most resources should be transferred to regions that are both needy and have the capacity to invest the resources well.
Other Drivers Apart from natural resources and institutions that could be seen to be “meta� drivers of development, there are lower level drivers of development such as the availability of infrastructure. A well-developed infrastructure tends to raise the productivity of investment and lowers the cost of production.
In addition to physical infrastructure, social
infrastructure also has an important role to play in the formation of human capital and consequently in the determination of the rate of growth of a region. Higher investment in education and health infrastructure can lead to higher levels of citizens’ well-being as well as a better educated and healthier workforce, resulting in higher work efficiency and productivity. The structural composition of income of a state may also have a significant bearing on its level of income and rate of growth. States with a large agricultural sector are generally expected to have a lower rate of growth as compared to states with a higher share of income accruing from manufacturing or service sector. However, the share of each sector is not a given, and itself is a reflection of different levels of development. In summary, the level of development of a state is the consequence of a complex set of historical, cultural, and sociological factors. Importantly, studies do not find geographic impediments, the lack of natural resources, or climatic factors as prominent reasons for underdevelopment. Additional financial resources may be helpful in increasing growth rates, but the ability to use these resources well is probably most important in distinguishing regions that develop successfully and those that do not. Therefore, any scheme of allocation should take into account both development needs as well as past performance, with the latter serving both to incentivize better performance as well as to allocate resources where they can be most beneficially used.
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