infrastructures for the development of growing industries in sectors such as high technology, information technology and communications.
Another factor affecting economic growth is the efficiency with which factors of production such as land, labor and capital combine to promote growth. Efficient use of factors of production could be increased by promoting greater competition between firms. Measures to encourage competition include privatization of state-owned industries, deregulation, and laws to protect businesses. For example, laws to protect private ownership of assets, including intellectual property, can boost business confidence and encourage local industries to raise their level of performance.
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