Explain what determines the level of economic development of a nation

Explain what determines the level of economic development of a nation

There are many factors that dictate the level of economic development in a country. The supply of natural resources is one of the aspects that drive economic development. The quality and quantity of natural resources determines the economic development of a country (Hill et al, 2020). Some natural resources are essential to a nation such as minerals, land and oil resources, factories, water and climate. The quality of natural resources in a nation determines the level of output of goods to be produced. The availability of natural resources and ability to utilize or exploit them is critical in determining the level of economic development.

Capital formation also determines the level of economic development of a nation. Labor and capital are combined in a nation to produce goods and services. Workers require machines, factories and tools to work. In addition to that capital makes employees to be more productive. A nation should set up more factories which are equipped with machines and tools to increase the productive capacity. Capital accumulation increases the process of economic growth( Hill et al , 2020).There are various capital goods which need to be accumulated for economic development such as factories, dams, railways, roads, ports, tools, machines, ships, fertilizers and irrigation works. One way of achieving capital formation in a nation is by saving that is sacrificing some current consumption. Supplies of capital goods can only be due to investment and investment result from part of current income is saved hence saving is important to economic development.

Technology is another important factor in determining the level of economic development. When advanced techniques are used in production or process in technology result in increase in per capita output (Hill et al , 2020).. In other cases, technological advances lead to increase in supplies of available natural resources. Technological advance lead to increase in production or effectiveness with capital, natural resources or labor are utilized and worked to produce goods.

Identify the macropolitical and macroeconomic changes occurring worldwide.

Political systems can be evaluated using two dimensions; the level to which they emphasis collectivism in contrast to individualism and the level to which they are democratic or totalitarian (Hill et al , 2020). A collectivism is the ideology that emphasizes more on the requirements of society rather than declaring individual needs as the most vital. Collectivism leads to advocacy for state intervention in economic activity and according to Fidel Castro’s communism is a totalitarian dictatorship. Cuba is an example of a country that incorporates the ideology of collectivism. On the other hand, individualism is an ideology that is created on an emphasis of primacy of individual’s freedom in the political, cultural and economic realms. Individualism leads to advocacy for democratic ideals and free market economics. America is having ideology of individualism.

Describe how transition economies are moving toward market-based systems.

Many countries in the world are changing to market – based system such as Spain, China and South Korea. This simply means a transition in economy. In particular, the economies in these countries changes from centrally planned economy to a free market. Such a transition in economies are accompanied with economic stabilization, whereby market forces dictates the prices of goods and services rather than a central planning organization (Jeffries,1996). Therefore, the markets of those countries experience economic stabilization. Economic stabilization is achieved by activating administrative and economic levers which are emergency mechanisms (Jeffries,1993). In economic stabilization some government reserves and stockpiles could be spent. On top of that, trade barriers are eradicated, and there is more privatization of state – owned businesses and resources and a financial sector is built to facilitate macroeconomic stabilization and movement of capital which is from private sector. China has applied this process, the former Soviet Union and Communist bloc countries of Europe and also third world countries and more work has been engage its social and economic effects.

Moreover, government spending could be curbed drastically in domestic spending and expenditures so as to maintain government expenditure on large – scale economic projects that do not produce immediate benefits. Market infrastructure is required in market – based system. Labor market and capital market are important, small scale and midsize enterprises who fill the gap in nation economy and lead to competition among producers ( Hill et al , 2020). Property ownership is required for transition economies towards market – based systems. Producers should own property in different forms. Credit resources are required to encourage small scale entrepreneurs. Countries borrow funds from investment banks so as to attract foreign investment that allows producers to secure credits required for privatization. This process brings profit back quickly and loans are soon repaid. Public support is required in transition towards market- based system. The government requires full support and confidence of its citizen.

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