To understand how growth can occur, we need to consider the factors of production. Economists observe that in the production of any good, four factors of production are involved. These are
The physical land, but also comprising all the natural resources on the earth, below the earth or in the atmosphere. There is a distinction between renewable and non-renewable resources. Renewable resources are those that can be used and replaced. For example, water in a lake can be used, but can also be replenished. Non-renewable resources are those that once used cannot be used again. For example, coal and oil.
This is the workforce of the country. Each worker has a certain capacity to produce based on inherent characteristics such as intelligence, physical strength and emotional stability, and also acquired skills produced through education and training.
This comprises the stock of manufactured tools, machines, and other manmade resources, such as roads and railways, that are used in the production of goods and services.1
Entrepreneurs are individuals who organise the other factors of production to make goods and services. They also take risks with their own money and the financial capital of others.
Growth can occur because one or more of the factors of production can increase. New resources can be discovered; land can be reclaimed; the workforce can be upskilled, so that each worker is capable of producing more per hour of effort; the capital of the country can increase; and the total organisation of the factors of production, through enterprise, can improve. Technological change, as a result of enterprise, can result in better production techniques.
Of course, a country can also suffer negative growth; for example, a war may result in the destruction of labour and capital, and may result in land becoming useless for production.
1 It is worth noting that the term “capital” has many meanings. This is the...
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