Factors That Determine a Country's Rate of Economic Growth
- The economic growth of a nation determines how its production and export of goods and services affect national income and the standard of living. Strong economic growth requires strong domestic infrastructure and foreign relations. As shown by nations throughout human history, availability of natural resources, technological innovations, and a productive workforce all contribute to economic growth. In the 18th century, Great Britain's Industrial Revolution provided a historical example of unprecedented economic growth, and similar factors can be seen globally today.
- The availability of natural resources allows a nation to produce material goods for its own use or foreign trade. Food crops qualify as a natural resource. A surplus of food allows citizens to take time away from food production and produce consumer goods--or act as consumers themselves. Non-food natural resources, such as mineral deposits, can contribute to economic growth by providing the material for technological innovation, the next factor in economic growth. During the Industrial Revolution, according to Steven Kreis, Ph.D., history professor for the American Public University System, England had a large supply of coal to use for energy to power machinery. Coal required no access to a water source. New crop rotation techniques provided greater soil efficiency.
Today, an abundance of one of the most important natural resources, oil, is found in the Middle East. The Middle Eastern country of Qatar, for example, had the second-highest per capita income in 2010, according to the CIA World Factbook. - A critical aspect of economic growth, technological innovation allows inventors and producers to use existing technology to produce more food or goods in less time with less effort, thus enabling a higher rate of production. This, in turn, creates a surplus of goods. Technological innovation can refer to new methods of producing or preserving food, new types of machinery or more efficient energy sources to power machinery. According to the Charles Davidson College of Engineering, the invention of James Watt's steam engine converted the burning of fuel to mechanical work.
- If a nation has abundant natural resources and the technology to use them, it can support a larger population. Population growth means more people will put money into an economy by buying necessities or commodities. According to the Economic History Site, England's population grew from 7.7 million people to 13.2 million from 1791 to 1831, the height of the Industrial Revolution. However, unchecked population growth can have a negative effect on a nation's economy when the number of people causes the demand for natural resources and goods to exceed the supply or ability to produce. Today population outstrips natural resources in many parts of the world. According to "National Geographic," 4.8 billion people live in underdeveloped countries. A third of these people have no access to clean water because of overpopulation.
- Foreign investment adds another source of income to a nation's economic growth. Foreign investments can occur in the form of direct investment, with governments seeking to buy the rights to use technology or labor. They can also occur by trading. The system of mercantilism, in which raw materials are bought from one nation, processed into a finished product and resold at a profit, existed between England and the American colonies.
Although modern corporate globalization appears exploitative to some, it has improved several nations' economies--China in particular. Columnist Robyn Meredith of "Forbes Magazine" states that China's per capita income increased from $16 in 1978 to over $2,000 in 2007 due to the influx of American-owned companies such as Starbucks, Walmart and McDonald's.