Question

Discuss the economic determinants of economic development.

Answer 1

Determinants of Economic Development:
Economic development is not determined by any, single factor. Economic development depends on Economic, Social, Political, and Religious factors.
Economic and Non – Economic Factors:

Economic Factors:

1. Natural Resource:

• The principal factor affecting the development of an economy is the availability of natural resources. The existence of natural resources in abundance is essential for development.

2. Capital Formation:

• Capital formation is the main key to economic growth. Capital formation refers to the net addition to the existing stock of capital goods which are either tangible like plants and machinery or intangible like health, education, and research.

3. Size of the Market:

• The large size of the market would stimulate production, increase employment and raise the National per capita income. That is why developed countries expand their market to other countries through WTO.

4. Structural Change:

• Structural change refers to change in the occupational structure of the economy. Any economy of the country is generally divided into three basic sectors: Primary sectors such as agricultural, animal husbandry, forestry, etc; Secondary sectors such as industrial production, construction, and Tertiary sectors such as trade, banking, and commerce.

5. Financial System:

• The financial system implies the existence of an efficient and organized banking system in the country.

6. Marketable Surplus:

• Marketable surplus refers to the total amount of farm output cultivated by farmers over and above their family consumption needs. This is a surplus that can be sold in the market for earning income.

7. Foreign Trade:

• A country that enjoys a favorable balance of trade and terms of trade is always developed. It has huge forex reserves and a stable exchange rate.

8. Economic System:

• The countries which adopt free-market mechanism (laissez-faire) enjoy better growth rate compared to controlled economies.

Non – Economic Factors:

‘Economic Development has much to do with human endowments, social attitudes, political conditions, and historical accidents. Capital is a necessary but not a sufficient condition of progress.’

1. Human Resources:

• Human resource is named human capital because of its power to increase productivity and thereby national income. There is a circular relationship between human development and economic growth. A healthy, educated and skilled labour force is the most important productive asset. Human capital formation is the process of increasing knowledge, skills, and the productive capacity of people.

2. Technical Know-how:

• As scientific and technological knowledge advances, more and more sophisticated techniques steadily raise the productivity levels in all sectors.

3. Political Freedom:

• The process of development is linked with political freedom.

4. Social Organization:

• People show interest in the development activity only when they feel that the fruits of development will be fairly distributed.

5. Corruption free administration:

• Corruption is a negative factor in the growth process. Unless the countries root-out corruption in their administrative system, the crony capitalists and traders will continue to exploit national resources.

6. Desire for development:

• The pace of economic growth in any country depends to a great extent on people’s desire for development.

7. Moral, ethical and social values:

• These determine the efficiency of the market, according to Douglas C. North. If people are not honest, the market cannot function.

8. Casino Capitalism:

• If People spend a larger proportion of their income and time on entertainment liquor and other illegal activities, productive activities may suffer, according to Thomas Piketty.

9. Patrimonial Capitalism:

• If the assets are simply passed on to children from their parents, the children would not work hard, because the children do not know the value of the assets.