What Factors Affect GDP Growth?

A nation’s growth domestic product (GDP) represents the economic market values for the goods and services that businesses produce. GDP growth occurs when a country allows its private sector to operate in a mostly unregulated manner. Specific factors that affect GDP growth include widely available economic resources at cheap prices, high labor and wage output, and strong consumer and business confidence. In many cases, these factors all occur differently in each nation; other times, different factors can play a role. Therefore, growth is not something every nation experiences at the same time or through the same factors.

Freedom and the ability to collect and protect private property are among the most important underpinnings of a nation’s economy. These two factors must be present as they encourage individual citizens to reach for the sky and make every attempt to increase their own personal livelihoods. Through these two factors, a company naturally experiences GDP growth as the self-interest of each individual takes over. It is up to a country’s government to ensure available resources and the protection of private property. Without ample protections, a country cannot guarantee the economic success of its population.

Economic resources are the physical items individuals and businesses need in order to produce goods and services. These items must be readily available within the country or through trade. A price point that is inexpensive and allows for the maximization of the resources is often necessary to experience solid GDP growth. Competition to obtain these resources can also help ensure GDP growth. As companies seek to obtain more resources than others, growth occurs due to higher supply in the market.

High wages and productivity output are also necessary for a nation to experience GDP growth. High wages indicate a company is able to secure enough profits in order to pay employees well for their labor. These wages then enter the market as individuals purchase more goods, driving up demand and increasing supply. The wages affect productivity as companies seek methods that allow for inexpensive production to increase supply output. The result is inexpensive goods that employees can help produce in large quantities.

Consumer and business confidence represent the belief these parties have in the current economy. In most free-market economies, consumers can make up a large portion of the GDP growth. High consumer confidence indicates buyers who are willing to spend money on various economic goods. The same goes for business confidence. Confident businesses look to increase output and meet potentially higher consumer demand for goods and services.