Economics Report: An Analysis of Factors Impacting Economic Growth

This economics report provides a comprehensive overview of various factors that influence a nation's economic growth. The report begins with an introduction that defines economic growth and outlines the scope of the analysis. A literature review is then presented, exploring the impact of several key determinants. These include international trade, government expenditure, foreign direct investment, population size, the rule of law, levels of investment, inflation rates, the availability of natural resources, and political stability. The report examines the positive and negative effects of each factor, drawing on existing research and literature. Factors such as trade, government spending, FDI, investment, natural resources, and political stability are identified as catalysts for economic expansion. Conversely, high population growth and inflation are presented as potential impediments. The report concludes by summarizing the key findings and highlighting the complex interplay of factors that shape a country's economic trajectory.

Running head: ECONOMICS
Economics
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Table of Contents
Introduction................................................................................................................................2
Literature Review.......................................................................................................................2
a) Effect of trade on economic growth...................................................................................2
b) Effect of government expenditure on economic growth...................................................2
c) Effect of foreign direct investment economic growth.......................................................3
d) Effect of population size on economic growth..................................................................3
e) Effect of rule of law on economic growth.........................................................................4
f) Effect on investment on economic growth.........................................................................4
g) Effect of inflation on economic growth.............................................................................4
h) Effect of natural resources on economic growth...............................................................5
i)Effect of political stability on economic growth.................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................6

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Introduction
Economic growth of a nation is measured by sustained increase in Gross Domestic
Product (Mankiw, 2016). The paper reviews different literatures affecting economic growth
of a nation. The specific factors of interest are trade, government expenditure, foreign direct
investment, population size, rule of law, investment, inflation, natural resources and political
stability.
Literature Review
a) Effect of trade on economic growth
International trade has a significant role to lay in determining economic growth of a
nation. Several studies have attempted to evaluate the impact of trade on economic growth of
a nation. Most of the previous literatures support suggest that international trade which
comprises export and import of a nation has positive and statistically significant influence on
economic growth (Ahamad, 2018). Positive relation between trade and economic growth can
be explained by the fact that international trade enhances efficiency in production and thus
results in welfare achievement for all the participating nations irrespective of their initial
level of development, technological capabilities and resource endowment.
b) Effect of government expenditure on economic growth
Government expenditure is used as an important instrument in fiscal policy design of
state. There are two popular hypotheses that state the effects of public expenditure on
economic growth. The first is Wagner’s law that states that government expenditure is an
endogenous factor of economic growth and there is a long term tendency of government
expenditure to increase relatively to some national aggregate such as GDP. Keynesian
hypothesis in contrast states a direct relation between government expenditure and economic
growth. Increase in government expenditure accelerates economic growth of a nation (Gisore

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et al., 2014). Government spending in most cases has found to be an exogenous force that
enhance economic growth.
c) Effect of foreign direct investment economic growth
Foreign Direct Investment refers to the investments made by multinational
corporations of foreign nations for controlling assets and managing production activities in
those nations. Foreign Direct Investment is most cases is considered to have a beneficial
impact on the economy of host nation. The beneficial effect is derived from the dissemination
of advanced technology and other managerial practices to the host country. FDI thus entails a
positive externality to the host nation results in an efficient means of production (Agbo et al.,
2018). FDI helps the host countries to overcome the gap in domestic savings, government
revenue, foreign exchange and skills which contribute positively to the economic growth of a
nation.
d) Effect of population size on economic growth
High population growth is a cause of concern worldwide and imposes great challenge
to the economies of particular countries. Rapid growth of population has a tendency to
depress per capita saving retarding per capita growth of physical capital. The pressure from
growing population broadened the necessity of broadening social infrastructure and
increasing public expenditure to meet the need of every citizen (Thuku, Paul & Almadi,
2013). Population pressure tends to intensify constraints in the foreign exchange market in
terms of putting more pressure on the balance of payment account. A large size population
also means the economy can produce and consume more goods supporting a higher growth.
However, this can only possible if there are ample opportunities for employment generation
along with proper training and education.

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e) Effect of rule of law on economic growth
In an economy institutions are considered as the set of rules defining game of the
society. The most effective instrument of institutional development of a nation is the rule of
law. The rule of law positively contributes to economic growth of a nation by ensuring
efficient use of resources into productive areas (Ozpolat et al., 2016). Rule of law is
considered as the greatest assurance that people in a society needs the most. Therefore, in a
society confined to superior law ensuring safety and peace of people economic growth and
development gain a momentum.
f) Effect on investment on economic growth
Among various factors affecting economic growth of a nation investment is a crucial
one. Countries that can successfully accumulate high level of investment can achieve a faster
economic growth and development. Public investment is a prerequisite for developing basic
infrastructure and attract investment in private sector. Public investment in health, education
and other public goods benefit the society as a whole (Epaphra & Massawe, 2016)
Investment in development of human capital and economic environment are also helpful in
boosting economic growth of a nation.
g) Effect of inflation on economic growth
A significant amount of attention has been given to study the impact of inflation on
economic growth. Price stability as measured by rate of change in inflation is one of key
variables that can help to promote economic growth along with a sustainable development.
An increase in price level reduces value of money. With a lower value of money people in the
economy lose their confidence in using it as an exchange medium (Ruzima & Veerachamy,
2016). The results in a decline in saving and associated lower investment leading to a fall in
economic growth.

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h) Effect of natural resources on economic growth
The impact of natural resource on economic growth is a controversial aspect to be
discussed. Historically, natural resources are considered as a crucial factor in development of
many countries. Countries rich in natural resources can ensure a faster economic growth by
using the resources efficiently (Betz et al., 2015). A resource rich nation has the greater
change to grow at a faster rate relative to nation lacking such resources. There are however
some influential studies showing a relatively slow growth of resource rich nation compared to
resource poor ones.
i)Effect of political stability on economic growth
Political instability is considered as one of major obstacles in economic growth of a
nation. There is a close relation between economic growth and political stability. A decline in
external investment and fall in economic progress can be a result of instability in political
environment (Chiu, 2016). Weak economic growth often results from collapse of government
and political conflicts in the economy. Political stability is therefore considered as positive
factor supporting economic growth.
Conclusion
The paper discusses various factors affecting economic growth of a nation. Some of
these factors have a positive influence on economic factor while others have adverse impact
on growth. Factors supporting economic growth include trade, government spending, FDI,
investment, natural resources and political stability. In contrast, size of population and
inflation adversely affects economic growth a nation.

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References
Agbo, E. I., Onyema, D., Joseph, I., & Odoh, L. C. (2018). Effect of Foreign Direct
Investment on Economic Growth: The Nigeria Perspective. Research Journal of
Finance and Accounting, 9(12), 79-87.
Ahamad, Md. (2018). Impact of International Trade on Economic Growth in Bangladesh.
International Journal of Science and Research (IJSR). 7. 1624-1627.
Betz, M. R., Partridge, M. D., Farren, M., & Lobao, L. (2015). Coal mining, economic
development, and the natural resources curse. Energy Economics, 50, 105-116.
Chiu, W. H. (2016). Political Governance and Economic Growth: Evidence from Emerging
Economies. International Journal of Economic Perspectives, 10(4).
Epaphra, M., & Massawe, J. (2016). Investment and economic growth: An empirical analysis
for Tanzania. Turkish Economic Review, 3(4), 578-609.
Gisore, N., Kiprop, S., Kalio, A., Ochieng, J., & Kibet, L. (2014). Effect of government
expenditure on economic growth in East Africa: A disaggregated model. European
Journal of Business and Social Sciences, 3(8), 289-304.
Mankiw, N. G. (2016). Brief principles of macroeconomics. Cengage Learning.
Ozpolat, A., Guven, G. G., Ozsoy, F. N., & Bahar, A. (2016). Does rule of law affect
economic growth positively. Research in World Economy, 7(1), 107.
Ruzima, M., & Veerachamy, P. (2016). Impact of inflation on economic growth: A survey of
literature review. International Multidisciplinary Research Journal, Golden Research
Thoughts, 5(10), 1-9.

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Thuku, G. K., Paul, G., & Almadi, O. (2013). The impact of population change on economic
growth in Kenya. International Journal of Economics and Management
Sciences, 2(6), 43-60.