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What Factors Affect Long-Term Economic Growth?

By Jan Fletcher
Updated Feb 09, 2024
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Among the factors most likely to affect long-term economic growth are societal stability and the integrity of legal systems. Stewardship of natural resources is also a key element in issues that affect a nation's prosperity. Policies that guard the integrity of the child-rearing process and protect familial inheritances are two other factors that facilitate economic growth over the long term.

Societal stability usually depends upon how well societal institutions provide a stable climate for ongoing, long-term investments, so that these may be undertaken with confidence by investors. These institutions can be found in many areas of society focused on providing safety and a better quality of life, including education, defense, health care and research. One of the main ways in which a government facilitates long-term economic growth is by creating and interpreting laws in ways that create a growth-friendly economic climate.

A nation's investment in educational institutions, whether that investment is private or public, is often another major factor in ensuring long-term economic viability. Frequently, a combination of incentives and penalties are used by a nation's government to increase literacy and job skills. Penalties designed to increase economic growth over the long term include compulsory education laws, and laws that punish those who exploit child workers.

How well a nation defends itself is another factor in increasing economic growth over the long-term. If a country is unable to repell invaders, restrict looting, or prevent widespread organized crime, there may be devastating repercussions to the economy. Measures undertaken to ensure adequate national defense are usually deemed critical to ensuring prosperity.

Another way in which a nation's legal system may impact long-term economic growth lies in how well it ensures the integrity of capital ownership. Many nations have laws that exist to ensure capital markets operate lawfully and consistently. In nations where this is not the case, investors may flee to unregulated black markets, and legitimate markets may languish.

Investment in technology is generally considered another key ingredient for facilitating long-term economic growth. Often governments offer incentives to encourage this activity. Government-sponsored technological assistance is a frequent means to increase long-term economic prosperity and may include subsidies to encourage technological development.

Protection of natural resources against unfair exploitation or ruination from pollution is yet another factor in raising societal prosperity. Improper stewardship is usually thought to be a key ingredient necessary to increasing the standard of living. As competition for natural sources like fresh water, productive farmland, or ocean fisheries intensifies in a geographical area, ensuring ongoing viability of these resources is considered by most to be of critical importance for long-term economic growth.

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Discussion Comments

By donasmrs — On Nov 15, 2014

What about farms and factories? And what about job creation? It won't mean anything to educate and train people if they can't find jobs afterward. If people have jobs, then they will produce more and buy more. This will lead to even more jobs and more growth.

By fBoyle — On Nov 14, 2014

Of course, national security and defense are important for economic growth. But I think that investing too much in these areas can be harmful too. US is one country that has exaggerated defense spending. One source said that in 2014, 22% of the US federal budget was allocated to defense spending. Compare that to 3% of the federal budget for education and 10% for welfare.

Is defense that much important for economic well being than education? I'm not saying that the US allocated its defense budget with economics in mind. But I do believe that the excessive defense spending has a negative impact on the economy. That money could be better utilized by investing in education, jobs and welfare, things that will support the economy far more.

By SarahGen — On Nov 14, 2014

From a purely economic standpoint, the key to long-term economic growth is to make sure that the economic growth has a real basis in production.

Sometimes, governments are able to create short term periods of economic growth by putting money and resources in the market. So it looks like the economy is growing, but what ends up happening is that it raises inflation to extremely high levels and development natural stops. And people end up worse off than they were before because prices of goods have gone up and spending power has decreased.

But if the economic growth is based on production -- if people can spend more money because they earn more money -- this will result in long-term economic growth.

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