Importance of Internal and External Factors to Economic Development Essay

Importance of Internal and External Factors to Economic Development - Essay Example However, the biggest question in the minds of everyone is what has causes varying rates of economic development in a country. What are the reasons that have seen countries such as Japan and China emerge to become among the greatest economies in the world with a record time? Additionally, one would always want to understand whether the involvement of the government in the economic process causes accelerated economic growth or should the government give the private sector autonomy in determining how they conduct their activities. Additionally, countries do not live in vacuum but have to trade with their neighbors and their security may be threatened by the activities of others and therefore they have to keep into consideration the external factors in economic development. From the foregoing introduction, it is clear that one cannot argue entirely that the level of economic development in a country is attributable to only internal or external factors. Although interplay of both internal and external factors determines the path of economic development of a country, internal factors are the greatest determinants economic development of a country. The major internal factors that determine the pace of economic development in a country is the type of governance adopted. ... It is undisputable that the leadership of a country determines the level of economic growth that a country is able to achieve. In a country, governments hold much power and are expected to offer leadership in terms of economic and social developments that take place. Consequently, when a government fails to carry out an analysis of the impacts of its policies, this may spell out the starting point of its failure. The argument that governance really plays a role in determining the pace of economic development in a country is collaborated by Gerschenkron. When assessing economic backwardness in different countries, Gerschenkron argued that there is a strong correlation between economic underdevelopment and centralized bureaucracy in a country. The type of governance adopted determines the way in which the required capital for industrialization is mobilized and allocated. In a country where the government encourages private to public sector investment, the rate of economic development i s expected to become accelerated due to efficiency in resource allocation and monitoring thereby reducing wastage. In such an economy, the government concentrates in development of the right infrastructure required for development while the private sector provides and invests capital required for industrialization. Countries that promote public-private sector partnership in economy leads to development of free markets that have high productivity and efficiency. In countries where free trade thrives, high productivity is achieved since the owners of such resources closely monitor and control the production process unlike in countries where the government controls production. Government control in the production process leads to