Question

State any two factors which determine capital formation in a country.

Answer 1

The following are the two factors which determine capital formation in a country:

1) Taxation Policy: Extremely high taxes lower the incentive to invest in a country and hence hampers with the capital formation in a country.

2) Unstable political environment: An unstable political environment hampers with the capital formation because the instability in the polity is often accompanied by an unstable policy which is an unfavourable condition for the investors to invest in a country.