ECONOMIC DEVELOPMENT

AND
GROWTH
 ECONOMIC DEVELOPMENT AND GROWTH

• CONCEPTS AND HISTORICAL PRESPECTIVE

• DEVELOPMENT OF UNDERDEVELOPED COUNTRIES

• ATTRACTED THE ATTENTION OF ADAM SMITH TO MARKS AND KEYNES

• PROBLEMS STATIC IN NATURE AND CONFINED TO WESTERN WORLD

• CHANGE AFTER DEPRESSION OF 1929 AND SECOND WORLD WAR

• POLITICAL RESURGENCE IN ASIAN AND AFRICAN COUNTRIES AFTER THEIR INDEPENDENCE

 ECO GROWTH AND DEVELOPMENT

• REALISATION IN DEVELOPED COUNTRIES THAT POVERTY ANYWHERE IS A THREAT TO PROSPERITY

EVERYWHERE

• COLD WAR BETWEEN RUSSIA AND THE WEST BEFORE THE COLLAPSE OF SOVIET UNION –
COMPETION TO ENLIST THE SUPPORT OF UNDERDEVELOPED COUNTRIES

• EXPORT VALUE FOR BOTH AID GIVING AND AID RECEIVING COUNTRIES

• RICH COUNTRIES NEED EVER INCREASING RATE OF DEVELOPMENT ACCOMPANIED BY AN OUTLET

FOR THE USE OF THEIR GROWING CAPITAL
 ECO DEV AND GROWTH

• RAGNAR NURKSE- PROBLEMS OF CAPITAL FORMATION IN UNDERDEVELOPED COUNTRIES

• “A study of the Poverty of Nations and the methods of removing poverty cannot be based on
the experience of the rich nations. For in the advanced countries there has been a tendency to
take economic development for granted as something that takes care of itself and to
concentrate on the short-term oscillations of the economy”

• G. MYRDAL - ECONOMIC THEORY AND UNDERDEVELOPED REGION

• “ the underdeveloped countries should not accept our inherited economic theory uncritically
but remould it to fit their own problems and interests”.
 Eco Growth and Development

GROWTH vs DEVELOPMENT

• A MADDISON ECONOMIC PROGRESS AND POLICY IN DEVELOPING COUNTRIES

• THE RAISING OF INCOME LEVEL IS GENERALLY CALLED ECONOMIC GROWTH IN RICH COUNTRIES AND IN POOR
ONES IT IS CALLED ECONOMIC DEVELOPMENT.

• PROF. KINDLEBERGER ECONOMIC DEVELOPMENT

ECONOMIC GROWTH MEANS MORE OUTPUT, WHILE ECONOMIC DEVELOPMENT IMPLIES BOTH MORE OUT-PUT
AND
CHANGES IN TECHNICAL AND INSTITUTIONAL ARRANGEMENT BY WHICH IT IS PRODUCED AND DISTRIBUTED.
GROWTH MAY WELL INVOLVED NOT ONLY MORE OUT-PUT DERIVED FROM GREATER AMOUNT OF INPUT BUT
GREATER EFFICIENCY i.e AN INCREASE IN OUT-PUT PER UNIT INPUT . DEVELOPMENT GOES BEYOND THIS TO IMPLY
CHANGES IN COMPOSITION OF OUT-PUT AND IN THE ALLOCATION OF INPUT BY SECTORS.
 ECONOMIC GROWTH AND DEVELOPMENT

ECONOMIC GROWTH –A NARROWER CONCEPT

• INCREASE IN COUNTRY’S REAL LEVEL OF NATIONAL OUTPUT DUE TO IMPROVEMENT IN QUALITY OF

RESOURECS BY EDUCATION etc.

• IMPROVEMENT IN TECNOLOGY OR IN ANOTHER WAY AN INCREASE IN THE VALUE OF GOODS AND

SERVICES PRODUCED BY EVERY SECTOR OF ECONOMY

• IT CAN BE MEASURED BY AN INCREASE IN COUNTRY’S GDP

• IT DOES NOT TAKE INTO ACCOUNT THE SIZE OF THE INFORMAL ECONOMY (BLACK ECONOMY
-UNRECORDED ACTIVITY)

• ECONOMIC DEVELOPMENT –A NORMATIVE CONCEPT

 GROWTH AND DEVELOPMENT

• ECONOMIC DEVELOPMENT –A NORMATIVE CONCEPT

• IT APPLIES IN THE CONTEXT OF PEOPLE’S SENSE OF MORALITY (RIGHT OR WRONG, GOOD OR BAD )

• MICHEL TODARO

• 1. AN INCREASE IN LIVING STANDARDS

• 2.IMPROVEMENT IN SELF ESTEEM NEEDS

• 3.FREEDOM FROM THE OPERESSION AS WELL AS GREATER CHOICE

• 4.THE MOST ACCURATE METOD OF MEASURING DEVELOPMENT IS THE HUMAN DEVELOPMENT INDEX
- LITERACY RATE AND LIFE EXPACTANCY WHICH AFFECT THE PRODUCTIVITY

5. IT LEADS TO CREATION OF MORE OPPORTUNITY IN SECTORS OF EDUCATION AND HEALTH CARE

6. IT IMPLIES AN INCREASE IN THE PERCAPITA INCOME OF EVERY CITIZEN

 GROWTH AND DEVELOPMENT

• GROWTH OCCURS WHEN:

• There is a discovery of new mineral/metal deposits.
• There is an increase in the number of people in the workforce or the quality of the workforce
improves. For example, through training and education.
• There is an increase in capital and machinery.
• There is an improvement in technology.

• DEVELOPMENT HAPPENS WHEN THERE IS :

• An increase in real income per head – GDP per capita.
• An increase in levels of literacy and education standards.
• An improvement in the quality and availability of housing.
• An improvement in levels of environmental standards.
• An Increased life expectancy.
 GROWTH AND DEVELOPMENT

• We can also have a situation where there is growth and development, i.e.
increase in luxury goods and education.

• Development alleviates people from low standards of living into proper

employment with suitable shelter. Economic Growth does not take into account
the depletion of natural resources, which might lead to pollution, congestion &
disease. Development, however, is concerned with sustainability, which means
meeting the needs of the present without compromising future needs.
 Growth and development

• ECONOMIC PROBLEM : SCRACITY AND CHOICE

• HUMAN WANTS ARE UNLIMITED

• PRODUCTIVE RESOURCES ARE LIMITED

• THE PROBLEM OF SCRACITY OF RESOURCES IS FELT BY INDIVIDUALS AS WELL AS BY SOCIETY

• THIS GIVES RISE TO THE PROBLEM OF HOW TO USE SCARCE RESOURCES TO ATTAIN
MAXIMUM POSSIBLE SATISFACTION IT IS KNOWN AS THE ECONOMIC PROBLEM
 GROWTH AND DEVELOPMENT

• KINDS OF RESOURCES

• LAND: IN ECONOMICS IT INCLUDES ALL-NATURAL RESOURCES WHICH ARE FREE GIFT OF

NATURE – NOT LIMITED TO SOIL BUT INCLUDES MINERALS ,WATER, CLIMATE AND FOREST.

• LABOUR : IT REPRESENTS ALL PHYSICAL AND MENTAL ABILITIES WHICH PEOPLE CAN MAKE
AVAILABLE FOR PRODUCTION OF GOODS AND SERVICES. LABOUR IS USUALLY MEASURED BY
THE TIME SPENT IN WORKING DURING A PERIOD.

• CAPITAL: MAN-MADE RESOURCES OF PRODUCTION. INCUDES EQUIPMENTS, FACTORY

BUILDING,ALL SORT OF TOOLS, MACHINES, ROADS AM, TRANSPORT BUSES ETC.

• ENTREPRENURESHIP : IT REPESENTS A SPECIAL HUMAN RESOURCE WHICH PROVIDES HIS

ENTREPRENEURIAL ABILITY OR ENTERPRISE. HE ORGANISES THE PRODUCTION PROCESS BY
COMBINING OTHER RESOURCES- LAND LABOUR CAPITAL.
 MEASURING GROWTH

• PERFORMANCE OF AN ECONOMY- QUANTIFICATION OF MAJOR MACROECONOMIC VARIABLES a difficult

task

• STANDARD TECHNIQUES DEVELOPED BY ECONOMISTS AND STATISTICIANS NATIONAL INCOME

DEFINITIONS OF NATIONAL INCOME

• MARSHALL- PRINCIPLES OF ECONOMICS
• THE LABOUR AND CAPITAL OF A COUNTRY ACTING ON ITS NATURAL RESOURCES PRODUCE A CERTAIN NET AGGRIGATE OF
• COMMODITIES MATERIAL AND IMMETERIAL INCLUDING SERVICES OF ALL KINDS. THIS IS THE TRUE NET INCOME OR
• REVENUE OF THE COUNTRY OR NATIONAL DIVIDEND.
• NET: GROSS NATIONAL INCOME – DEPRECIATION + INCOME FROM ABROAD
 MEASURING GDP

• LIMITATIONS :
• 1. NUMEROUS GOODS AND SERVICES ARE PRODUCED DIFFICULT TO HAVE CORRECT ESTIMATION

• 2. PROBLEM OF DOUBLE ACCOUNTING

PIGOU (ARTHUR CECIL PIGOU)-THE ECONOMICS OF WELFARE

INCOME WHICH CAN BE MEASURED IN TERMS OF MONEY
NATIONAL INCOME IS THAT PART OF OBJECTIVE INCOME OF COMMUNITY , INCLUDING DERIVED FROM ABROAD
WHICH CAN BE MEASURED IN MONEY.
IT IS AN IMPROVEMENT OVER MARSHALL:
1. IT REMOVES THE POSSIBILITY OF DOUBLE INCOME
2. IT ALSO INCLUDES INCOME DERIVED THROUGH INVESTMENT IN FOREIGN COUNTRY
 MEASURING GROWTH

• DEFECT: ONLY THAT INCOME WHICH CAN BE MEASURED IN MONEY TERM IGNORING BARTER

• MODERN DEFINITION
• SIMON KUZNETS
• GDP (GROSS DOMESTIC PORODUCT) IS THE MONETARY VALUE AT CURRENT MARKET PRICE OF ALL FINAL

GOODS AND SERVICES PRODUCED WITHIN THE ECONOMY IN CURRENT YEAR.

GNP = GDP +/- NET FACTOR INCOME EARNED FROM ABROAD

NDP= GDP-DEPRECIATION
NNP=GNP-DEPRECIATION
 MEASURING GROWTH NATIONAL INCOME

• NATIONAL INCOME ACCOUNTING

• ECONOMY IS DIVIDED INTO A FEW BROAD SECTORS

• USE OF ESTIMATES OF VALUE ADDED BY THEM TO ARRIVE AT THE FIGURE OF GDP
• THE MAJOR SECTORS CONSIDERED BY THE CSO OF INDIA INCLUDE:
• AGRICULTURE AND ALLIED ACTIVITIES
• MANUFACTURING
• MINING AND QUARRYING
• ELECTRICITY AND GAS SUPPLY
• CONSTRUCTION
• TRADE
• HOTELS
• TRANSPORT AND COMMUNICATION
• INSURANCE
• REAL ESTATE AND BUSINESS SERVICES
• COMMUNITY, SOCIAL AND PERSONAL SERVICES
 MEASURING GROWTH NATIONAL INCOME

• TRANSACTIONS OF COMMODITIES NOT PRODUCED IN THE CURRENT YEAR ARE EXCLUDED EXAMPLE:
PURCHASES AND SALES OF EXISTING HOUSES OR OLD FURNITURE OR SECONDHAND
BOOKS OR CDS DO NOT CONTRIBUTE TO CURRENT GDP. HOWEVER, FLOW OF SERVICE FROM
EXISTING ASSETS AND DURABLE GOODS SUCH AS HOUSES, CARS AND REFRIGERATORS SHOULD BE INCLUDED

PAYMENTS NOT BACKED BY ANY CURRENT ACTIVITY CALLED TRANSFER PAYMENTS NOT TO BE INCLUDED
EXAMPLE: PENSION (PAYMENT FOR SERVICES RENDERED IN PAST), UNEMPLOYMENT COMENSATION, DISABILITY
BENEFITS etc.

ILLEGAL TRANSACTIONS ARE EXCLUDED FROM GDP

NON-MARKETED PRODUCTION (AGRICULTURAL OUTPUT RETAINED FOR ONSUMPTION BY FARMERS IS

EVALUATED AT MARKET PRICE. UNPAID SERVICES SUCH AS THOSE PROVIDED BY FEMALE MEMBERSOF
HOUSEHOLDS ARE NOT INCLUDED DUE DIFFICULTY IN ASSIGNINGAPPROPRIATE VALUE TO THEM
 MEASURING GROWTH

• REAL GDP
• NOMINAL GDP IS CACULATED USING CURRENT PRICES

• THIS REDUCES THE USEFULNESS OF THE CONCEPT AS A TOOL FOR COMPARING THE PERFORMANCE OF THE
ECONOMY OVER TIME IF PRICES ARE CHANGING

IF OUTPUT STAYED UNCHANGED WHILE PRICES HAVE DOUBLED IN VALUE

IN THAT CASE THE GDP WILL BE TWICE AS HIGH AS FORMER

BUT THIS GAIN IS ILLUSORY CREATED BY THE CHANGE IN PRICES WITH NO CHANGE WHATSOEVER IN AVALABILITY
OF GOOD AND SERVICES TO THE CONSUMER

THE DISTORTION EFFECT OF CHANGING PRICES CAN BE NEUTRALISED IF PRODUCTION IN TWO PERIODS ARE
EVALUATED AT SAME SET OF PRICES.
 MEASURING GROWTH

• ECONOMIC WELFARE AND NATIONAL INCOME

• TWO WAYS :
1.CHANGE IN SIZE OF NATIONAL INCOME
2.CHANGE IN DISTRIBUTION OF NATIONAL INCOME

CHANGE IN SIZE OF INCOME POSITIVE OR NEGATIVE

REAL OR MONETARY

THE MANNER IN WHICH INCREASE IN NATIONAL INCOME COMES ABOUT

EXPLOITATATION OF LABOUR
MORE WORKING HOURS
INCREASE IN NUBER OF WORKING FAMILY MEMBERS
FEMALE- CHILDREN –PUTTING THEM IN SLUMS
 MEASURING GROWTH

• NATIONAL INCOME AND PER-CAPITA INCOME

• INCREASE IN INCOME –INCREASE IN POPULATION

• INCREASE IN PRODUCTION OF CAPITAL GOODS

• SHORTAGE OF COSUMPTION GOODS

• KUZNET’S SIX CHARACTERISTICS OF MODERN ECONOMIC GROWTH

• “A LONG- TERM RISE IN CAPACITY TO SUPPLY INCREASINGLY DIVERSE ECONOMIC GOODS TO ITS POPULATION,
THIS GROWING CAPACITY BASED ON ADVANCING TECHNOLOGY AND THE INSTITUTIONAL AND
IDEOLOGICAL ADJUSTMENTS that IT DEMANDS ‘’

1. HIGH RATES OF GROWTH OF PER CAPITA OUT PUT AND POPULATION

2. HIGH RATES OF INCREASE IN TOTAL FACTOR PRODUCTIVITY

 MEASURING GROWTH

3. HIGH RATES OF STRUCTURAL TRANSFORMATION OF THE ECONOMY

4. HIGH RATES OF SOCIAL, POLITICAL AND IDEAOLOGICAL TRANSFORMATIONS

5. THE PROPENSITY TO REACH OUT TO THE REST OF TE WORLD FOR MARKET AND RAW MATERIALS

6. THE LIMITED SPREAD OF ECONOMIC GROWTH ONLY TO 1/3 OF WORLD’S POPULATION

 MEASURING GROWTH

• ROSTOW’S STAGES OF ECONOMIC GROWTH

• W W ROSTOW- THE STAGES OF ECONOMIC GROWTH, PROCESS OF ECONOMIC GROWTH

• THE TRADITIONAL SOCIETY

• THE PRE-CONDITION FOR TAKE-OFF

• THE TAKE-OFF

• THE DRIVE TO MATURITY

• THE AGE OF HIGH MASS-CONSUMPTION