Lecture 4 : Economic Growth and Development of

Ghana.

S. A. Kuffour

Department of Human Resource and General Studies

UCOMS, Kumasi Campus.
sakuffour@ucoms.edu.gh

June 15, 2021

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Outline of Lecture

Introduction

The Concept of Economic Growth

National Income Accounting

The Concept of Economic Development

The Phases of Development in Ghana

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The Concept of Economic Growth
Introduction

Every economy is concerned about Economic growth.

Economic growth is an increase in the production of goods and

services over a specific period.

Economic growth is the sustained increase in the national

income of a country owing to increased capacity to produce goods
and services, compared from one period of time to another.

Traditionally, economic growth is measured in terms of Gross

National Product (GNP) or Gross Domestic Product (GDP), also
called National Incomes.

National Income data is collected and published by the country’s

Statistical Service describing the various components of output in
the economy
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The Concept of Economic Growth
National Income Accounting(NIA): Measurements

National Income is measured using three different approaches;

1 The Product Approach - National Output/ GDP
2 The Income Approach - National Income/GNI
3 The Expenditure Approach - National Expenditure/GNE

All three approaches of measuring GDP sums up to the same

amount. Thus...

National Output = National Expenditure (Aggregate

Demand) = National Income
NB: This originates from the ”Circular Flow of Income”

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The Concept of Economic Growth
National Income Accounting(NIA): Measurements Cont’d...

S.A.Kuffour, Figure
(UCOMS,Kumasi) 1: Circular
Economic Flow
Growth and of Income
development June 15, 2021 5 / 20
National Income Accounting(NIA):Measurements
Using the Output Approach - Gross Domestic Product (GDP)

GDP is the total market value of all final goods and services
produced by factors(sectors) of production located within a country
within a given period.

It focuses only on the value added or the Value of final goods

within a country

Value added is the difference between the value of goods as they

leave a stage of production and the cost of the goods as they
entered that stage.

Final goods and services refers to goods and services produced for
final use.

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National Income Accounting(NIA):Measurements
Using the Output Approach - Gross Domestic Product (GDP) Cont’d...

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National Income Accounting(NIA):Measurements
Using the Output Approach - Gross Domestic Product (GDP) Cont’d...

Exclusions from GDP Computation;

1 Intermediate goods are goods produced by one firm for use in
further processing by another firm.
2 All transactions in which money or goods change hands but in
which no new goods and services are produced.
3 All “bads” such as crime and pollution; Such goods are detrimental
to society, but there is no subtraction from GDP to account for it
4 All blackmarket or underground activities; illegal activities.
5 All non market production; production for self or family
consumption, E.g; Farming or cooking to feed family.

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National Income Accounting(NIA):Measurements
Using the Output Approach - Gross Domestic Product (GDP) Cont’d...

Accounting for foreigners and citizens abroad

GDP computation includes the production of all persons;

foreigners or natives within the geographical location during the
accounting period;
but excludes production of citizens living abroad.
Failing to account for foreigners’ contribution and/or the
contribution of natives abroad may lead to an over estimation or
under estimation of actual national income (True Income of the
Nationals).

Output produced by a country’s citizens, regardless of where the

output is produced (and less the output of foreigners), is measured
by Gross National Product (GNP).
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National Income Accounting(NIA):Measurements
Using the Output Approach - Gross Domestic Product (GDP) Cont’d...

GNP: The total value at market prices of final goods and services
produced by the citizens in an economy(whether home or
abroad) in a specified period.

Computed by subtracting the Net Factor Income from Abroad

(The difference between income earned by citizens abroad and
income earned by foreigners in the country of interest.)

GNP gives a true reflection of what the citizens of the country

actually produces.

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National Income Accounting(NIA):Measurements
Using the Income Approach

The income approach: Sums up all the incomes — wages,

rents, interest, and profits—received by all factors of production in
producing final goods (GNI) within a country over a period of
time.

The income approach to GDP breaks down GDP into four

components;

GDP = W ages + Rent + Interest + P rof it

Excludes;
all transfer payments - to prevent double counting.
all subsistence activities
Unwillingness to declare incomes makes it difficult to compute
especially in an informal sector dominated country.

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National Income Accounting(NIA):Measurements
Using the Expenditure Approach

...is the most popular accounting method.

It measures economic activity from the demand side
The Expenditure approach: Sums up all the amount spent by
individuals, firms and the government within a country on the
final goods over a period of time.

The expenditure approach to GDP breaks down GDP into four

components;
Private Consumption Expenditure (C)
Gross Investment Expenditure (I)
Government Expenditure (G)
Net Exports (X-M)
GDP = C + I + G + (X − M )

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National Income Accounting(NIA):Measurements
Using the Expenditure Approach

Private Consumption Expenditure (C);

Household Consumption of Durable - cars
Non-Durable Goods - food and clothing
Services - education, legal, medical
Gross Investment Expenditure (I)
spending by firms on new capital: plant, equipment, inventory, and
new structures
Spending by households on new residential structures
Government Expenditure (G)
expenditure on purchase of goods and services; expenditure on
education, national defense, health care, salaries of workers
transfer payments to citizens (unemployment benefits) and
subsidies to firms
infrastructural development
Net Exports (X-M) : Expenditure on Imports and Exports by all
economic agents.
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National Income Accounting(NIA):Measurements
From GDP to Disposable Income (All three Approaches)

So far we have only accounted for the incomes and production of

real natives / citizens of the country; (GDP vrs GNP)
Other issues worth addressing and accounting for to make GDP
computation reflect actual income include;
Inflation: Nominal vrs Real GDP
Depreciation : GDP/GNP vrs NDP/NNP
Government Subsidies and Indirect Taxes: NDP at Market Prices
vrs GDP at Factor Cost
Population : Per Capita Income

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National Income Accounting(NIA)
Merits or Uses of National Income Statistics

Used to measure the economic growth of a country % change in

real GNP over a period of time.

Provides information to the government and firms for economic

planning.

Measure & compare the standards of living of different countries

Per capita real GNP = standard of living

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National Income Accounting(NIA):Measurements
Problems of GDP Measurements of Some Limitations of GDP Computations

They are problems because they understate or overstate the standard

of living / the welfare.
Hence, flaws the use of National Income as a measure of welfare.
Omits non-market goods and services: Work of stay-at-home
mothers and fathers not included in GDP.

No accounting for “bads” such as crime and pollution:

Eg. Crime and pollution are detrimental to society, but there is no
subtraction from GDP to account for it

Exclusion of the value of leisure

Income Distribution of the country.

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National Income Accounting(NIA):Measurements
Some Arguments Against Using National Incomes to Compare Countries

These arguments emanates from the differences in the following factors

hence their deficiency in being used as a basis for comparison.
Price Level

Size of population

Composition of National income

Income Distribution of the country.

Exchange Rates

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 End of Lecture.

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In the Next Lectures...

To be considered...

The Concept of Economic Development

The Phases of Development in Ghana

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 All the best and See you in the next Lecture.

Thank you

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