The Common Factors of Economic Growth

Analogically, we may have to go in search of firewood just as we have to identify some of the common factors of economic growth that may help facilitate it. Economists generally agree that economic development and growth are influenced by four factors: human resources, physical capital, natural resources and technology.

Highly developed countries have governments that focus on these areas. Less-developed countries, even those with high amounts of natural resources, will lag behind when they fail to promote research in technology and improve the skills and education of their workers.

The skills, education and training of the labor force have a direct effect on the growth of an economy. A skilled, well-trained workforce is more productive and will produce a high-quality output that adds efficiency to an economy.

Improvements and increased investment in physical capital – such as roadways, machinery and factories – will reduce the cost and increase the efficiency of economic output. Factories and equipment that are modern and well-maintained are more productive than physical labor. Higher productivity leads to increased output.

Labor becomes more productive as the ratio of capital expenditures per worker increases. An improvement in labor productivity increases the growth rate of the economy.

The Common Factors of Economic Growth

Economic growth also helps improve the standards of living and reduce poverty, but these improvements cannot occur without economic development. Economic growth alone cannot eliminate poverty on its own, at least not without considering some of the common factors of economic growth.

Natural Resources

The discovery of more natural resources like oil, or mineral deposits may boost economic growth as this shifts or increases the country’s Production Possibility Curve. Other resources include land, water, forests and natural gas.

Realistically, it is difficult, if not impossible, to increase the number of natural resources in a country. Countries must take care to balance the supply and demand for scarce natural resources to avoid depleting them. Improved land management may improve the quality of land and contribute to economic growth.


An institutional framework that regulates economic activity such as rules and laws. There is no specific set of institutions that promote growth.

Physical Capital or Infrastructure

Increased investment in physical capital, such as factories, machinery, and roads, will lower the cost of economic activity. Better factories and machinery are more productive than physical labor. This higher productivity can increase output. For example, having a robust highway system can reduce inefficiencies in moving raw materials or goods across the country, which can increase its GDP.

Read Also: 4 Major Objectives of Macroeconomics

Human Capital

An increase in investment in human capital can improve the quality of the labor force. This increase in quality would result in an improvement in skills, abilities, and training. A skilled labor force has a significant effect on growth since skilled workers are more productive. For example, investing in STEM students or subsidizing coding academies would increase the availability of workers for higher-skilled jobs that pay more than investing in blue-collar jobs.


Another influential factor is the improvement of technology. The technology could increase productivity with the same levels of labor, thus accelerating growth and development. This increment means factories can be more productive at lower costs. Technology is most likely to lead to sustained long-run growth.\

Population or Labor

A growing population means there is an increase in the availability of workers or employees, which means a higher workforce. One downside of having a large population is that it could lead to high unemployment.

  • Wrong Factors

Poor Health & Low Levels of Education

People who don’t have access to healthcare or education have lower levels of productivity. This lack of access means the labor force is not as productive as it could be. Therefore, the economy does not reach the productivity it could otherwise.

Lack of Necessary Infrastructure

Developing nations often suffer from inadequate infrastructures such as roads, schools, and hospitals. This lack of infrastructure makes transportation more expensive and slows the overall efficiency of the country.

Flight of Capital

If the country is not delivering the returns expected from investors, then investors will pull out their money. Money often flows out of the country to seek higher rates of returns.

Political Instability

Similarly, political instability in the government scares investors and hinders investment. For example, historically, Zimbabwe had been plagued with political uncertainty and laws favoring indigenous ownership. This instability has scared off many investors who prefer smaller but surer returns elsewhere.

Institutional Framework

Often local laws don’t adequately protect rights. Lack of an institutional framework can severely impact progress and investment.

The World Trade Organization

Many economists claim that the World Trade Organization (WTO) and other trading systems are biased against developing nations. Many developed nations adopt protectionist strategies which don’t help liberalize trade.

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