What Factors Affect GNP Growth?

The ability of a country to increase its gross national product (GNP) and grow its economy may increase if the quality of human capital is improved by education and health care. A country can aim to increase the quality of its workforce by increasing educational and vocational training opportunities and retraining those who need to take up work in new industries. Improvements in physical infrastructure and the level of technology in use also are contributors to growth. In addition to this, the institutional infrastructure of the country in areas such as law, banking and government institutions is essential to GNP growth.

Improvement of the physical structure of the country in terms of buildings, roads, bridges and railways is essential to supporting economic activity and encouraging GNP growth. The social capital — in terms of houses, schools and hospitals — also is essential to providing the sanitation, health and educational services that are essential to improvements in human capital. An enlightened immigration policy that attracts highly trained personnel from abroad may increase the quality of the country’s workforce. Where more skilled people may be brought into the workforce, either by policies to reduce unemployment, immigration or population growth combined with adequate education, GNP growth may be encouraged.

Improvements in the technology in use in a country are a major factor in GNP growth, because such advances may increase productivity, ensuring that more output may be achieved per labor hour. Technology in certain areas, such as mining or oil production, may be absolutely vital for the economy of a resource-rich country. Advances in technology may be reached through research and development or by technology transfer from abroad. The relevant technology may be purchased from foreign companies or licensed in the case of intangible assets. Foreign direct investment in the form of joint ventures or partnerships may create opportunities for technology transfer from foreign companies.

Banking and financial systems must operate efficiency, because they are essential in providing venture capital or loans to businesses. A legal system must be set up to enable people and businesses to enter into and enforce contracts and to protect and prove ownership of assets. In addition to this, the country must ensure political stability to ensure that foreign direct investment continues to come into the country and the population may pursue its business operations without unnecessary interventions from the government. Finally, international relations must be satisfactory and the country must participate in international treaties and organizations. Bilateral investment protection and double taxation treaties should be concluded with the major trading partners to ensure that business risks to investors in trading in the country are reduced to a minimum.