Economic and Non-Economic Factors

Economic and Non-Economic Factors:-
A. Economic Factors:-
1. Natural Resource:

 The principal factor affecting the development of an
economy is the availability of natural resources. The
existence of natural resources in abundance is essential
for development. A country deficient in natural
resources may not be in a position to develop rapidly.
But a country like Japan lacking natural resources
imports them and achieve faster rate of economic
development with the help of technology. India with
larger resources is poor.
2. Capital Formation:
 Capital formation is the main key to economic growth.

Capital formation refers to the net addition to the
existing stock of capital goods which are either tangible
like plants and machinery or intangible like health,
education and research.
Capital formation helps to increase productivity of
labour and thereby production and income. It facilitates
adoption of advanced techniques of production.
It leads to better utilization of natural resources,
industrialization and expansion of markets which are
essential for economic progress.
3. Size of the Market:-
 Large size of the market would stimulate

production, increase employment and raise the
National per capita income. That is why developed
countries expand their market to other countries
through WTO.
4. Structural Change:-
 Structural change refers to change in the

occupational structure of the economy. Any economy of
the country is generally divided into three basic sectors:
Primary sector such as agricultural, animal husbandry,
forestry, etc;
Secondary sector such as industrial production,
constructions and
Tertiary sector such as trade, banking and commerce.
Any economy which is predominantly agricultural tends
to remain backward.
5. Financial System:-
 Financial system implies the existence of an efficient

and organized banking system in the country. There
should be an organized money market to facilitate
easy availability of capital.
6. Marketable Surplus:-
 Marketable surplus refers to the total amount of

farm output cultivated by farmers over and above
their family consumption needs.
This is a surplus that can be sold in the market for
earning income. It raises the purchasing power,
employment and output in other sectors of the
economy. The country as a result will develop
because of increase in national income.
7. Foreign Trade:-
 The country which enjoys favorable balance of trade

and terms of trade is always developed. It has huge
forex reserves and stable exchange rate.
8. Economic System:-
 The countries which adopt free market mechanism

(laissez faire) enjoy better growth rate compared to
controlled economies.
B. Non- Economic Factors:-
‘Economic Development has much to do with human

endowments, social attitudes, political conditions.
Capital is a necessary but not a sufficient condition of
progress.
1. Human Resources:-
 Human resource is named as human capital because of its

power to increase productivity and thereby national
income. There is a circular relationship between human
development and economic growth. A healthy, educated
and skilled labour force is the most important productive
asset.
Human capital formation is the process of increasing
knowledge, skills and the productive capacity of people. It
includes expenditure on health, education and social
services. If labour is efficient and skilled, its capacity to
contribute to growth will be high. For example Japan and
China.
2. Technical Know-how:-
 As the scientific and technological knowledge

advances, more and more sophisticated techniques
steadily raise the productivity levels in all sectors.
Schumpeter attributed the cause for economic
development is to innovation.
3. Political Freedom:-
 The process of development is linked with the

political freedom. Dadabhai Naoroji explained in his
classic work ‘Poverty and Un-British Rule in India’
that the drain of wealth from India under the British
rule was the major cause of the increase in poverty in
India.
4. Social Organization:-
 People show interest in the development activity

only when they feel that the fruits of development
will be fairly distributed. Mass participation in
development programs is a pre-condition
for accelerating the development process.
Whenever the defective social organization allows
some groups to appropriate the benefits of growth,
majority of the poor people do not participate in the
process of development. This is called crony
capitalism.
5. Corruption free administration: -
Corruption is a negative factor in the growth process.

Unless the countries root-out corruption in their
administrative system, the crony capitalists and
traders will continue to exploit national resources.
The tax evasion tends to breed corruption and
hamper economic progress.
6. Desire for development:-
 The pace of economic growth in any country

depends to a great extent on people’s desire for
development. If in some country, the level of
consciousness is low and the general mass of people
has accepted poverty as its fate, then there will be
little scope for development.
7. Moral, ethical and social values:-
 These determine the efficiency of the market,

according to Douglas C. North. If people are not
honest, market cannot function.
8. Casino Capitalism :-
If People spend larger propotion of their income and

time on entertainment liquor and other illegal
activities, productive activities may suffer, according
to Thomas Piketty.
9. Patrimonial Capitalism :-
 If the assets are simply passed on to children from

their parents, the children would not work hard,
because the children do not know the value of the
assets. Hence productivity will be low as per Thomas
Piketty.
Thank You.

Economic and Non-Economic Factors

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Economic and Non-Economic Factors:-

1. Natural Resource:

 Capital formation is the main key to economic growth.

 Large size of the market would stimulate

 Structural change refers to change in the

 Financial system implies the existence of an efficient

 Marketable surplus refers to the total amount of

 The country which enjoys favorable balance of trade

 The countries which adopt free market mechanism

‘Economic Development has much to do with human

 Human resource is named as human capital because of its

 As the scientific and technological knowledge

 The process of development is linked with the

 People show interest in the development activity

Corruption is a negative factor in the growth process.

 The pace of economic growth in any country

 These determine the efficiency of the market,

If People spend larger propotion of their income and

 If the assets are simply passed on to children from

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