The Factors That Determine Economic Development Of A Country

Economic development is defined as the process of increasing national income of a country over a long period of time. The real national income indicates the quantity of goods and services produced in a country. Economic development is determined by two types Of factors, economic and non-economic. The economic factors are natural resource, human resources, capital-output ratio, technology etc. The social, political, religious and moral values of the people are non-economic factors. Economic development is not possible so long as the non-economic factors do encourage economic development.

Factors That Determine Economic Development :

1. Economic factors : Economic factors are regarded as the forces that influence economic development. Some of the economic factors are discussed as below. :

a) Natural Resources : One important factor that influences economic development of a country is the natural resources. Natural resources include the fertility of soil, forestry, minerals, climate, water resources etc. The existence of natural resources in abundance is essential for economic development. A country which is deficient in natural resources will not be in a position to develop rapidly. But the presence of abundant resources is not sufficient for economic development. If the resources are not being properly utilized, the country cannot make progress. Thus, development depends only upon the availability of resources but also on the utilization of the same.

b) Capital accumulation : Capital formation is another important factor of economic development. The rate o capital formation should rise from the present 18% to 30% of the national income. Capital increases the productive efficiency of the laborers. It not only raises production but also employment opportunities. Capital formation leads to technological development. Development of infrastructure is possible through capital formation. Capital formation also leads to the utilization of resources, industrialization and expansion of markets.

c) Capital-output ratio: The capital output ratio indicates the relationship between capital and output. It refers to the amount of capital required in order to produce a given level of output. For example, if we invest $300 of capital and get $100 of production, the capital output ratio is 3 : 1. To achieve economic development the capital — output ratio should be reduced. The lower the capital – output ratio, the higher will be the rate of economic development and the higher the capital output ratio, the lower will be the rate of economic growth. This ratio is high in backward countries. Technological and managerial changes should be made to reduce this ratio.Thus, economic development depends not only on the amount of capital accumulation but also on capital – output ratio.

d) Technological progress: Technological progress is regarded as another important factor in determining the rate of economic development. Technological progress results in increased productivity. It also helps in overcoming the scarcity of resources by developing alternative methods of production, It leads to specialization and large scale production. It helps us to make more effective exploitation of natural resources.

e) Growth of population : Rapid growth of population is considered to be an important determinant of  growth. In under developed countries the rate of population growth is very high. It exceeds the rate of growth of national income. Consequently, the per capita income and standard of living will be at low level. Hence, economic development is possible only when growth of population is less than the rate of growth of national income.Therefore, the rate of population growth has to he slowed down

2. Non — economic factors : Tho non-economic factors provide the requisite social climate for economic development. The key to development lies in men’s mind. Economic development cannot take place unless people are educated. Joint family system, caste system and religious beliefs that obstruct economic development should be changed. The political factors also should be changed. The quality of administration should he improved. Thus, the government should take an active Part to change the socio-cultural attitudes of people.

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