Final answer:
Financial risk affects economic growth by influencing investment and consumption. The combination of growth determinants is key to economic progress, and government policies in tax, infrastructure, and deregulation can bolster growth. The global environment has a substantial impact on a nation's economic growth, and environmental concerns must be factored into economic policies.
Step-by-step explanation:
Financial risk can indeed impact economic growth, as it affects investment decisions, consumption patterns, and business expansions. Low financial risk generally promotes confidence in economic activities, which can lead to increased investments and stronger growth. Conversely, high financial risk can lead to uncertainty, causing investors and consumers to be more cautious, which might slow down economic activities and growth. Growth accounting studies suggest that the determinants of growth include factors such as labor, capital, and technology, with the combination of these factors being crucial for maximizing growth. A free-market government can implement policies such as tax incentives, investment in infrastructure, and deregulation to stimulate economic growth. Government policies can help in areas such as education, healthcare, and trade facilitation.
Considering the global vs. local environment, both are important for promoting the economic growth of nations. However, in an increasingly interconnected world, the global environment often plays a more significant role in shaping economic growth through factors such as international trade, foreign investments, and technology transfers. Environmental concerns also matter significantly as they can impact economic sustainability. With the example of a pipeline project, economists need to balance economic benefits against environmental costs, which can be challenging due to the difficulty in valuing environmental impact.