What are main sources / determinants / indicators / requirements of Economic Growth?
The key sources or factors that determine economic growth are Capital formation, Capital-output Ratio, occupational structure, Technological progress etc.
Capital Formation
Capital (both human and physical) is required for increased production capacity of an economy. The greater is the capital formation, greater will be the productivity of all other factors of production, and hence greater will be the total output of goods and services in the economy. Thus, there is a strong positive correlation between rate of capital formation and rate of economic growth. The most developed countries have had the highest rates of capital formation either today or at one time.
Capital-Output Ratio
Capital-Output Ratio refers to the number of units of capital that are needed to produce one unit of output. This ratio depends from sector to sector and industry to industry. Further, capital output ratio also depends upon efficiency in the use of capital; quality of managerial and organizational skill as well as Marginal efficiency of capital.
Occupational Structure
Occupational Structure refers to the distribution of work force over different sectors of an economy. As an economy grows there is a shift of labour force form primary to secondary and then to territory sector. With the shifting of labour from agriculture to service sector, efficiency of labour increases which in turn increases the efficiency of the economy, resulting in better growth.
Technological Progress
With improvements in technology, same resources can become more productive and thus help in better economic growth. For example, Computer / Information technology has increased the output of all kinds of offices many times. For technological advancement, we need to have quality of education and well equipped research and development. Government Initiatives in this regard play much important role.
Thus, higher economic growth can be ensured by increasing in the rate of capital formation and by generating forces that increase the productivity of capital.
