Factors Affecting Economic Development and Growth

Factors Affecting Economic Development and Growth

Economic development and growth depends on a wide range of prevailing conditions. From consumer preferences to disjoint world news and events, these factors cause direct or indirect impact to economies. Even though these factors affect businesses differently, it is important to address them when putting up a business. Factors affecting economic development and growth of a country depend on the Gross Domestic Product (GDP). Real and nominal economic growths come into play when talking about development. Nominal growth includes inflation affecting the country while real economic growth is nominal growth that has an inflation rate factor. Real economic growth further refers to long-term economic stabilization and growth. Industries experience boom or contraction depending on a wide range of factors

Common Factors affecting economic development and growth

The first parameter that affects economic  growth is interest rate. Interest rates affect the economy in various. Importantly, it determines the performance of business as high rates hinder business ventures while low rates attract business and create opportunities. Interest rates affect industries in various ways. High interest rates limit consumers’ purchasing power, as they do not have access to credit to use to buy goods and services. They also discourage investors from expanding businesses and starting other because of high cost of doing business. On the other hand, low interest rates act as business stimulus. They stimulate growth across industries, leading to innovations and more job opportunities in the market.

Other factors affecting economic development and growth are currency rates and inflation. The value of a country’s currency when measured against the USD is always important even to companies that do not engage in international business of exports and imports. This value determines the feasibility of doing business locally and across the borders. When the value is favorable, consumers find it economical to import goods and services from the U.S or other global markets like Europe and Asia. Notably, the strength of a currency against the U.S dollar is significant to industries that rely heavily on imported raw materials to produce finished products, e.g. the clothing industry. Such industries will either grow or shrink depending on how a country’s currency performs against the dollar.

How government policies affect economic development and growth

Besides monetary factors affecting economic development and growth, governments also play a major role. Governments all over the world control the operations of different industries in different ways. In fact, the government is always an economic regulator in any country. In the United States, common government bodies that regulate industries include Environmental Protection Agency, the Food & Drug Administration or the U.S. Department of Agriculture among others. These agencies mainly set standards to safeguard the safety of employees, consumers and natural resources. However, some of these regulations can limit the performance of an industry. In worst cases, new regulations may shake up and industry, causing it to disintegrate. When this happens, the economy suffers since revenues from such industries drop drastically.

The industry’s impact on the environment can also affect economic development and growth. This is always worse when the consumers across the market consider your business activities injurious to the environment, resulting into massive boycott of your products. For example, the apparel market in 1990s took a southern dive after consumers thought it was inhumane and poor use of land to raise small animals and killing them for fur. When market sales decline and big players exit, the economy suffers a big blow.

Other factors affecting economic development and growth

Other factors affecting economic development and growth are the overall economic performance and natural resources. The state of the economy plays a major role in determining growth and development. For example, during economic meltdown, consumers lose the purchasing power. They forego luxury goods like cars and homes. Instead, they focus on meeting their basic needs. Companies also scale back their activities, including laying off employees to cut on production cost while maintaining profits. With high unemployment and low production, economic stagnation sets in.

Natural resources also influence development and growth. Some of these factors include water systems, land with fertile soils, forests, oil, minerals and good climate among others. Abundant natural resources are essential for economic growth.

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