Essential Economic Factors Affecting Growth and Development
Growth and development of an economy is always a matter of high importance. Every country works hard to ensure that its economy achieves growth and development. There are many factors that affect growth and development. These may range from social, political and economic amongst other things. This paper examines the main economic factors that may affect the growth and development in a country.
Interest rate is usually determined by market trends and governments. Banks cannot just change interest rates on their own intuit because they have to abide by a country’s policies and stick to the margins of interest rates given. This economic factor is very important when considering the aspect of growth and development.
When interest rates are high, the investors do not have access to easy capital. Those who own businesses may also hesitate to borrow money for expansion projects and also cut down on innovations and production. This ultimately affects business growth rate in the country and has a ripple effect on the economic growth and development.
Low interest rates tend to be more favorable to borrowers and they open a myriad of opportunities to citizens of a country. This often results in high business activity due to easy access to capital and also more cases of expansion. In the long run low interest rates may have a positive impact on employment rates in a country because more businesses will require more employees.
Foreign exchange rate
There are certain currencies which are held in high value and can greatly influence the economic growth and development of every country across the world. The major currency which is carefully monitored across the world is the United States Dollar. Other currencies that may have an impact on economic growth and development include:
- The European Euro
- The Japanese yen
- The British Pound
- The Chinese Yuan
These currencies are monitored because of their economic power and potential effect they may have in the world economic market. When the value of the dollar falls, exports from US to foreign economies become cheaper while imports from these economies into the US become more expensive. This may increase demand for the US products abroad.
The GDP growth rate of any country always impacts on its economic growth and development. A positive growth in GDP tends to have positive impact on the economy because it attracts investors into the country. This in turn increases employment rates in the country and also consumption rate of local citizens. A fall in the GDP levels of a country may not only impact on investment but also reduces spending capacity of the citizens.
The economic policies that a government undertakes can also affect the growth and development rates of a country. If a country chooses to implement sound macroeconomic policies it can experience rapid economic growth. Microeconomic policies have been known to create bureaucracies and create room for corruption and rent seeking. Ultimately, a country has to carry out research and tailor its policies to the economic needs it faces. There must be in place monitoring and evaluation institutions to ensure that the chosen policies are implemented successfully.
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