What Are The Key Factors Affecting Economic Growth?
Demand side factors
1.Monetary policy
The central bank tries to maintain price stability through controlling the level of money supply. Thus, monetary policy plays a stabilizing role in influencing economic growth through a number of channels. The contribution that monetary policy makes to sustainable growth is the maintenance of price stability. Since sustained increase in price levels is adjudged substantially to be a monetary phenomenon, monetary policy uses its tools to effectively check money supply with a view to maintaining price stability in the medium to long term. Theory and empirical evidence in the literature suggest that sustainable long term growth is associated with lower price levels. In other words, high inflation is damaging to long-run economic performance and welfare. Monetary policy has far reaching impact on financing conditions in the economy, not just the costs, but also the availability of credit, banks’ willingness to assume specific risks, etc. It also influences expectations about the …show more content…
In the classical theory of economic growth, labor productivity is regarded as an exogenous factor which depends on the ratio between workforce and physical capital, plus other factors (technical progress), but the beneficial effect of education on potential growth of productivity is not taken into calculation. The new theory of economic growth developed in the early 80s comes to correct this shortcoming of the classical theory emphasizing the importance of education and innovation, (elements of human capital) in long-term economic growth. In contrast to this, the theory of market value, shows that studies have highlighted the influence of intangible assets such as research and development, patents, intellectual capital on the market value of companies and also on their development, leading ultimately to economic growth overall national, regional or global, as the new growth theory
1.Monetary policy
The central bank tries to maintain price stability through controlling the level of money supply. Thus, monetary policy plays a stabilizing role in influencing economic growth through a number of channels. The contribution that monetary policy makes to sustainable growth is the maintenance of price stability. Since sustained increase in price levels is adjudged substantially to be a monetary phenomenon, monetary policy uses its tools to effectively check money supply with a view to maintaining price stability in the medium to long term. Theory and empirical evidence in the literature suggest that sustainable long term growth is associated with lower price levels. In other words, high inflation is damaging to long-run economic performance and welfare. Monetary policy has far reaching impact on financing conditions in the economy, not just the costs, but also the availability of credit, banks’ willingness to assume specific risks, etc. It also influences expectations about the …show more content…
In the classical theory of economic growth, labor productivity is regarded as an exogenous factor which depends on the ratio between workforce and physical capital, plus other factors (technical progress), but the beneficial effect of education on potential growth of productivity is not taken into calculation. The new theory of economic growth developed in the early 80s comes to correct this shortcoming of the classical theory emphasizing the importance of education and innovation, (elements of human capital) in long-term economic growth. In contrast to this, the theory of market value, shows that studies have highlighted the influence of intangible assets such as research and development, patents, intellectual capital on the market value of companies and also on their development, leading ultimately to economic growth overall national, regional or global, as the new growth theory