Question

3. Answer each of the following prompts with a detailed response using sound economic reasoning and examples.

a. What is the most important factor in determining economic growth rates across nations? What can be done to enhance this factor?

Answer 1

Economic growth rate is a highly complex phenomenon and is influenced by many factors such as political, economic, social and cultural factors. Among various factors capital formation is the very core of economic growth rates across nations. Without capital accumulation the process of rate of growth of economy cannot be speeded up. Levels of productivity in the United States of America are very high mainly because people of America work with advanced and better type of capital goods built up over the last several years. Poverty and low productivity of developing nations is mainly because of the scarcity or shortage of real physical capital in these nations.

Economic growth rate cannot be accelerated without accumulating numerous types of capital goods, that is, without building factories, dams, bridges, roads, machines, tools, railways, ships, ports, irrigation works, fertilizers, etc., much economic development is not achievable.

For example the nations that allocate a higher fraction of their GDP to investment such as Singapore and Japan achieved higher economic growth rates, and nations that allocate a small share of GDP to investment such as Nepal and Bangladesh have low economic growth rate.