IMPORTANCE OF CAPITAL FORMATION
Capital formation is defined as a part of the country's current production and imports, without consumption or export during the year, but is considered an increase in the stock of capital goods. The importance of capital formation is as follows:
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1.Building a strong infrastructure: The creation of capital, especially in the initial stages, and more importantly, encourages the creation of social spending in poor countries, because these countries. These infrastructures need to be prioritized. Capital accumulation, in this way, promotes basic capitalism in underdeveloped production in the development of goods.
2.Maximum use of natural resources: In developed countries, risk tolerance has been improved by providing new natural resources through capital formation. This is possible through proper and careful use.
3.Correct use of human capital formation: Capital formation plays an unprecedented role in the qualitative development of human resources. Creation of human capital: education, training, health, social and economy of the people depends on security, independence and other welfare facilities, which requires substantial funding. This business requires adequate equipment and existing equipment so that the growth of the population leads to an optimum growth in production and is easy to absorb the increase in employment opportunities.
4.Technological reforms: In under developed countries, capital formation creates a basic environment for public capital and economic development. It helps to stimulate technological progress, gaining more in the field of production. Capital cannot be used and, as capital increases in production, the intangible form of capital also changes. Obviously, changes in the existing capital structure will change the structure and size of the technology, which will affect the public more.
5.High economic growth: a country's high rate of capital formation means high speed of the economic process. Generally, the rate of capital formation or accumulation is much lower than in developed countries. In poor and developed countries, the rate of capital formation is between 100% and 5%, while in developed countries it is more than 20%.
6.Agricultural and Industrial Development: Modern agriculture and industrial development require substantial funds, which will use the latest mechanical technology and inputs to establish various heavy or light industries. If insufficient funds are available, this will lead to slower growth, which in turn leads to capital formation. In fact, without the accumulation of capital, the rise of these two regions is impossible.
7.Increase in national income: capital formation in rural construction conditions and methods Makes improvements. As a result, the value and capital gains have increased substantially. This leads to an increase in production, which leads to an increase in national income.The growth rate and the total national income should depend on the peak construction rate. Therefore, consumption can only be achieved through the correct use of various production methods and their productive use.
8.Expansion of economic activity: As the rate of capital formation increases, productivity increases rapidly and, through other profitable and widely used methods, capital is available for this. In this way, sophisticated techniques and methods can be used to save energy. This leads to the expansion of economic activities. Capital formation increases investment, which affects economic growth in two ways. First, per capita income and purchasing power increased, which led to place a simpler order. Second, investment leads to increased production. Thus, the economic activity of developed countries can be expanded through the formation of capital, which in fact isHelp eradicate poverty and achieve economic development.
9.Reduce Dependence on the foreign capital: The process of capital formation in developing countries increases the dependence on domestic resources and domestic savings, thereby reducing dependence on foreign capital. Economic development has left a heavy burden on foreign capital, so in order to provide capital gains to foreign funds and to bear the expenses of foreign scholars, the state must be forced to tax citizens unfairly. Disappointed with the domestic economy. Consequently, rural self-sufficiency can be achieved by creating capital and can succumb to dependence on foreign capital|column1|column2|column3|
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