10 Factors Influencing National Income

Factors Affecting National Income – National income is the total value of a country’s final output of all new goods and services produced within one year. Meanwhile, the recording of national income is a bookkeeping system used by the government to measure the level of country’s economic activity in a certain period of time.

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Indonesian Economic Classification

According to ISIC or the International Standard Industrial Classification, the Indonesian economy can be divided into several sectors or business fields which are then divided into three groups. The following is the classification of the Indonesian economy according to ISIC.

1. Primary Sector

The first sector, namely the primary sector includes all the basic needs of the Indonesian people in general, such as clothing, boards and food. This primary sector consists of agriculture, forestry, animal husbandry, mining, quarrying and fisheries.

2. Secondary sector

The second sector is a sector that still contains human needs in their daily life even though they are not included in their basic needs. The secondary sector consists of the water treatment, electricity and gas industries.

3. Tertiary sector

The third sector is a sector that contains various kinds of things that are not included in basic necessities or can even be categorized as luxuries in everyday life. The tertiary sector consists of hotels, restaurants, telecommunications, transportation and other services. Where with the current technological advances there is a change in economic activities that are more digital based. Learn about this in the book Digital-Based Economic Transformation in Indonesia below.

Several Factors Affecting National Income

You need to know that there are several factors that can affect the national income of a country, here are the factors that affect national income that the author has summarized.

1. Quality of Human Resources (HR)

Countries with high quality human resources certainly have a tendency to have high national income as well. For example, like Japan, Japan is a developed country which is known to have high quality human resources. This is judged by the small potential of Natural Resources (SDA) that Japan has, but is able to generate a national income that is higher than Indonesia, even though Indonesia has a lot of human resources. as well as wealth, the quality factor of human resources is the most important factor that can determine the increase or decrease in national income of a country.

Therefore, it is very important for a country to manage human resources in it. As discussed in the Human Resource Management book, Creating HR Competency-Based Competitive Advantage.

2. The people of the country have high knowledge or knowledge.

The people or human resources of the country have a good work ethic, such as being disciplined, diligent, honest, punctual and so on.
The people of the country have a good level of skills. Human resources from these countries master the fields of technology and information, such as the internet, computers and biotechnology.

With this globalization, there are challenges related to HR management, where every organization is required to have quality and highly competitive human resources according to the book Corporate HR Development and Training.

3. Potential Natural Resources (SDA)

Countries with abundant natural resource potential, if managed properly, will generate high national income. Like Indonesia, which has abundant natural resources and is known to be rich in natural resources, but has not succeeded in managing these natural resources properly, Indonesia’s national income sources with Japan are far behind, due to Indonesia’s failure to manage natural resources well, even though compared to Japan, which does not have There are a lot of natural resources.

4. Amount of Capital Used

If a country has sufficient capital to manage the available natural resources or SDA, of course the country’s national income will increase. And vice versa, if a country does not have enough capital or lacks capital, then the country’s national income will not be optimal. Generally, if a country experiences a shortage of capital, then the country will invite investors to invest their capital, usually foreign investors invest in the form of establishing companies. Countries with the aim of investing by foreign investors generally have the following conditions.

The country has adequate natural resources.
The country has guaranteed domestic security.
The country has favorable labor laws.
The country that is the destination of the investment is preferable if it has a low-paid workforce.
The country has a strong and good or stable government.
The country has law enforcement that runs smoothly.
The country has a bureaucracy that is not long-winded in foreign investment.

Learn various other applicable economic laws in Indonesia in the development of information technology that currently exists through the book An Introduction to Indonesian Economic Law.

5. Level of Technology Used

The level of technology of a country can affect the national income of that country. if the country has simple technology, the amount of goods and services that will be produced is relatively less and vice versa. If the country has a high or modern level of technology, the amount of services and goods produced will be greater.

6. Security Stability

Countries with poor security stability will affect the achievement of national income from a country. For example, if there are frequent riots, violent demonstrations, terrorism and even bomb explosions it will result in a reduction in the achievement of the country’s national income, and vice versa. If the country’s security stability is good, it will encourage the country’s economic activities so that the total national income increases.

7. Government Policy

This sixth factor has an influence on the achievement of a country’s national income. If the country has an authoritative, clean and quality government, the government of the country will certainly make the right policies, both in the economic and political fields. Appropriate policies accompanied by responsible implementation will affect the increase in a country’s national income.

Every political-economic problem that exists in Indonesia is very complex, where every economic activity cannot be separated from the influence of domestic and foreign political dynamics. It is important to discuss these dynamics, bearing in mind the attachment between agents, be it the state, market, society, or international offices, which influence one another. Sinaumed’s can find the discussion in the Indonesian Political Economy book below.

8. Geographical and Geological Conditions

Countries with certain geographical and geological locations will have a risk of experiencing natural disasters which are likely to recur every year. Natural disasters such as floods, earthquakes, typhoons or tsunamis that occur repeatedly will damage the existing infrastructure and facilities in the country. these damages will have an impact on reducing the achievement of national income.

And vice versa, if a country is in a good geographic and geological location and is rarely hit by natural disasters, then this will certainly be very profitable. Because there will be no damage caused by the natural disaster, and the people can live in peace without feeling anxious. This will result in increasing national income and reducing spending through the national income fund.

9, Consumption, Savings and Investment

Consumption is spending on goods and services by households that have the goal of consumption. While investment is inventory controlled by several units that produce and have the purpose of being used in further processing such as selling or giving to other parties or used in other ways.

If you look at the special spending approach for a closed and simple economy, an economy that does not yet involve relations with parties from abroad such as exports and imports and does not involve government activities, then the country’s national income only consists of consumption and savings (S).

10. Aggregate Demand and Supply

Aggregate demand is a list of all goods and services that have various price levels which will then be purchased by various economic sectors. Meanwhile, aggregate supply has a function to show the relationship between all goods and services offered at a price level that has been offered by the company.

National income is one of the materials that you are likely to encounter if you are majoring in social studies or majoring in economics. In addition, knowledge of national income can increase our awareness as citizens of a country to participate in maintaining the potential that exists in our country, such as its natural and human resources, because you already know several factors that can increase or influence the national income of the country that is we live. Let’s maintain and improve quality so that Indonesia becomes a developed country like Japan. Happy reading, happy learning!