How Interdependent Economies Contribute to a Global Economy, and Why Economic Disparity Exists

The Economy of a country is the production and consumption of goods and services in tandem with the supply of money. Any kind of economic activity done in a country increases the economic growth. Economic growth of a country increases the market value of the goods and services produced by the economy over time. 

Generally, Most developed economies experience slower economic growth as compared to developing countries. For instant, In 2016 American economic growth rate was 1.6% whereas the economic growth rate of India was 7.1%. This is a drastic difference; these data may be misleading because the US’s GDP is 18.57 trillion dollars whereas India’s GDP is 2.264 trillion dollars. 

Economic Growth

Economic Growth is the most important factor of economies. It reduces poverty and unemployment, increases public services, stabilizes different political aspects, and many more. Overall it leads to an increase in the standard of living and quality of life for citizens. Growing economies heighten tax revenues, which further lead to investments in public sectors like transportation, electricity, material needs, etc. There will arise demands of pricing, income, cross commodities or services, individual surplus markets, and composite demands. Higher economic growth also leads to extra tax income from citizens and income for the government spending, which can be used by the government to develop the economy faster. Such expansion also helps in the reduction of the budget deficit. 

Key factors for Economic Growth

Improving or increasing their quantity can lead to the growth of the economy.

Natural Resources

The more abundant natural resources, the stronger an economy is. Natural resources may be crude oil, natural gas, coal, minerals, or forests. These have a direct impact on the economy, the more availability of natural resources, the more can be exported and money can be earned by the country; which lifts the economy. For instance, Saudi Arabia’s economy has historically depended on its oil deposits. We can not increase the natural resources of the land but we can surely maximize utilization of the available resources and get more out of it.  

Infrastructure 

More investments in physical capital such as factories, hospitals, roads, transportation services, and technology reduce operational costs. Better factories, machineries, and technology are more efficient than physical labor. Investing in the infrastructure saves from wasting of human resources, so the manpower can contribute to the real problem solving and growth of the economy. Developed infrastructure makes it easier to attain higher quality and living standards of life.

Population 

The growth of the population means there is an increase in human resources, workforce, and labor. Strong education and technical training in conjuction with skill development will lead the population to have continuously growing per capita income. This increases economic activity and the result is economic boost.  Beware that if the population is not trained or educated sufficiently there will be massive unemployment and poverty. Areas of lower population density seem to have it easier providing adequate education, construction of sufficient facilities which can lead to lower unemployment. 

Technology

Continuous improvement of technology increases the productivity, workforce, economy, quality of life, and standard of living. Technology is one area which is rapidly evolving and has a direct great impact on the economy. Every country that has a developed economy is highly advanced in the technology field which gives them strength for holding power. With advancements in technology, labor automation and work becomes easier, managing task gets easier, public participation becomes improved, tracking of records or analyzing patterns are now also easier to do. Altogether it saves time and provides quality of life, continuously improving the living standards of workers. 

Politics

Activities associated with governance of a country on which stability of economic growth relies is politics. Good governance of a country keeps the growing economystable and citizens are served with benefits of having good governance by constant improvement of public services, increases in the per capita income, easy access to fundamental facilities like hospitals, transportation, education, communication, and internet. However, political instability can lead to disruption of economic growth, decline in quality of living, higher unemployment, and higher poverty.  

Human Capital

Investment in human capital improves the quality of the workforce. This would result in the improvement of skills, ability, training, manpower, etc. Skilled labor is more capable than unskilled or semi-skilled. Higher growth in skilled manpower leads to a larger rise in the economy than having more unskilled or semi-skilled manpower. The economy is dependent on the population. If they are skilled and educated, then the quality of life and the living standards are higher along with worker incomes. If the population is in poverty or has a lack of education then their income and the standard of living will  be much lower.

Factors that Limit Economic Growth

Poor Health and Low Access to Education

Those who do not get easy access to health services and education have a higher risk of negative productivity, low quality of life, and low standards of living. They may not get enough food, struggle with housing, and lack material necessities such as climate adequate clothing. This directly affects the country’s economy, these factors tie the country into the undeveloped or developing zone. The more poverty or lower the education; the lower the economic activity in the country.

Lack of necessary Infrastructure

Insfracture like roads, schools, factories, hospitals, and technology directly affect the quality of living of a city. If these are lower or absent a city can  fall into an undeveloped zone. If the population of such zones is higher, then most of the population may become impoverished. This can be the result of improper education and poor health facilities. Such limitations hold the country’s economy back and makes it more difficult to get ahead. Parallel development of infrastructure is important for any country because the infrastructure helps in the fulfillment of basic needs for the population. 

Political Instability

Politics of a country play the most important role in the making or destruction of any nation. If the country has good political stability, then a growing economy may not be hard for the country. There will be trade balance, accountability, good governance, proper care,  etc. which in turn keep the base of the government strong. Therefore, there will be an increase in economic activities and rise in the country’s economy.

Low Quality Institutional Framework.

Poor quality of institutional framework may impact progress and investment. Human resources need a good institutional framework so they can cultivate skills and quality of the workforce. However, with improper guidance and inadequate supervision, quality of work can deteriorate, such as only giving theoretical education but no practical training resulting in the skills of  a worker getting them nowhere. Responsible leaders give proper guidance to their workers and maintenance to their respective institutions, by which the manpower may procure usable skills. 

The World Trade Organization (WTO)

It is claimed by a lot of economies that the World Trade Organization (WTO) and other trading systems are biased against developing nations. So, many developed nations adopt protectionist strategies which don’t help liberalized trade. Because of this, the developing nations may not get a chance to raise their economy, and hence they may always be behind developing nations as they don’t get a chance to raise their economies.

Costs of Economic Growth

There are two major problems associated with Economic Growth. They are:

Environmental Costs

Economists usually associate an adverse impact on the environment with rapidly developing economies. Increasing the production of goods or services may wear on the required infrastructure which needs maintenance costs, and that will also produce waste materials such as for the production of goods; paper, plastics, and raw materials. For running those services land is required which leads to deforestation sooner or later. Those activities will lead to the pollution and destruction of the environment. After that, for the reconstruction of the environment or protecting or preserving of environment, it will cost high debt for the economy.  Sustainable development may be the solution, for it is cost-effective and environmentally friendly and will produce positive returns in the long run. 

Rising Income Inequally.

Economic growth often leads to increased income of peoples equally. However, Those people who are not involved or related to growth generating sectors of the economy may get left behind in their income. Rural areas suffer the most, because they have less access to the economic infrastructure as compared to people living in cities or towns. It’s not people’s fault for being in the rural area or in the town but the accessibility creates differences. 

Abishek R., Nepal

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