What Gross Domestic Product Depends On

Gross domestic product depends on Capital Formation, as it provides the necessary funds for investment in human capital, physical infrastructure, and technological advancements, without which economic growth stagnates, as seen in the case of Argentina, where a lack of investment in capital formation led to a decline in GDP growth from 8.8% in 1998 to -10.9% in 2002 (World Bank).

Key Dependencies

• Human Capital — an educated and skilled workforce is required to drive innovation and productivity, and without it, economies struggle to compete, as evidenced by the example of Bangladesh, where low levels of human capital have hindered the country's ability to move beyond labor-intensive industries, resulting in a GDP per capita of only $2,061 (World Bank).
• Natural Resources — access to raw materials and energy is necessary for production, and their scarcity can limit economic growth, as seen in the case of Japan, which has had to rely heavily on imports due to its lack of natural resources, resulting in a trade deficit of $4.4 billion in 2020 (Japanese Ministry of Finance).
• Institutional Framework — a stable and efficient institutional framework is necessary for businesses to operate effectively, and its absence can lead to corruption and instability, as seen in the case of Somalia, where the lack of a functional government has resulted in a GDP per capita of only $434 (World Bank).
• Infrastructure — a well-developed infrastructure is necessary for the transportation of goods and services, and its absence can lead to inefficiencies and increased costs, as seen in the case of Brazil, where inadequate infrastructure has resulted in high logistics costs, estimated to be around 12% of GDP (OECD).
• Technological Advancements — the adoption of new technologies is necessary for increasing productivity and competitiveness, and its absence can lead to stagnation, as seen in the case of Italy, where low levels of investment in research and development have resulted in a decline in GDP growth, from 2.4% in 2000 to 0.3% in 2020 (Eurostat).

Priority Order

The dependencies can be ranked in the following order:

1. Capital Formation — as it provides the necessary funds for investment in other dependencies, such as human capital, infrastructure, and technological advancements.
2. Human Capital — as it drives innovation and productivity, and its absence can limit economic growth.
3. Institutional Framework — as it provides a stable and efficient environment for businesses to operate, and its absence can lead to corruption and instability.
4. Infrastructure — as it is necessary for the transportation of goods and services, and its absence can lead to inefficiencies and increased costs.
5. Natural Resources — as while important, some economies have been able to thrive with limited natural resources, such as Singapore, which has a GDP per capita of $64,581 (World Bank).
6. Technological Advancements — as while important for increasing productivity and competitiveness, some economies have been able to grow without significant technological advancements, such as China, which has focused on labor-intensive industries.

Common Gaps

People often overlook the importance of Institutional Framework, assuming that a stable government and efficient institutions are a given, but as seen in the case of Venezuela, where a corrupt and inefficient institutional framework has resulted in a decline in GDP per capita from $12,315 in 2008 to $3,374 in 2020 (World Bank), this assumption can be detrimental to economic growth.