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Sample Essay on Factors Affecting Economic Development and Growth

Factors Affecting Economic Development and Growth

Economic development and growth is the rapid increase in the market value of goods and services produced by an economy after a while. It is the increase in the GDP. Growth in economy should lead or guarantee higher and better living standards and a rise in employment. Short-term development and growth in economy is measured by annual % in real GDP. Many times, industries experience cycles of economic growth and development based on many factors.

Economic growth and development has been attributed to the accumulation of physical and human capital and extraordinary increased productivity due to increase in technological development. Prior to industrialization, technology progress has resulted to an increase in population, which has been controlled by efficient food supply and other resources that have acted to limit per capita income.

The rapid economic growth that took place during the Industrial revolution era was remarkable because of excessive growth in population. Different models have been used to expound more on the factors that have contributed to growth and development of economy. They include the neoclassical model, classical growth theory, salter cycle, endogenous growth theory and the Schumpeteria growth theory among others.

Industries experience cycles of economic growth and development based on differing factors. These factors include overall health of markets, consumer preferences and even world news and occurrences. At all times, some companies perform better than others, while others drop from their top spots and collapse completely. Here are some of the global factors affecting economic development and growth.

  • Inflation – It is the sustained increase in the general price level of products in an economy for a certain period of time. When there is an increase in the general price levels of goods and services, it implies that there is a decrease in the purchasing power. When inflation is low, it distorts business decision while wage inflation compensates for price inflation.
  • Interest rates- Economy growth and development can also be impacted by interest rates in the market. Lower interest rates would make money lending easy and they spur companies to invest more and consumers to spend appropriately. This leads to innovation and increased employment levels in the market.
  • Tax rates- Taxation is a common factor that affects economic development and growth. Corporation tax affects how much firms can invest or return to shareholders. On the other hand, income tax and sales tax [VAT] affect how much consumers have to spend, hence increased demand.
  • Currency strength- The value of the U.S dollar compared to other foreign currencies is substantial to companies or consumers who do not export or import goods. Consumers using the U.S dollar are able to purchase products from U.S or in other counties at ease. If the dollar strengthens, firms that make orders from other countries can are able to be competitive in pricing.
  • Government interferences- Most of the industries are controlled by the government in one way or another. Organizations such as Environmental Protection Agency or FDA are known to maintain standards that all firms in the respective sectors have to abide to all the time.

There are many other factors that affect economy growth on long run basis and they include human capital, levels of infrastructure and technology development. On short term basis, we have factors such as commodity prices, weather and political instability. Economic growth guarantees quality of life. Happiness is a virtue that has been associated with a higher GDP per capita. Growth in economy has extraordinary alleviated poverty as it increases employment and labor productivity.

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