Differences in economic growth and development between nations occur due to a variety of factors including historical context, natural resources, institutional framework, human capital and infrastructure.

Key Factors Influencing Economic Growth and Development

Historical Context

Specific historical events such as colonialism, wars, and trade histories have significant impacts on the economic status of countries. This includes economic growth and development. For example, many African countries still face economic challenges stemming from the colonial era. This is evident in their lower GDPs and slower economic growth compared to countries that were never colonised.

Natural Resources

Due to different geographical landscapes, different economies have access to different natural resources. Some countries are more fortunate than others to have access to an abundance of highly valuable resources. Countries rich in resources like oil, minerals, or fertile land often have higher economic growth potentials if these resources are managed well. Higher economic growth rates can thus result in increased economic development, if political systems are well in control of economic policies.

For example, resource-rich countries such as Saudi Arabia have capitalised on their oil reserves to fuel economic growth. This stands in contrast to countries like Japan which lack natural resources. As a result, they must invest heavily in technology and innovation to drive their economies.

Institutional Framework

Institutional framework, or specifically outlined government policies, enforce laws, govern property rights and implement anti-corruption policies. These tend to create stable environments which are attractive for investors. As a result of investment, economic growth can flourish and in turn, economic development.

For example, the World Bank's Worldwide Governance Indicators assess the quality of governance across six dimensions: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. Countries that score higher on these indicators tend to have higher levels of economic development.

Human Capital

Human capital refers to the knowledge, skills and health of a country's population. This is a critical factor for an increase in economic growth. Without productive and skilful labour, capital and resources will be under-utilised and thus inefficient. As such, educated and healthy populations are more productive and can contribute to higher and more sustainable economic growth.

For example, a study by the World Bank found that increasing the average years of schooling by one year can raise a country's GDP per capita by 10% in the long run. Additionally, a 10% increase in life expectancy can boost GDP per capita by 4%. More about this study can be found on the World Bank's website: World Bank Study

Infrastructure

The availability and quality of infrastructure generally reflects the economic development of a nation. Economies with improved roads, ports, electricity, and telecommunications generally have better living standards. Additionally, countries with well-developed infrastructure can attract investment, reduce transaction costs, and enhance productivity. This in turn can increase economic growth.

A report by the McKinsey Global Institute estimated that closing the global infrastructure gap would require an investment of $3.7 trillion per year until 2035. Countries that invest in infrastructure development, such as China's Belt and Road Initiative, have seen significant economic benefits. More about this study can be found at the following: McKinsey Global Institute Study