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What Makes A Strong Economy


According to The Balance (a personal finance website), a healthy economy is where unemployment and inflation are in balance. That is, the “natural rate of unemployment will be between 4.7 percent and 5.8 percent” while the “target inflation rate will be 2.0 percent.”

A healthy economy is traditionally defined and measured in terms of the Gross Domestic Product (GDP) or “the total value of everything produced by all people and companies in the country.” Therefore, if the GDP growth rate is healthy and thereby sustainable, “the economy stays in the expansion phase of the business cycle as long as possible” which leads to a positive change in the level of goods and services production, high level of employment, and ultimately, increased standard of living – thus, economic growth.

However, on a side note, more growth isn’t always better or healthier. Think about it as a body temperature – If the temperature is lower than the ideal, the body is sick. If too low, it is near death. Similarly, a higher temperature could mean fever. If beyond that, the body is deathly ill.

There is, therefore, a need for balance. And there are several key components that are detrimental to achieve this. In one way or another, they affect the economic growth in a helpful or hampering way but without them, it is quite impossible for a country’s economy to stay in the “ideal zone”.

Following are the important factors that make a strong economy:

Natural Resources

“Natural resources are materials from the earth that people use to meet their needs” and therefore, an abundance of it can give a head start as it could increase a country’s production capacity.

Natural resources can be categorized into two major types being renewable and non-renewable.

Renewable resources are “those that are used at a slower rate than they are replaced” which include water, animals, plants, wind, and the sun. Whilst non-renewable resources are “those that are used faster than Nature can create” like natural gas and minerals.

A country that is blessed with rich natural resources could give it an advantage towards the growth path. But it does not necessarily mean that countries with lesser natural resources will not. The exploitation and utilization of these resources depend on the skills and abilities of the labor force, technology, and availability of capital. A country with a skilled and educated workforce could spur growth, otherwise, it is most likely to struggle.

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Human Resource

Countries (especially the less-developed ones), even those with high amounts of natural resources, will lag behind if they fail to improve the skills and education of their workers.

Human resource is defined as “the people that staff and operates an organization.” The same as in a company setting, a country with skilled, well-trained, and well-educated workforce is more likely to be more productive and could produce high-quality outputs that add efficiency to the economy.

On the other hand, an under-utilized, illiterate, and unskilled workforce could be a deterrent to economic growth as it will become a drag on the economy and could lead to higher possibilities of unemployment.

Physical Capital

Reducing the cost and increasing the efficiency of economic output will lead to higher productivity. Thus, capital formation is necessary for a country’s economic progress. It includes producing and acquiring land, building, machinery, power, transportation, and medium of communication.

“Capital formation increases the availability of capital per worker” which consequently raises the productivity of labor and results in an efficient output and economic growth.

Political and social factors

To a considerable extent, political and social factors contribute to making a stronger and healthier economy.

According to a research study titled “The Impact of Political Determinants on Economic Growth in CEE Countries”, “it is impossible to analyze a country’s economy by taking into account only the market factors.” Therefore, political factors are important to analyze the economic process and observe “to what extent and in what direction the political determinants of a state government affect its economic performance.”

Such determinants include regime type, political stability and instability, policy management, corruption, and the laws.

Meanwhile, social factors or (as it is commonly referred to) social economics examine the relationship between social behavior and economics. These include the following factors,

Lifestyles. A country’s way of living plays a crucial role in economic growth. For instance, a society that resists the adoption of modern ways of living and continues with conventional beliefs and superstitions will less likely to achieve improvement.

Sex distribution. Sex ratio, also, has pervasive effects on humans because it influences consumer behavior and economic decisions. In a study (based on a male-biased sex ratio) done in 2012, it was found that “monetary decisions and consumer spending are related to mating effort – increased mating effort is associated with increased male desire for immediate rewards and increased male spending on conspicuous consumption products.”

Family size and structure. The place of a family within the society largely depends on the economic functions it performs. Specifically, the size of a family which relationship with economic growth is quite controversial. A low-income country with larger family sizes may have slow development, whilst smaller family sizes in high-income countries could create social and economic problems.

Additionally, family structure and economic well-being are correlated. For example, the U.S. economy is strongly related to marriage.

According to a research – marriage, which creates intact family structures, are found to “outperform all other sexual partnering structures; hence the economy rises with intactness” and encounters fewer difficulties and inefficiencies. Divorce, on the other hand, rises poverty – that is, non-intact family structures are six times more impoverished than the married families.

Similarly, Ted Khalaf, an experienced family divorce lawyer of Divorce Lawyers Los Angeles, believes that “divorce is bad for the economy.” Speaking from experience and concerned with the growing divorce rate,, Khalaf explained that throughout the divorce process, the rate of income increase for a man drops almost to that of his always-single counterpart. “It is common misconception that higher divorce rate will lead to stronger economy. This is simply not true.”