The quantity and the quality of land (preferably arable, very fertile and healthy land) and raw materials/commodities (i.e, gold, trees to produce wood, iron ore) that are avaliable to the country are what are considered to be natural factors (resources). Natural factors are important for the production of primary goods and the efficient production of secondary goods, due to the cost of importing raw materials. Agricultural land is finite and therefore the law of diminishing returns applies as more labor is added to the land. Many LDCs have problems with severe weather, low agricultural productivity, worsening terms of trade, and rising prices for crucial pesticides and fertilizers. However, while these natural resources may help propel a country into development, secondary and tertiary goods are far more successful at increasing development because they are normal goods.
Example: A country endowed with rich, fertile, moist soil, as well as a healthy endowment of oil, such as Iraq, between the Tigris and Euphrates rivers, is a country with strong natural factors of development because they are able to produce good depending on their healthy land and resources. (It is, however, important to note that being rich in natural resources does not necessary mean high development--the Democratic Republic of Congo, for example, has abundunt natural resources but very low human development.)
The quantity and quality of human resources of the country i.e. human skills and labor. Human factors includes the quantity of people available for work as well as the skill level and efficiency of the workers. The education of a population also determines the rate of transition from primary, to secondary, to tertiary goods. This is because of the distinct skill differences between the three types of production. So the better the education the better, and more productive workers can become to help their country achieve a higher level of growth and development. It has also been shown that a basic primary education can help maximise the social benefits of something seemingly unrelated to education. For example, a study in Thailand showed that an irrigation system implemented in a particular area would have had even more of a social benefit had all the adults had a primary education.
Example: The United States of America has been endowed with a high quantity and quality of human resources. Our work force is arguably the most productive in the world.
Physical capital and technological factorsEdit
The physical capital in a country is man-made non-human assets used in production. It can include things like equipment, labor, etc. This also includes the currency that is currently available to a nation and and things such as factories, buildings, trucks, tools, machinery and equipment that are used by businesses in the pursuit of production. Currency and capital can be used to improve infrastructure which helps the country grow qualitatively. Technology makes us more efficient which also aids in growth. Technology progresses year after year.
Example: Again, the United States of America is well-endowed with a wide variety of technologically-advanced equipment and machinery. This allows for great growth and development because of their ability to produce at a more efficient rate.
Institutional factors that contribute to developmentEdit
- • Banking System- A financial institution whose primary activity is to act as a payment agent for customers to borrow and lend. The banking system is one way to get money to move around the country because people can take out loans and make investments into increasing a businesses' capital, ultimately resulting in growth. This will increase the country's long run output levels.
- • Education System- Education must be universal and mandatory, but not dependent on wealth or status of living to be fair and progressive. Children must have the opportunity to learn, nondependent of their gross national income. With increased literacy rates, the more skilled people will be in performing tasks as members of the work force. With the knowledge people gain from education, they can also invent or create new technology to further help develop the country.
- • Health Care- A health care system must be in place so that anyone who needs medical attention has the option to visit a readily-available doctor or medical professional. With a more inclusive health care system, people will have better health which can increase production and keep the population stable.
- • Infrastructure- This refers to a country's network of transportation, energy and communication. A strong infrastructure is necessary for a country's development because a strong infrastructure means that the country is able to move goods and data around quickly and easily, one example is an electrical grid, it is required to work in order to have communication among businesses to run smoothly. With better buildings, roads, and etc, the goods that the country is exporting are more easily transported from one place to another until they reach their destination.
- • Political stability refers mainly to the strength of the country's legal framework. This is primarily applicable to economics with the idea of contracts to buy things such as factories, land, and businesses. If a government isn't corrupt, they can get aid from other country's to increase development in their country further. By having a corrupt government the aid money that is given to that certain country, will not be used efficiently to benefit the country and therefore leads to unstableness, which makes it harder for the country to develop. The only kind of aid they could receive would be one that they would have to spend on a predetermined thing.