In its latest release on January 9, 2018, the World Bank’s outlook for the global economy is better than expected for the first time in many years, as all regions have seen improved growth with highly synchronised economic expansion. Traditionally advanced economies such as the United States, Europe, and Japan continue to progress, while emerging markets are also improving. Global economic growth is expected to hit 3.1% this year and 3% in 2019, with the biggest gains coming from advanced economies.
Economic growth can be defined as an increase in an economy’s ability to produce goods and services within a specific time period. The best way to measure this is by looking at a country’s gross domestic product (GDP), as it takes into account everything that the nation produces for sale. However, the economic growth of most countries is determined by the following five factors that could affect their GDP.
1. Human Capital
A country’s citizens are its greatest assets, and definitely play a part in its economy. Countries that lack natural resources especially need to invest in their human capital, since a progressive and effective labour force results in greater productivity. For instance, a special focus on science and mathematics education would mean a greater number of skilled white collar professionals capable of high quality output, while a shortage of skilled labour can cripple an economy as it requires external hiring. This, in turn, means a higher cost to fulfil a nation’s human resource needs.
2. Natural Resources
This factor mostly relies on a country’s geographical location and can affect economic growth to a large extent. Natural resources include anything that is produced by nature either on land or beneath the land within a nation’s boundaries. Plants, water, and metals are all natural resources, but some of the world’s most valuable assets include oil and natural gases. The efficient utilisation of these resources also depends heavily upon the competence of a country’s human capital, as an educated population is likely to be able to manage such assets better.
3. Physical Infrastructure
Sufficient physical infrastructure allows an economy to increase its efficiency, which explains why more advanced economies have an extensive and well-maintained network of roads, public transportation, and factories. Having these resources widely available lowers the cost of economic activity, thereby allowing for the better usage of finances in other areas. One impressive example of how infrastructure can boost an economy is seen through the American railroad system, which first helped miners transport coal more effectively during the Industrial Revolution.
In this digital age, the importance of a country’s technological development cannot be overstated. From fast internet services to fully automated factories, technology enables a country to be the most efficient version of itself. The research and development of new technologies also breed the creative and innovative thinking skills necessary to continuously drive a nation forward. Countries that have committed to a stronger technological focus continue to grow at a rapid pace as compared to others that place it on the backburner. Technology also closes the gap between a country’s citizens to create an environment of greater social inclusion, thus indirectly improving its human capital.
5. Political Stability
The state of a country’s government is the final major factor that could affect its growth, as political instability results in negative investor sentiment that hinders investments. Ranging from political corruption to inadequate legal protection for businesses, the political landscape is crucial when trying to build a thriving economy. The economies of many African nations are stagnant because of this, and it is an incredibly hard cycle to break out of. A government which constantly loses investor confidence will not have enough in its reserves to spend on any of the four other factors mentioned above.
Economic growth is a complex issue which requires the co-existence of as many of the factors listed above as possible. The absence of any of them would mean a slower pace of growth for the nation.