Economy – Its Meaning and Types: Determinants of Economic Development (For CBSE, ICSE, IAS, NET, NRA 2022)

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Determinants of Economic Development

The process of economic development is influenced by a number of economic as well as non-economic factors:

Natural Resources

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The availability of natural resources facilitate and accelerate economic growth and economic development. It is believed that quality and quantity of natural resources affect the rate of growth.

Human Resources

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Another important determinant of economic development is the quantity and quality of human resources or the population. Other things being equal, educated and technically qualified manpower helps in achieving higher growth rate.

Capital Formation

Stock of capital goods is crucial for rapid economic growth. For increasing the stock of capital, rate of savings must be high. The savings must be invested. Given the rate of savings and investment the rate of growth will depend upon capital output ratio. If the domestic savings are not sufficient government can seek external assistance to increase capital formation and growth rate in developing countries.


Technology can play an important role in the economic development. Technological progress depends upon continuous research and development. Through technological progress a nation may overcome other constraints such as scarcity of natural resources and low productivity. Developed economies invest in its human capital.

Besides these economic factors many other non-economic factors such as:

  • caste system,
  • family type,
  • racial factors, and
  • government policies

Also affect the rate of growth and economic development. It is very difficult to measure economic development and to give one index of economic development.

Distinction between Economic Development and Economic Growth

  • Economic growth is a short-term measure and generally refers to year to year rise in national and per capita income in real terms. But the income index does not take into account the distributional aspects of national income. Another important thing is that income approach does not take into account the unproductive and dysfunction growth and productive and socially useful growth.
  • Economic development on the other hand is a long-term measure over a long period. The economic development refers to overall rise in standard of living and a better quality of life. Besides income index some non-income indices are also taken into account. These are high life expectancy at birth, low infant mortality and high rate of literacy. An improvement in these non-income indices imply that the quality of life has also improved. Some important institutions like UNESCO and ILO include the basic needs approach such as availability of food, clothing and shelter, availability of drinking water, sanitation and public transport facilities good health and education as an index of economic development.
  • The United Nations Development Programmes emphasizes on Human Development Index (HDI) that is based on per capita income, educational attainment and life expectancy. Thus, it is a composite index of economic and social indicators. The economic development, therefore, is a much wider term to capture overall improvement in the quality of life of people.

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