Economic factor

Economic factor
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Every nation or country has a group of attributes such as natural resources and experienced workforce that can affect their ability to build their economy. These group are known as the economic factors. These factors have an impact on their capacity to further evolve their economy.

Economic factors are related with goods, services, and money. In spite of straightly affecting enterprises, these variables invoke to local or global financial state of economy. The reason for this is that the state of the economy may determine many of the important specifics that arise in an operating company, among others points such as consumer demand, taxes and asset value. Economic factors are included in one of the basic methods of all business analysis — PEST analysis. This is because economic factors play an important role in deciding how a business makes its financial decisions (R. Perera, 2017; D.E. Koumparoulis, 2013, s.32-33.).

Economic factors in PEST analysis[edit]

PEST analysis is a common instrument used in a business to analyze competitive environments and then create strategies based on this examination. It is a business measurement tool. The aim of PEST analysis is to regularly analyze the environment as regards different changes. These are political, economic, social and technological changes that can influence the company in the short or a long term (P. Boger, 2013, s.145.).

Examples of economic factors (R.J. Chapman, 2011; R. Perera, 2017, s.10-11.):

  • interest rates
  • exchange rates
  • inflation
  • demand and supply
  • development
  • tax rates
  • educational level
  • income levels
  • employment and unemployment rates
  • customer attitudes
  • population growth

Economic factors will include the effects of economic cycles, changes in capital market, patterns of word trade, commodity prices, labour markets and rates and some groups of customers (A. Gupta, 2013, s.35.).

Economic Factors in Economic Development[edit]

There are three the most popular and traditionally recognized economic factors in economic growth: land, labor and capital. Land is any natural resources used in production of goods and services. Labor refers to the effort expended by an individual to bring a product or service to the market. Capital refers to having money, investing it, and converting money into products. However, in today's world there are more economic factors affecting the growth of the economy

The strictly economic factors governing economic development were classified in three groups:

  • the main physical agents of production: labour, natural resources, and also technology;
  • economic mechanisms and management factors: price system, extent of market, price system, demand creating, division of labor etc.;
  • the environment of economic decision and the major economic decision-makers(F. Boldeanu, L. Constantinescu 2015, s.330-331).

Non-economic factors[edit]

In addition to economic factors, there are also non-economic factors that also affect the domestic economy. Non-economic factors are as important as economic for influencing the business activity of the country. All non-economic issues related to business are included in non-economic environment of a country. In the non-economic environment there are following areas of factors: politico-legal, demographic, socio-cultural, technological and natural.

Examples of the main non-economic factors affecting the economy: education of society, religion, culture, politics and authorities, tradition family.

Which factors (economic or non-economic) are more important in the country depends on the level of its development and economic awareness of society(S. Morteza Afghah 1998, s.48-49).


Author: Sylwia Mierzwa