Factors influencing economic development and growth

Industries experience cycles of economic growth and contraction depends on many factors. These include the overall health of markets, consumer preferences and world news, including seemingly unrelated events. Although some companies perform better than others in their industry, global factors that affect the industry as a whole need to be addressed in planning to start or grow a business.

economic development and growth

Interest rates can affect industrial growth in a number of ways. In industries with large transactions such as vehicle manufacturers or cruise companies, an increase in interest rates may prevent customers from borrowing to finance the purchase of such products and services. High interest rates also discourage companies from investing in new capital and expansion. On the other hand, falling interest rates can stimulate industries to grow, which can lead to innovation and rising employment levels.

The strength of the coin

The value of the US dollar against other currencies like the yuan, yen and pound is important even for companies that do not import or export goods. Consumers have the option to purchase goods or services originating in the United States or other countries. If the US dollar is strengthened companies in the industry that buy inputs from other countries are able to be more competitive in prices. In industries that depend heavily on foreign raw materials, such as the garment industry the whole sector can be lifted pressured by strengthening weakening the dollar.

Government intervention

Maintain the standards that all operators in a sector must follow for the safety of consumers, employees, or natural resources. Some industries are much more regulated than others are and new laws and regulations can shake up an entire industry and reduce growth. For example, new child safety laws under the Consumer Product Safety Improvement Act in 2009. Threatened to wipe out many small toy producers when the requirements for testing and certifying toys were Cost prohibitive for all, even for the big toy manufacturers. Proposed changes to the law can help ease the burden on small manufacturers and resellers.

Environmental impact

The economic growth of an industry can be affected not only by the environmental effect of the products or services they have, but also by the perception of the consumers of that impact. For example, the skin clothing market declined drastically over the course of a few years in the 1990s when consumers perceived that breeding and slaughtering small animals for their fur was inhuman and misuse of land.

Although the industry rebounded with international demand, the number of fur producers in the country declined considerably. If the public sees the products of an industry or service as harmful or dangerous, most companies in the industry can experience a marked decline in sales quickly.

General economic health

The economic situation of the country and consumer confidence can also stimulate growth and development or damage them. In times of recession, consumers are beginning to limit their purchases to essentials, giving up luxury or expensive items. Also, companies reduce production, hiring and developing new products services to ensure that their finances can weather the storm. In periods of general economic growth, these companies once again expand.

The opposite occurs in the industries that deal with basic consumer goods that everyone needs, regardless of the economy: food, diapers and necessities. Demand picks up for these needs as consumers source themselves and replace commodities with luxury products eg, people buy more food to eat instead of going to a restaurant. In times of inflation, demand for staples is reduced as consumers can afford to pay more luxury substitutes.