Economic Growth and Development

Economic Growth

Economic growth takes place when there is an increase in

the total quantum of final goods produced and services
rendered within the geographical boundaries of a country.

A Narrow/ Static Concept

Measured in terms of GDP, Export Surplus, Rate of Inflation,

Fiscal Deficit etc.
A country may experience economic growth without going
through economic development

Thus we can say that economic growth is possible without

economic development.

In order to achieve growth on a consistent basis, it is

essential that there must be expansion in the productive
capacity of the country and its optimum utilization.

Actual Growth means realized growth and Potential growth

means targeted or achievable growth.
 Economic Development

A Multidimensional Approach

 Measured over a number of years

Indicated through factors such as decline in illiteracy,

poverty, Mortality rate etc.

Results through continuous economic growth

According to Kindleberger and Bruce Hendrick, Economic
Development includes improvements in material welfare,
reduction of mass poverty, illiteracy, disease, infant mortality
rate and income inequalities.

It represents shifts in underlying structure of production in the

economy from agriculture to industry to services, that helps
create opportunities on a larger scale over a period of time,
for the poor and working class rather than privileged elite, also
it includes shift in the composition of exports from basic
commodities to capital intensive goods etc.
 Growth vs Development
Economic Growth Economic Development

Economic growth is a narrow view/single Economic development is a broad

dimensional approach. view/multi dimensional approach.

Quantitative increase in GDP. Explains the change in quality of life.

Ignores social and human indicators, Takes into account both social and human
changes in occupational structure or mal- indicators as well as structural changes in
distribution of income. the economy.

Applicable to economically advanced Applicable to poor, backward and

economies. developing economies.

For example, India is one of the fastest For example, USA is one of the most
growing economies but still not a developed economies but growing at a
developed economy. modest pace.
Factors Affecting Economic Development
I. Economic Factors
i. Country’s Natural Resources
ii. Human Capital Formation
iii. Physical Capital Formation
iv. Technological Factors

II. Institutional Factors

v. Economic Planning
vi. Economic Agencies
III. Non Economic Factors
i. Political Environment
ii. Social Change
iii. Dynamic Outlook
Economic Factors
 Country’s Natural Resources

These refer to a country’s natural resources such as its

land, forests, mineral deposits, fossil fuels etc.

However, not the sole determinant of economic

development.

Classic examples would be that of Japan and Singapore;

two countries which do not have abundant natural resources
yet are economically developed.
 Human Capital Formation

These refer to
 Efficiency of Labor
 Worker’s Dedication Towards Work
 Skills and Training

According to Schultz, 5 activities that lead to increase in

productivity of labor are
i. Investment in Medical Facilities
ii. On the Job Training
iii.Education at Primary and Secondary Level
iv. Education at Higher Level
v. Migration due to job changes

According to him, education is the most important factor

that leads to increase in labor productivity
If used properly, have potential to become demographic
dividend
 Physical Capital Formation

Lack of capital is the principal obstacle to growth, no

developmental plan can succeed unless there is an adequate
supply of capital.

On the demand/supply side, the inducement to invest is low

due to small purchasing power of people. Low income – Low
level of demand – Low investment – Low production.

According to Nurkse, there vicious cycle of poverty leads to

low capital formation.
 Technological Factors

 Technological progress is brought about through innovation which

helps in introducing new products and device new ways of producing
existing products.

 It allows the country to produce more goods and render better

services with given resources.

 Green Revolution brought technological advancements which helped

convert India from an importer of food grains to an exporter of them.
Institutional Factors
 Economic Planning

Well laid down plans

Proper Budget Allocation

Systematic Infrastructure Development

Balanced Regional Development

Fixed Targets in terms of Investment, Desired Growth Rate

etc.
 Economic Agencies

Apex Institutions
Free from Government Control
Independent Decision Making
SEBI, RBI, ASSOCHAM, FICCI
Help Channelize Resources
Lay Down Stringent Industry Norms and Maintain Checks
Lead to Entrepreneurial Development
Extend Financial Aid to MSME’s, Provide Training
Provide Common Meeting Platform to Buyers and Sellers
Non Economic Factors
 Political Environment

Political Stability

Longevity of Government

Government Formation Through Single Largest Party

Consistent Approach
 Social Change

Reservation Policies

Social Status of People

Caste Based Thinking

Pre Independence Era- Joint Family Setup

Independence Era- Nuclear Families

 Dynamic Outlook

Changing Beliefs

Way of Living

Modern Outlook

Gender Equality
 Development Through Eradication of Corruption

Unless and until corruption is stamped out from the

administrative machinery of the country, its likely that
powerful vested interests continue to exploit national
resources to their own advantage.
 Human Development Index (HDI)

Human development is a process of raising the level of well-being

achieved and widening people’s choices.

The difference between economic growth and human development

is that the first focuses only on one choice while the latter enlarges
human choices.
HDR defines HDI as the geometric mean of three
dimension indices:
Life Expectancy
Education
 Gross National Per Capita Income (in PPP terms)

HDR ranks India at 130th position in its 2018 report.

 Components of Human Development

Equity – equitable access through progressive fiscal policy,

reforming credit systems etc.

Sustainability – next generation’s right to enjoy the same well-

being that the present generation enjoys today.

Empowerment – full empowerment of people such that people

are in a position to exercise free will. It includes social,
economic and political empowerment.
Productivity – investments in human capital to raise
productivity, for instance, lessons can be drawn from
South East Asian economies like Japan and South
Korea have made massive investments in human capital
which accelerates growth.