Economic development is an important aspect that helps promote the stability of any given country and its citizens. Well-developed nations have governments that concentrate on these sectors. Underdeveloped countries, including those with vast natural resources, would fall behind if they fail to support technological research and enhance their workforce’s skills and education. Below are the four elements which promote a higher level of economic development.
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Elements of Economic Development
There are four factors determining the economy’s development: human, and physical capital, natural resources, and technology.
Human Resources – the working population’s expertise, training, and education directly impact a country’s growth. A competent, well-trained labor force is more efficient, delivering high-quality production which contributes to an economy’s effectiveness. A lack of skilled labor may be a barrier to sustainable growth. An underutilized, undereducated, and unqualified employee would become an economic constraint and contribute to higher unemployment.
Physical Capital – enhancements and increased physical capital expenditure, such as roadways, infrastructure, and factories, would lower costs and enhance economic production quality. Industrial units and modern machinery, which are upgraded and properly maintained, are more efficient than manual labor. Increased productivity leads to higher output, and work becomes more productive as the ratio of capital spending per employee increases. Improving labor output will definitely enhance the rate of economic growth.
Natural Resources – the rate of economic growth is influenced by the quantities and availability of natural resources. The exploration of more minerals, like oil reserves or minerals, would improve the economy by increasing its production potential. A country’s success in using and managing its natural wealth is a feature of the labor force’s expertise, the nature of technology, and capital availability. Therefore, professional and trained workers can use these natural resources.
Technology – technology enhancements have a high effect on economic development. As the scientific world progresses, management finds ways to use these growths as more advanced manufacturing standards. Applying improved technology means that the same amount of labor will be more efficient, and at lower prices, and economic development will progress. Countries that understand the importance of these four factors would have higher growth rates and better living conditions for their citizens. Technological progress and greater education for the workforce would increase economic development, resulting in a better living environment for all. When investments are made by acquiring better equipment, which requires less physical effort from the labor force, manufacturing output improvements are much easier to achieve.
Conditions for Economic Growth
There are key conditions required for economic growth. First, investment in infrastructure – efficient energy, road, and rail networks help countries grow the industry and attract foreign investment. A high-quality road network offers access to schools, hospitals and work for individuals and increases employment opportunities. Second, macroeconomic stability – in countries with inflation of more than 10%, broad fiscal deficits, and high-interest rates, it is evident that long-run savings and investment are hindered. Third, public governance – corruption is not only unethical, but it also subdues progress by diverting the citizens’ resources to unproductive operations. Strong governance also ensures that governments and state-owned corporations are more transparent and accountable. Fourth, social inclusiveness – in a society with significant inequalities between the wealthy and the poor, its people will not share economic development expectations.
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Income disparity nullifies the motivation to enhance one’s opportunities by receiving education or vocational training and resisting labor force quality change. Decisive measures are required to prevent this circumstance by improving public education, reallocating income through tax reforms, reducing rural-urban disparity, and providing access to financial services for farmers and small and medium businesses. Fifth, stability, security, and good relationships – political stability, security, and good relations with neighboring countries often play an important role in achieving economic growth by facilitating trade between key surrounding countries.
Role of State in Economic Growth
Organizational improvements play a significant role in the economic development process. It requires expanding the market size and organizing the labor market. Since private enterprises cannot undertake such schemes, the state should establish a means of transport and communication to increase the sector’s size. Besides, the state will aid the development of agriculture and industries. The management of the workforce is also a role of the government, which increases the productivity of workers. The government helps to organize labor through the recognition of trade unions. It sets working hours, pays salaries, provides machinery for resolving labor disputes, and provides for social security programs. It also creates a partnership between employers and workers, which increases labor productivity, thus raising revenue, and reducing costs.
Education plays a significant role in the economic growth process. Unqualified employees lead to low per capita income even if they work for long hours. Through public education, the state will improve the efficient supply of labor and thus its productivity. Primary education should be offered free of charge, and obligatory, and secondary more schools should be established. To provide training for mechanics, electricians, artisans, nurses, teachers, among others, numerous training institutions should be launched too.
The development and provision of public health services are essential roles which the state should undertake. To improve workers’ effectiveness and efficiency, it is important to preserve people’s health. In particular, public health initiatives include the advancement of sanitation facilities in both cities and suburbs, the elimination of stagnant and contaminated water, the enhancement of wastewater disposal, the control of infectious diseases. Others are the availability of health care services, especially in the areas of maternity and child care, education in health and family planning, and medical and health training. These will demand planned determinations on the part of public authorities.
Proper Institutional Framework
The Government plays an important role in reforming the institutional framework and laying the foundations for forming new institutions. New technologies can produce new products or reduce the cost of processing old commodities. New or improved transport systems or other infrastructure upgrades may create new opportunities for commerce. Foreign nationals can enter the country, bring new markets, inject new capital, or introduce additional job opportunities.
Improved Rate of Investment
A rise in the investment rate stimulates the development process. In most situations, the rate of savings of the National Reserve is extremely insufficient relative to its capital expenditure. Therefore, it is necessary for the government to accelerate the pace of capital formation, which can be achieved through taxation or inflation. For example, socialist countries have often been able to save and spend a rather large proportion of their national income due to their administration’s active contribution in the area of capital formation.
The State should come forward and take steps to develop and enforce a sustainable industrial policy. The policy should concentrate on the devolution of industries which will spread throughout the country without any political intervention. A system should be developed to encourage exports, which may offset imports, leading to rapid economic growth. Special efforts must be made to develop cottage and small-scale enterprises in rural regions to use local resources. It must support rural citizens with greater opportunities for jobs.
Utilization of Capital and Reduction of Disparities
The government has to take effective steps to ensure an equal distribution of wealth. It should enact progressive taxes on income and wealth and luxury products and support the poor by responsible public spending policies. The different economic regulations should focus on a reasonable balance in the development of different fields and the rate of creating various businesses in each sector. Greater job opportunities must be used to ensure sustainable economic development.
Peace and Security
Peace and stability are the two items which are key to economic growth, as they provide a conducive environment for running businesses and conducting any other type of trade. The Government also should maintain law and order domestically and defend the nation from external invasion. It will bring stability to the economic system in such a way as to make bold decisions. A nation engaged in a protracted war or internal conflict will not effectively plan for economic growth.
Role of Entrepreneur in Economic Growth
Entrepreneurs have a significant role in promoting economic growth by creating new enterprises, generating jobs, and contributing to enhancing key priorities such as Gross Domestic Product (GDP), exports, living standards, skills, and social development. The following areas represent the role of entrepreneurship in economic growth. First, creation and sharing of wealth – by setting up a business company, entrepreneurs invest their own money and raise capital (in the form of loans, equity, among others) from stakeholders, banks, and the public. This mobilizes public capital and enables people to profit from the growth of entrepreneurship and rising companies. This kind of pooled capital, which results in the production and distribution of wealth, is among the economy’s basic imperatives and objectives. Second, creation of employment – entrepreneurs are usually employment creators, rather than job-seekers. The easy translation is that once one becomes an entrepreneur, there is always one less job-seeker in the market. Then the one entrepreneur provides jobs for numerous other jobless people. This kind of work created by new and established companies is again one of the basic economic growth objectives.
Third, balanced regional development – when entrepreneurs create new enterprises and manufacturing plants, they facilitate regional development by moving to less established and underserved areas. Growth in industry and business in these areas contributes to upgrades in infrastructure such as improved roads and rail connections, airports, reliable electricity and water, schools, hospitals, shopping centers, and other formal and informal facilities that would otherwise not be available. Fourth, the standard of living – the improvement in people’s living standards in society is another primary economic growth objective. Business owners play a key role in improving the quality of living in the region. They do this by creating jobs and implementing and embracing technologies that contribute to changes in the quality of life of their workers, consumers, and the general public.
Fifth, exports – any expanding company will eventually want to begin exporting its products to expand its business to international markets. This is an essential component of economic development. It provides access to global markets and contributes to currency inflows and integration of new advanced technologies and processes utilized in much more established overseas markets. Another main advantage is that; this growth will lead to more sustainable economic revenues during the economic recession in the local economy.
Why Countries Develop at Different Rates
Some economies have developed faster than others, of which some variations can be attributed to factors such as geographical locations. Other main factors include technological innovation, economies of scale, disparities in tax collection structures, political stability, infrastructure, and growth strategies for transnational and multinational enterprises. Alternatively, certain economies have large debt levels, which means that they have to pay considerably huge interest and repayments, and so, there is little left over for building projects. Environmental influences also have some effects, as some regions encounter environmental problems which can hinder them from growing.
China and South Korea
According to economic experts and analysts, China’s GDP per capita is forecast to achieve the 8130.00 USD mark by the end of 2020. In the long term, its GDP is expected to trend towards 8840.00 USD in 2021 and 9020.00 USD in 2022, respectively. On the other hand, GDP in South Korea is projected to reach 26900.00 USD by the end of 2020. Therefore, growing GDP in both China and South Korea means higher purchasing power and an economy strengthened not only by manufacturing but also progressively by consumption. The tremendous and stable growth realized by these two countries is derived from improved and effective infrastructure, technological advancement and a conducive environment that promotes private sector development. Other sectors like education and healthcare are constantly being enhanced, the two countries have also been able to control the political temperatures within their borders, thus making it safe and secure for business to be established.
More significantly, a more diversified economy opens the way for the country’s development to be more robust to external impacts. In the long run, both nations’ rapid economic growth is due to two significant aspects: large-scale capital spending (funded by large local savings and international investment) and rapid productivity growth.
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If it is correct that economic growth alone does not guarantee progress, hardly any development can be maintained without economic development. Therefore, in order to compete with progressive countries, developing and emergent nations will need to attain and sustain higher economic development rates. Rapid population growth is counterproductive to both economic and social development and the successful use of natural resource base by the state. There can be no development without proper planning and implementation of developmental projects. Infrastructure plays a crucial role in enabling growth to take place, thus constant improvement in this area is needed. Proper education and effective healthcare services, both equips the workforce with better knowledge and provides them with good health which enables them to be more productive.
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