DETERMINANTS OF ECONOMIC GROWTHThe process of economic development is a highly complex phenomenon and is influenced by numerous and varied factors,such as political,social and cultural factors. Prof. ragnar nurkse remarks,”economic development has much to do with human endowments ,social attitudes,political conditions and historical accident .Capital is a necessary but not a sufficient condition of progress.”The supply of natural resources,the growth of scientific and technical knowledge – all these have a strong bearing on the process of economic growth.From the standpoint of economic analysis,the most important factors determining the rate of economic development are:

Human Resources and Its Quality

Human resource of a country is the most crucial factor factor in its economic growth.Human resource is comprised of the available labour force and its quality.quality of labour force depends on the level of its education,training,skills and its incentive and innovative abilities.Quantity and quality of manpower are both equally important.However,an excess supply of unskilled labour force ,as is the case in most LDCs inclusding India,is of little consequence.On the other hand,scarcity of skilled labour in the US is proving a serious constraint to its economic growth.The labour force along with its skill is the source of all goods and services.

Apart from quantity and quality , an appropriate combination of labour with different skills is also very important in making optimum use of human resources.An excess of labour force of any kind works as a barrier rather than an impetus in economic growth.An important aspect of human resources is that excess and scarcity of labour force are both an advantage and a disadvantage in the process of economic growth.The excess of labour force in India has prves a burden on the economy and a barrier to rapid economic growth,particularly the uneducated,untrained and unskilled manpower.Unempolyed people consume without producing-it reduces the rate of savings and investment.

As regards the quality of labour , it includes not only skill and productivity but also discipline,honest and sincere work efforts,commitment to productivity and professionalism.A highly trained and qualified labourwill be much less productive than its potential if it lacks these qualities.

Natural Resources

Natural resources of a country include the area of unsable land and resources on the land surface and underground.Land surface resources include sources of natural water(rivers and lakes),forests,landscape,etc.Underground resources include oil and naturl gas and minerals.Favourble climatic and environmental conditions add to the natural resources

endowments of a country.The countries with rich natural resource endowments have a much larger growth potential than those lacking natural resources.

The quantity and quality of natural resources vitally affect the economic growth of the country.The exploitation and use of natural resources depends upon the quality of man power,availability of capital and technology.A country’s productive capacity largely depends on the natural resources available,but availability of natural resources by itself cannot bring economic development,ability to utilize them is also required.The supply of natural resources can be increased by research and technologica progress.The country’s endowed with rich natural resources amd a highly skilled and motivated manpower can do miracles in economic growth.however,there are countries which are richly endowed with only one natural resource, i.e. oil.For example,Saudi Arabia, UAE and Kuwait etc are endowed with only one natural gift (oil) but they have the highest per capita income in the world.In contrast ,there are tiny countires like Hong Kong,Singapore and Taiwan which have a small resource endowment,but a very high rate of economic growth.The quality of manpower has played a vital role in the economic growth of these countries.On the other hand,large countries like India and China are still counted among the developing countries.These examples apart,countries rich in natural resources,and skilled manpower with high level of motivation and drive provide a stronger foundation for a high growth rate.

Capital Formation

Capital formation is the very core of the economic development.In the view of economist, capital occupies the central and strategic position in the process of economic development.Capital is defined as man-made means of production.In wider sense of the term,it includes machinery,plant and building,means of transport and communication ,electricity, Plants, and social overheads like roads ,railways,schools, colleges, etc.Creating or acquiring man made means of production is known as capital formation or capital accumulation.Capital formation enhances the availability of capital per worker. A high capital labour ratio enhances the productivity of labour. In other words, a larger quantity of goods and services are produced per unit of time. This means a high growth rate.

Capital formation requires saving men and material resources from their use in consumer goods and transforming them into producer goods. In economic jargon, capital formation means sacrificing current consumption and saving incomes to be invested in capital goods (machinery, plant, building and equipment etc.). In general, the countries with high rate of saving and investment have a higher rate of economic growth. Also, as the rate of saving and investment increases,the rate of economic growth increases also.

Capital formation is the very core of economic development. In the view of economist capital occupies the central and strategic position in the process of economic development. Capital formation indeed plays a decisive role in determining the level and growth of

national income. There is no doubt that productive capacity of an economy can be increased only by increasing the quantity and improving the quality of its capital equipments. The process of building up the necessary stock of capital equipment requires huge resources for financing it. Either a part of national income must be saved for the production of capital goods or the necessary funds for the purpose must be borrowed from abroad.

Capital Output Ratio

Apart from the ratio of capital formation to the aggregate national income, the growth of output depends upon the capital -output ratio. "The capital output ratio may be defined as the relationship of investment in a given economy or industry for a given time period to the output of that economy or industry for a similar time period".The capital output ratio thus determines the rate at which output grows as a result of a given volume of capital investment than a higher capital output ratio.For example, a capital output ratio of 3:1 would mean, in Indian rupees that a capital investment of Rs.3 results in the addition of output worth Re 1.This ratio in underdeveloped countries is generally higher, I.en the capital is less productive in them than in developed countries. This is so because there is a relative inefficiency of the industries which produce capital goods. Capital output ratio plays a vital role in accelerating economic growth. The lower the capital output ratio, more accelerated is the economic growth. The capital output ratio can be reduced by means of technological progress and administrative improvements.

Technological Progress

Adam Smith,the father of political economy, pointed out tge great importance of technological progress in economic development. There is no doubt that technological progress is a very important factor in determining the rate of economic growth. Technology refers to scientific methods and techniques of production. In effect,technology means the nature and kind of machinery and technical equipments used with a given amount of labour. Technological development means improving the technique of production through research and innovations.It results in a larger output from a given number of men,materials and time. It increases the ability to make a more effective and fruitful use of natural and other resources for increasing production. By the use of improved technology itvis possible to have a greater output from the use of given resources or a given output can be obtained by the use of a smaller quantity of resources. Technological Progress have a very close connection with capital formation. Without capital formation technical progress is not possible because heavy investment is required for making use of better and more efficient methods of production.In fact, under-developed country can hope to march ahead on the road of economic development by adopting newer and newer techniques of production.

Dynamic Entrepreneurship

According to Schumpeter,"the entrepreneur played a key role in economic development ".Karl Marx had also emphasised the fact that in trying to widen the profit by adopting new technology and improved methods of production, the entrepreneur makes an important contribution to economic growth. The entrepreneur earns profit by ensuring that the value of final product exceeds the sum of the remuneration of the factors of production. This surplus contributes his profit. Obviously, the greater the surplus, the greater is the entrepreneurial activity and greater the entrepreneurial activity, the faster is the rate at which the economy grows.In other words we can say that cumulative effect of the individual activities of the daring and dynamic entrepreneurs is to accelerate the process of economic growth.

Population Growth

The size and the rate of population growth has an economic bearing on the economic development of a country. If the population is too small, it does not afford full scope for specialisation or division of labour not a sufficient market for the goods produced in the country. If,on the other hand, population is too large, then also it is a great impediment to economic growth. It is a serious hindrance to capital formation. Hence, population should be of a proper or optimum size. Apart from the proper size of the population it is also essential that the rate of population growth should not be too rapid,otherwise efforts at development will be simply a writing on the sand.A rapid rate of population growth acts like a drag on economic development and creates the many problems, I.e. Food problem, unemployment, low per-capital income.

Social Overheads

Another important determinant of economic growth is the provision of social overheads like,schools,colleges, technical institutions medical institutions, hospitals and public health facilities. Such facilities make the working population healthy, efficient and responsible. Such population can well take their country economically forward.

Conclusion

The factors that go into the process of economic growth are numerous, since this process involves the transformation of the entire economy. All facets of the economy have to be affected.