Do you know what economic growth is? It is the upturn in the production of goods and services from one-time span to another. As the worth of these goods and services rises, it may escalate profits. It has a magnifying effect that often causes a rise in stock prices and more employment opportunities. With economic growth, corporates have greater capital for investment while consumers have better spending power.
Economic growth is one of the highly-observed indicators, but how does it function and what are the factors of economic growth in 2023? You will find this article.
Know the Factors of Economic Growth
The factors of production are inputs that corporates require to manufacture goods and deliver services, and earn revenues.
Land
When referring to land, the natural assumption is agricultural property. However, in actuality, there are many things included in it. Land may refer to commercial property and some natural resources like forests, fuel, metals and other commodities. It is one of the most crucial factors of production, and many industries largely depend on the land.
Labour
Labour is the workforce that helps in the production of goods and services. Factory workers, managers, salespeople, and specialists are all categorized as labour. These individuals are paid for their expertise, skills, time and effort. However, innovation is replacing human labour.
Capital
A majority of people consider capital as cash; however, it is a broad term. Capital goods may also include industrial plants, machines, apparatuses, and equipment required in production processes. Moreover, trucks, forklifts and other heavy-duty machines are also referred to as capital.
When the economy blossoms, corporates can access capital, invest and continue generating profits. However, in times of recession, people must cut down costs to save capital and make sure that they are still making profits. This is imperative to reassure that they carry on introducing new products and services in the market. Remember that capital refers to assets that are solely used for business operations and for the production of goods and services.
Entrepreneurship
It is another factor of economic growth. It refers to the futurists and trend-setters of the company’s production procedures. The entrepreneurs pool all factors of production to theorize and produce products and services. They are the drivers of technical transformations in the economic system that is a key source of economic growth.
Economists consider that entrepreneurship is a crucial aspect of production process. The reason is that it involves other factors in goods production and services delivery.
The feat of entrepreneurs relies solely on the business plan structure particularly company’s short and long-term goals. After the plan is developed, entrepreneurs hunt for resources, recruit personnel and look for financing.
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Factors of Economic Growth
If a business can enhance the efficacy of factors of production, it can escalate production and create the best quality items at highly competitive rates. A rise in production eventually boosts economic growth reflected by GDP.
Capital good advancement includes iPhones, cloud computing and electric cars. For instance, in past years, modern technology has enabled swift oil extraction in the US. This innovation was not possible without labour support.
As technology supports the efficacy of factors of economic growth, it can easily substitute labour. Entrepreneurs have the skill to combine all factors of production including natural resources, land, labour, and capital goods to manufacture a finished product.
The Impact of Technology
Technology is the main economic driver as it makes production processes faster and more effective. More efficient processes result in a rise in output as factories are able to produce more goods and services in a short time span. Moreover, technology helps in the mechanization of the production of goods and services.
Is Cash a Factor of Economic Growth?
Cash is not deemed as a factor of production; however, it facilitates the production procedure. The reason is that it is not actually a useful resource so is not openly involved in goods production and service delivery. Despite, money is used to compensate for raw material, employee remuneration and other inputs.
Long-Term Economic Growth
When we talk about economic growth, capital stock, labour inputs and technological advancement are the main factors that contribute to economic growth. Economic growth gauges the impact of each factor on the economy. Theory and experimentation show that advancement in technology is the key driver of long-term economic growth. According to the law of diminishing returns, when you hold all other economic growth factors constant, the added output gained through adding one extra unit of input of capital or labour will ultimately drop. Hence, a nation is unable to sustain its long-term growth by just accumulating extra capital or labour. So, the driver of long-term economic growth is just technological advancement.
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