Factors of economic growth are the factors that create a situation where goods and services can be produced economically. These factors are the four fundamental factors of economic growth, which include: the physical capital, human capital, knowledge and skills, and the institutional framework. It also includes the technology and information systems that support the production of goods and services. A glance at the factors of economic growth will clearly show that physical capital and human capital are the key ingredients to create the economic growth while technological know-how and skills are the essential foundations to develop the institutional framework that supports the production.
There are six factors of economic growth, which include: political stability, efficient government, favorable external environment, efficient management of resources, and appropriate technology. The first three factors, namely, the political stability, the efficient government, and the favorable external environment are actually self-explanatory. On the other hand, the last one, the efficient management of resources is actually dependent on the political stability.
The factors of economic growth are not independent. They depend on the overall condition of the country. If the country is experiencing rapid economic growth, then the factors of economic growth are likely to stay the same or increase. However, if the country is experiencing a lessening economic growth rate, then the factors of economic growth are likely to decrease significantly.
In order to determine the factors of economic growth, it is necessary to have an accurate measurement of the current state of the economy. There are two different ways to come up with accurate measurements of the current condition of the economy – the time series analysis and the national accounts method. The time series analysis looks into the past economic data in order to get a clear picture of the past trends and how they affected the factors of economic growth. Meanwhile, the national accounts method is used to calculate the current level of the production of goods and services in a nation by considering the production of specific goods and services in each region or nationalities.
On the other hand, when it comes to the factors of economic growth, there are several factors that directly affect the human capital of a nation. These factors include the number and quality of human capital, skill of the current workforce, technological advancements, and education levels of the population. Thus, there are four main factors that will affect the capital stock – the human capital. All these factors affect the accumulation of wealth.
However, all these factors will not be able to reflect the real essence of the economic condition of a nation. The true factors of economic growth are not restricted . . . . . . to these four factors alone. For a more accurate assessment of the actual economic condition of the nation, one should evaluate the total condition of the economy as a whole. It is also important to add the value of human capital in the total economic equation. One should not forget that the accumulation of wealth depends to a large extent on the human capital of a nation.