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Economic growth and economic development

Economic Growth & Development

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Economic growth and economic development

  2. 2. ECONOMIC GROWTH  It is a narrower concept than economic development. It is an increase in a country's real level of national output or in another way an increase in the value of goods and services produced by every sector of the economy. Economic Growth can be measured by an increase in a country's GDP(gross domestic product).
  3. 3. ECONOMIC DEVELOPMENT  It is a process whereby an economy's real national income as well as per capita income increases over a long period of time. Here, the process implies the impact of certain forces which operate over a long period and embody changes in dynamic elements. It contains changes in resource supplies, in the rate of capital formation, in demographic composition, in technology, skills and efficiency, in institutional and organizational set-up.
  4. 4. It also implies respective changes in the structure of demand for goods, in the level and pattern of income distribution, in size and composition of population, in consumption habits and living standards, and in the pattern of social relationships and religious dogmas, ideas and institutions. In short, economic development is a process consisting of a long chain of inter-related changes in fundamental factors of supply and in the structure of demand, leading to a rise in the net national product of a country in the long run
  5. 5.  The definition of economic development given by Michael Todaro is an increase in living standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice.  Development is, therefore, not only economic growth, but growth plus change–social, cultural and institutional as well as economic".
  6. 6. Economic Development Development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards. Measures of economic Development will look at:  Real income per head – GDP per capita  Levels of literacy and education standards  Levels of health care e.g. number of doctors per 1000 population  Quality and availability of housing  Levels of environmental standards
  7. 7.  The most accurate method of measuring development is the Human Development Index which takes into account the literacy rates & life expectancy which affect productivity and could lead to Economic Growth. It also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment. It implies an increase in the per capita income of every citizen.
  8. 8.  The Human Development Index (commonly abbreviated HDI) is a summary of human development around the world and implies whether a country is developed, still developing, or underdeveloped based on factors such as life expectancy, education, literacy, gross domestic product per capita. The results of the HDI are published in the Human Development Report, which is commissioned by the United Nations Development Program(UNDP) and is written by scholars, those who study world development and members of the Human Development Report Office of the UNDP.
  9. 9. According to the UNDP, human development is “about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests. People are the real wealth of nations. Development is thus about expanding the choices people have to lead lives that they value.”
  10. 10.  In the year 1990 the United Nations Development Programme in its first Human Development Report introduced the concept of Human Development Index.  It is the cumulative measurement of:  (a) Longevity  (b) Knowledge  (c) Decent Standard of Living.
  11. 11.  (a) Longevity: It shows the life expectancy. It is a choice to live long and healthy life.  (b) Knowledge: It is a choice to acquire literacy, education, information, etc. It is measured by the literate percentage in ratio with the total population. The literacy rate may be compared in the primary, secondary and tertiary levels.  (c) Decent standard of life: It is a joy to enjoy a quality and standard life. It depends upon the purchasing power of the people and the per capita income of the people etc.
  12. 12.  The rank of a country is determined by the overall developments in these three basic dimensions of human developments. ADI ranks countries, in relation to each other to tell them how for a country has travelled and how for yet it has to travel in the part of Human Development
  13. 13. FACTORS AFFECTING ECONOMIC GROWTH Economic Growth Economic Non- Economic
  14. 14. ECONOMIC FACTORS Natural Resources Capital Formation Technological Progress Human Resources
  15. 15. NON-ECONOMIC FACTORS Political Factors Social and Psychological Factors Education Urbanisation
  16. 16. Difference between economic growth and economic development.  Economic Growth does not take into account the size of the informal economy. The informal economy is also known as the black economy which is unrecorded economic activity. 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.
  17. 17.  Development however is concerned with sustainability which means meeting the needs of the present without compromising future needs. These environmental effects are becoming more of a problem for Governments now that the pressure has increased on them due to Global warming.
  18. 18.  Prof. Kindleberger has given the differences between growth and development as; "Growth may well imply not only more output and also more inputs and more efficiency, i.e., an increase in output per unit of input. Development goes beyond these to imply changes in the structure of outputs and in the allocation of inputs by sectors. By analogy with human beings to stress growth involves focusing on height and weight, while to emphasize development, draws attention to the change in functional capacity in physical coordination. For example, growth without development-more and more steel in the Soviet Union or more and more coffee in Brazil-leads nowhere. It is virtually impossible to contemplate development without growth because change in function requires a change in size. Until an economy can produce a margin above its food, through growth, it will be unable to allocate a portion of its resources to other types of activity".
  19. 19. Basis Economic Development Economic Growth Meaning Economic development implies changes in income, savings and investment along with progressive changes in socio- economic structure of country (institutional and technological changes). Economic growth refers to an increase in the real output of goods and services in the country. Factors: Development relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population's quality of life. Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports.
  20. 20. Basis Economic Development Economic Growth Measurement: Qualitative.HDI (Human Development Index), gender- related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc. Quantitative. Increase in real GDP. Shown by PPF. Concept: Normative concept Narrower concept than economic development
  21. 21. Basis Economic Development Economic Growth Effect: Brings qualitative and quantitative changes in the economy Brings quantitative changes in the economy Relevance: Economic development is more relevant to measure progress and quality of life in developing nations. Economic growth is a more relevant metric for progress in developed countries. But it's widely used in all countries because growth is a necessary condition for development.
  22. 22. Economic Growth without Development  It is possible to have economic growth without development. i.e. an increase in GDP, but most people don’t see any actual improvements in living standards.  Economic growth may only benefit a small % of the population. For example, if a country produces more oil, it will see an increase in GDP. However, it is possible, that this oil is only owned by one firm, and therefore, the average worker doesn’t really benefit.  Corruption. A country may see higher GDP, but the benefits of growth may be siphoned into the bank accounts of politicians  Environmental problems. Producing toxic chemicals will lead to an increase in real GDP. However, without proper regulation it can also lead to environmental and health problems. This is an example of where growth leads to a decline in living standards for many.
  23. 23.  Production not consumed. If a state owned industry increases output, this is reflected in an increase in GDP. However, if the output is not used by anyone then it causes no actual increase in living standards.  Military Spending. A country may increase GDP through spending more on military goods. However, if this is at the expense of health care and education it can lead to lower living standards.