Economic growth is generally defined as a sustained increase in per capital national output over a long period of time. It implies that for economic growth of a nation, the rate of increase in its total output must be greater than the rate of population growth. It may be asked here. Is there no growth in a country where nation's output and population increase at the same rate so that per capital output remains constant? And, is there growth in a country where both output and population decrease output decreasing at a lower rate than population- so that per capital output increase? The answer to these questions is certainly in negative. For if output and populating grow at the same there would be no increase in per capital income. And there would be no improvement in the general standard of living, despite increase in the output, such a growth is considered to be as good as stagnation in the economy.
On the other hand, increase in per capital income as a result of a faster decrease in population than the decrease in output amounts to general decay in the economy' there is no growth despite per capital increase on income. Thus, economic growth increases in per capital income along with increase in population.
Another feature of economic growth is that the national output should be composed of goods and services that satisfy the maximum number of wants of the people. Also increase in national output must be sustained over a long period of time. This is an important condition of economic growth. Short-run increase in output in one period followed by a similar decrease in it in the next output does not satisfy the conditions of sustained economic growth.
Factors in economic growth
The views of economists on growth factors have been changing with the change of time and emergence of new factors of economic growth, briefly speaking, the classical economists, especially Adam smith and devoid Ricardo, had used only there factors in their growth theories and also in their production function. These factors are identifies as land, labour, and physical capital. The later developments in production and growth theories identified certain invisible factors that contribute to the growth of output, often more than the physical factors-land, labour and physical capital. The invisible or non-physical factors that often figure in modern theoretical discussions are human capital technological change and institutional change.
Land as a growth factor
Land as a growth factor and also as a factor of production refers to all the natural resources of a country. The term land in this sense includes arable land, plain land surface, and fertility of soil water resources, forests, underground resources (minerals), topography, climate, weather conditions, and rainfall. In economic growth analysis, land and always been considered as a very important factor.
Nevertheless, a vast area of fertile land endowed with adequate supply of eater, large deposits of minerals and favorable climatic conditions help economic growth of a country in many ways.
One, apart from air and water, fertile land is the most important source of food, the basic need of human life. Countries having fertile land with plain surface of land, suitable for cultivation, are able to produce sufficient food for their population. Countries not having this quality of land, for example, Saudi Arabia and other Middle East countries depend on imports for their food requirement. They have to spend a considerable part of their export earnings on food imports.
Two land endowed with area of natural resources is the richest source of industrial raw materials.
Labour as a growth factor
If Mother Nature is the source of all life-support systems labour is the father of all usable goods the extent to which natural resources can be harnessed and goods and services produced depends on the number of hands that can be put to work and the number of hands depends on the populations of the country.
Labour as a means of production has two aspects-number and quality. The numerical aspect or labour refers to its physical form, the natural or crude form of labour. The quality of labour refers to the skill and training ingrained in labour.
Capital as a growth factor
The term capital is used in both a narrow sense and a broad sense. In narrow sense it refers to only productive assets which produce goods and services directly, like machinery, tools equipments, and building. In broad sense, capital means al man-made means of production. The man-made means of production can be classified under three categories; (i) physical capital (machinery equipments, etc.) (ii) social overfeed capital, and (iii) human capital physical capital includes tools and equipment machinery, building and plant, etc, the social overhead capital includes educational institutions (schools college universities research and training institutions) dams bridges and canals electricity generation plants, telecommunication equipments, roads, railways airports seaports, planes ships trucks and buses, etc. human capital refers to educated and skilled manpower, it improves the technique of production through innovations and inventions which convert improbable into probable.
Human capital as a growth factor
The knowledge and skill embedded in human beings is called human capital. human capital includes the stock of knowledge and skill people's ability to think perceive conceive and create new ideas and thoughts, their capability to discover, invent and innovate, and their ability to convert the ideas and the thoughts into productive physical assets (the physical capital), and to devise a system of reorganizing labour and capital which can enhance productivity of both labour and capital.
Human capital lays the most important role in economic growth
Economists right from the early days recognized knowledge the mental power, of human begins as the most important factor in human survival and its material prosperity.
Human capital and economic growth: some empirical evidence
Statistical investigations reveal that output in developed countries has increased at a much higher rate than can be explained by the increase in labour and capital inputs. The residual difference between the rates of increase in output and the rate of increase in physical capital and labour can be attributed to many unidentified factors of which the qualitative improvement in inputs s prominent. But qualitative improvement in labour input is most significant. The developed countries have had grown at a high rate because, among other things human capital formation in these countries has been much faster than the physical capital formation. In the United States, for example, the stock of human capital increased at a rate that exceeded by wide margin the rate at which the stock of reproducible material capital had increased.