The Optimal Level and Impact of Internal Factors on Growth

This paper empirically uses data from the world economy to show that performance of domestic factors are equally important to external factors when comes to growth. Various external and domestic factors are used to construct two separate indices and the principal component method is applied in the analysis. The empiri- cal results show that given a different level of performance in the economy’s external factors, a higher per- formance in the internal factors will produce a higher growth rate. When the performance of an economy’s internal factors is extremely low, it would be appropriate for that economy first to improve its internal factors.