The factors affecting GDP are: 1. Leisure Preference 2. Non-Marketed Activities 3. Underground Economy 4. Environmental Quality and Resource Depletion 5. Quality of Life 6. Poverty and Economic Inequality.
Incorporating factors like air quality and resource depletion into a comprehensive measure of GDP is difficult, since it often involves placing a rupee on intangibles, like having a clean river to take water instead of a dirty one.
The explanation of finite (non-renewable) natural resources also tends to be overlooked in GDP. If more oil is extracted today, less oil will be available in future.
Hence, a culture that rewards entrepreneurship helps grow GDP faster. The other key variable that greatly impacts real GDP is the size of our workforce.
In the expanding economy with growing GDP, businesses can be a bit more aggressive and grow with the economy, while in a shrinking economy with a negative GDP growth businesses have to cut expenses drastically and re-focus on revenue stream, market and strategy.
For example, outputs of food grains and other products increased many folds due to the use of new production methods and technologies in manufacturing). Good infrastructure also helps grow GDP faster. Goods are moved faster from one place to other place with better infrastructure, increasing our productivity.
It means for countries which are experiencing a shrinking workforce, a possible solution is to encourage its current population to grow its workforce (provide incentive to have children) and simultaneously encourage legal immigration of skilled and educated workforce. Immigration has been a political and social issue.
It means investing in education and training of people help increase labor productivity. Also, we do have gains in labor productivity when workforce become more comfortable in their routine business (troubleshooting problems faster and address issues proactively) and thus increase output (or GDP).
Innovation is another key factor that is a necessary ingredient in a country’s culture to continue to improve labor productivity. Innovation means building and nurturing the country’s education around innovation . This means investing in Research and Development by government and private entities.
R&D findings are translated into real business products by entrepreneurs. Hence, a culture that rewards entrepreneurship helps grow GDP faster.
New technologies have allowed new products in the market to enhance productivity. For example, automobiles, computers, other IT equipment (network, phones), new medical technologies and new medicines have allowed increased economic output to grow without any limits.