Introduction to development

economics
Maaida Hashmi
 What is Economy?

 Economics is the study of the production and consumption

of goods and the transfer of wealth to produce and obtain
those goods.
 Economics explains how people interact within markets to
get what they want or accomplish certain goals.
 Since economics is a driving force of human interaction,
studying it often reveals why people and governments
behave in particular ways.
What is Economic Development?
 Economic development generally refers to the sustained, concerted actions of
policymakers and communities that promote the standard of living and economic
health of a specific area.

•Such actions can involve multiple areas including development of human capital, critical
infrastructure, regional competitiveness, environmental sustainability, social inclusion,
health, safety, literacy, and other initiatives.

•Economic development differs from economic growth.

•Whereas economic development is a policy intervention endeavor with aims of economic

and social well-being of people, economic growth is a phenomenon of market productivity
and rise in GDP.

•Consequently, as economist Amartya Sen points out: “economic growth is one aspect of
the process of economic development.”
Traditional View of economic development

 It is concerned primarily with the efficient, least- cost allocation of

scarce productive resources and with the optimal growth of these
resources over time so as to produce an ever expanding range of goods
and services.
New economic View of Development
 "Economic development is generally defined:

– To include improvements in material welfare, especially for persons with the lowest
incomes,

– The eradication of mass poverty with its correlates of illiteracy, Diseases and early
death,

– Changes in the composition of inputs and outputs that generally include shifts in the
underlying structure of production away from agricultural growth towards industrial
activities,

– The organization of the economy in such a way that productive employment is general
among the working age population rather than the situation of a privileged minority and
the correspondingly greater participation of broadly based groups in making decisions
about the
directions,

– Economic and otherwise, in which they should move to improve their welfare
 Growth versus Development

 Economic growth may be one aspect of economic development but is

not the same
• Economic growth:
– A measure of the value of output of goods and services within a time
period
• Economic Development:
– A measure of the welfare of humans in a society
Economic
Growth
Myths About Economic Growth
 It is indicator of wealth, which reflect the quantity of resources
available to a society .
 Does not tells about people’s quality of life: access to education and
health care, employment opportunities, availability of clean air and
safe drinking water, the threat of crime, and so on.
 Economic growth, by increasing a nation’s total wealth, also enhances
its potential for reducing Poverty and solving other social problems.
Indicators
of
Economic
Developm
ent
Growth
Economic Growth
 Using measures of economic performance in terms of the value of income, expenditure and
output
 GDP – Gross Domestic Product
– The value of output produced within a country during a time period
 GNP – Gross National Product
– The value of output produced within a country plus net property income from abroad
 GDP/GNP per head/per capita
– Takes account of the size of the population
 Real GDP/GNP
– Accounts for differences in price levels in different countries
Economic Growth
National Income – Problems with using
GDP/GNP

 Quality of life?
– Can changes in economic growth measure changes in the quality of life?
– Does additional earnings power bring with it additional stress, increases in
working hours, increased health and family problems?
• Impact of exchange rate?
– Difference in exchange rates can distort the comparisons – need to express
in one currency, but which one and at what value?
National Income – Problems with using
GDP/GNP
Development
Development

 Development incorporates the notion of a measure/measures of human

welfare
 As such it is a normative concept – open to interpretation and subjectivity
 What should it include?
Development
Development
 Other considerations of human welfare:
• Political freedoms?
• Sustenance?
• Self esteem?
• Proportion of activity in different sectors of the economy:
– Primary
– Secondary
– Tertiary
 SUSTAINABLE DEVELOMENT
Development

 Development is sustainable if it “meets the needs of the present without

compromising the ability of future generations to meet their
own needs.”
Development
Human Development index
Human Development index

 HDI – A socio-economic measure

• Focus on three dimensions of human welfare:
• Longevity – Life expectancy
• Knowledge – Access to education, literacy rates
• Standard of living – GDP per capita: Purchasing Power Parity (PPP)
OTHER MEASURES