Economic growth & economic development, underdevelopment

Mk Ghadoliya
Mk GhadoliyaProfessor of Economics at Vardhaman Mahabveer Open University em Vardhaman Mahabveer Open University
Concept and measures of Development and
under development
www.ghadoliyaseconomics-mahendra.blogspot.in
Concept of Economic Development
• In economic terms, development has been understood as achieving sustainable rates
of growth of income per-capita to enable the nation to expand its output faster than
the population (Todaro and Smith 2011).
• This definition fails to take into consideration problems of poverty, discrimination,
unemployment and income distribution; the assumption being that increased output
or economic growth would deal with these issues. It was believed that growth once
achieved will trickledown and will result in better quality of life.
• In sociological terms, the term ‘development’ is used ( often by Western sociologists)
to mean industrialization, economic growth and the living standards associated with
prosperity, such as increased life expectancy, health-care, free education, etc.
• Those countries that have not yet achieved these objectives are said to be
‘undeveloped’ and are often termed ‘less developed countries’ (LDCs).
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 2
Concept of Economic Development: Contd..
• Industrialisation – more and more exploitation of available resources raise
standard of living.
• Higher income leads to more and more satisfaction of materialistic wants.
• A Religious view considers development as a positive change in whole of
Human life- materialistic ,social and spiritual.
• An increase in real economic variables(National Output) over a long period of
time is economic growth.
• Growth is Quantifiable- An important feature of growth is that it can be
measured. For e.g. industrial production, road length, food production,
educated persons, or per capita income of people.
• Growth rates can be calculated annually in percentage across various sectors.
It can be positive or negative. It is measured over a short period.
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 3
Concept of Economic Development: Contd..
• Michael Todaro says, an increase in living standards, improvement in self- esteem
needs and freedom from oppression as well as a greater choice is development.
• Economic Development is the overall well-being of the citizens of a country. It also
leads to the creation of more opportunities in the sectors of education, healthcare,
employment and the conservation of the environment.
• Economic development means both more output or production and changes in the
technical and institutional arrangements by which factors of production are
produced and distributed.
• Economic growth on the other hand, is a narrower concept than economic
development. It is defined as the increase in the value of goods and services
produced by every sector of the economy. It is usually expressed in terms of the
gross domestic product or GDP of the country.
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 4
A country's economic development is usually indicated by an
increase in citizens' quality of life. 'Quality of life' is often
measured using the Human Development Index, which is an
economic model that considers intrinsic personal factors not
considered in economic growth, such as:
Nutritional level, health, sanitation, drinking water, vaccination,
education and other such indicators which makes quality of life
better.
• Thus we can say economic development is both quantitative as
well as qualitative progress or growth.
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 5
Prof. Goulet Three Core Values of Development:
Life Sustenance:
The life-sustaining basic human needs include food, shelter, health and protection. When
any one of these is absent or in critically short supply, a condition of absolute
"underdevelopment" exists.
Self-esteem:
A second universal component of good life is self- esteem- a sense of worth and self-
respect- of not being used as a tool by others for their own ends. Due to the significance
attached to material values in developed nations, worthiness and esteem are now-a-
days increasingly conferred only in countries that possess economic wealth and
technological power- those that have developed.
Freedom
Arthur Lewis stressed the relationship between economic growth and freedom from
servitude when he concluded that "the advantage of economic growth is not that wealth
increases happiness, but that it increases the range of human choice
Goulet, D. (1971) The Cruel Choice: A New Concept in the Theory of Development, New York, Athenaeum
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 6
14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 7
Measurement of Economic Development:
1. Economic development is measured as increase in Gross National
Product (GNP):
GNP is the total value of all final goods and services produced within a nation in
a particular year, plus income earned by its citizens (including income of those
located abroad), minus income of non-residents located in that country.
Basically, GNP measures the value of goods and services that the country's
citizens produced regardless of their location. The GNP is one measure of the
economic development and it is assumed that higher GNP leads to higher
standard of living.
Closely related to GNP is Gross Domestic Product (GDP) it is the market value of
all final goods and services produced in a country in a given year.
14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 8
Measurement of Economic Development:
Economic development is measured as increase in GNP over a long period of time.
GNP as a measure of national development is faced with several challenges such as:
i. If a rise in real national income is accompanied by a faster growth in
population, there will be no economic growth but retardation.
ii. The GNP figure does not reveal the costs to society of environmental
pollution. It considers natural resources to be free.
iii. It tells nothing about the distribution of income in the economy.
iv. GNP is always measured in money terms, but there are a number of goods
and services which are difficult to measure in terms of money e.g. taking
care of the children by the mother.
v. Double counting which arises from the failure to distinguish properly
between final and intermediate products.
GNP thus, is not a satisfactory measure of development it has not been
successful in reducing poverty, unemployment and inequalities in the
society.
14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 9
Measurement of Economic Development:
1. Economic development is measured as increase in per capita income
This relates to increase in the per capita real income of the economy over the
long period. However, several difficulties still remain:-
i. An increase in per capita income may not raise real standard of living of the
population.
ii. There is possibility that the poor remains poor despite an increase in the real
GNP per capita
iii. International comparisons of the real GNP per capita are inaccurate due to
exchange rate conversion of different currencies into a common currency.
iv. The real GNP per capita fails to take into account problems associated with basic
needs like nutrition, health, sanitation, housing, water and education.
Despite these limitations, the real GNP per capita is the most widely used measure.
14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 10
Measurement of Economic Development:
3. Welfare -
Economic development is often measured from a welfare point of view. From this
perspective, economic development is regarded as a process whereby there is an
increase in the consumption of goods and services by individuals.
Welfare as a measure of economic development has its own limitations:
Consumption of goods and services depend on the taste and preferences of
individuals. It is difficult to prepare a welfare index.
 The composition of the total output between capital goods and consumer goods.
From the welfare point of view, we must also consider not only what is produced but
how it is produced.
Income distribution is also very important.
14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 11
Measurement of Economic Development:
Social Indicators :
Some economists have tried to measure it in terms of social indicators. Some
indicators are ‘inputs’ e.g. nutrition standards or number of hospital beds or doctors
per head of population while others are outputs e.g. infant mortality rates, sickness
rates etc. Social indicators are normally referred to as basic needs of development.
The limitations of social indicators as measures of economic development include:
i. There no unanimity among economist as to the number and type of items to be
included in such an index.
ii. There is the problem of assigning weights to the various items which may depend
upon the social, economic and political set-up of the country.
iii. Majority of indicators are ‘inputs’ and not ‘outputs’ such as education, health etc
iv. They involve ‘value judgements’
Still economists have prepared a HDI index which has now been accepted worldwide.
Difference between Economic Growth and Economic Development
Economic Growth is narrow concept. Economic development is broader
in nature.
Economic Growth includes the quantitative changes economic
development also includes certain qualitative changes in the economy.
Economic growth means just Physical increase in the real per capita
income where as Economic Development is the reduction in economic-
divide, poverty, illiteracy and unemployment. Thus, economic
development includes both economic growth as well as social welfare.
Economic development focuses on inclusive growth – Growth that
includes all sectors of the economy and all sections of the society.
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 12
The following discussion outlines the basic differences between
Economic Growth and Development:
Difference between Economic Growth Economic Development
Economic Growth is Single dimension Concept: Economic growth
is merely a quantitative concept. It is concerned with rate of
increase in national income.
Economic Development is Double / Multi dimension Concept:
Concept of economic development is both quantitative and
qualitative in nature. It is concerned with welfare of people (a
qualitative aspect) along with increase in per capita income (a
quantitative concept).
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 13
Growth Ignores Distribution of Income: Distribution of income
is ignored in case of economic growth. In spite of increase in
income, number of poor people may rise if the distribution of
income becomes further unequal.
Development Considers Distribution of Income: In case of
economic development, distribution of income is given due
consideration. Reduction in inequality (of income distribution) is
one of the principal targets of economic development.
Inequality of income and wealth must be reduced.
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 14
Independent of Structural, Institutional and Technical
Changes:
Economic growth may occur independent of any structural,
institutional and technical changes in the economy. Associated
with socio-technological Change:
Economic development is invariably associated with significant
structural, institutional and technical changes in the economy.
Development is a qualitative concept and relates to human
development index (HDI) Gender Development Index (GDI)
Human Poverty Index (HPI). Growth is quantitative concept.
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 15
Thanks
www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 16
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Economic growth & economic development, underdevelopment

  • 1. Concept and measures of Development and under development www.ghadoliyaseconomics-mahendra.blogspot.in
  • 2. Concept of Economic Development • In economic terms, development has been understood as achieving sustainable rates of growth of income per-capita to enable the nation to expand its output faster than the population (Todaro and Smith 2011). • This definition fails to take into consideration problems of poverty, discrimination, unemployment and income distribution; the assumption being that increased output or economic growth would deal with these issues. It was believed that growth once achieved will trickledown and will result in better quality of life. • In sociological terms, the term ‘development’ is used ( often by Western sociologists) to mean industrialization, economic growth and the living standards associated with prosperity, such as increased life expectancy, health-care, free education, etc. • Those countries that have not yet achieved these objectives are said to be ‘undeveloped’ and are often termed ‘less developed countries’ (LDCs). www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 2
  • 3. Concept of Economic Development: Contd.. • Industrialisation – more and more exploitation of available resources raise standard of living. • Higher income leads to more and more satisfaction of materialistic wants. • A Religious view considers development as a positive change in whole of Human life- materialistic ,social and spiritual. • An increase in real economic variables(National Output) over a long period of time is economic growth. • Growth is Quantifiable- An important feature of growth is that it can be measured. For e.g. industrial production, road length, food production, educated persons, or per capita income of people. • Growth rates can be calculated annually in percentage across various sectors. It can be positive or negative. It is measured over a short period. www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 3
  • 4. Concept of Economic Development: Contd.. • Michael Todaro says, an increase in living standards, improvement in self- esteem needs and freedom from oppression as well as a greater choice is development. • Economic Development is the overall well-being of the citizens of a country. It also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment. • Economic development means both more output or production and changes in the technical and institutional arrangements by which factors of production are produced and distributed. • Economic growth on the other hand, is a narrower concept than economic development. It is defined as the increase in the value of goods and services produced by every sector of the economy. It is usually expressed in terms of the gross domestic product or GDP of the country. www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 4
  • 5. A country's economic development is usually indicated by an increase in citizens' quality of life. 'Quality of life' is often measured using the Human Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as: Nutritional level, health, sanitation, drinking water, vaccination, education and other such indicators which makes quality of life better. • Thus we can say economic development is both quantitative as well as qualitative progress or growth. www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 5
  • 6. Prof. Goulet Three Core Values of Development: Life Sustenance: The life-sustaining basic human needs include food, shelter, health and protection. When any one of these is absent or in critically short supply, a condition of absolute "underdevelopment" exists. Self-esteem: A second universal component of good life is self- esteem- a sense of worth and self- respect- of not being used as a tool by others for their own ends. Due to the significance attached to material values in developed nations, worthiness and esteem are now-a- days increasingly conferred only in countries that possess economic wealth and technological power- those that have developed. Freedom Arthur Lewis stressed the relationship between economic growth and freedom from servitude when he concluded that "the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice Goulet, D. (1971) The Cruel Choice: A New Concept in the Theory of Development, New York, Athenaeum www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 6
  • 7. 14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 7 Measurement of Economic Development: 1. Economic development is measured as increase in Gross National Product (GNP): GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country's citizens produced regardless of their location. The GNP is one measure of the economic development and it is assumed that higher GNP leads to higher standard of living. Closely related to GNP is Gross Domestic Product (GDP) it is the market value of all final goods and services produced in a country in a given year.
  • 8. 14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 8 Measurement of Economic Development: Economic development is measured as increase in GNP over a long period of time. GNP as a measure of national development is faced with several challenges such as: i. If a rise in real national income is accompanied by a faster growth in population, there will be no economic growth but retardation. ii. The GNP figure does not reveal the costs to society of environmental pollution. It considers natural resources to be free. iii. It tells nothing about the distribution of income in the economy. iv. GNP is always measured in money terms, but there are a number of goods and services which are difficult to measure in terms of money e.g. taking care of the children by the mother. v. Double counting which arises from the failure to distinguish properly between final and intermediate products. GNP thus, is not a satisfactory measure of development it has not been successful in reducing poverty, unemployment and inequalities in the society.
  • 9. 14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 9 Measurement of Economic Development: 1. Economic development is measured as increase in per capita income This relates to increase in the per capita real income of the economy over the long period. However, several difficulties still remain:- i. An increase in per capita income may not raise real standard of living of the population. ii. There is possibility that the poor remains poor despite an increase in the real GNP per capita iii. International comparisons of the real GNP per capita are inaccurate due to exchange rate conversion of different currencies into a common currency. iv. The real GNP per capita fails to take into account problems associated with basic needs like nutrition, health, sanitation, housing, water and education. Despite these limitations, the real GNP per capita is the most widely used measure.
  • 10. 14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 10 Measurement of Economic Development: 3. Welfare - Economic development is often measured from a welfare point of view. From this perspective, economic development is regarded as a process whereby there is an increase in the consumption of goods and services by individuals. Welfare as a measure of economic development has its own limitations: Consumption of goods and services depend on the taste and preferences of individuals. It is difficult to prepare a welfare index.  The composition of the total output between capital goods and consumer goods. From the welfare point of view, we must also consider not only what is produced but how it is produced. Income distribution is also very important.
  • 11. 14-04-2017 www.ghadoliyaseconomics-mahendra.blogspot.in 11 Measurement of Economic Development: Social Indicators : Some economists have tried to measure it in terms of social indicators. Some indicators are ‘inputs’ e.g. nutrition standards or number of hospital beds or doctors per head of population while others are outputs e.g. infant mortality rates, sickness rates etc. Social indicators are normally referred to as basic needs of development. The limitations of social indicators as measures of economic development include: i. There no unanimity among economist as to the number and type of items to be included in such an index. ii. There is the problem of assigning weights to the various items which may depend upon the social, economic and political set-up of the country. iii. Majority of indicators are ‘inputs’ and not ‘outputs’ such as education, health etc iv. They involve ‘value judgements’ Still economists have prepared a HDI index which has now been accepted worldwide.
  • 12. Difference between Economic Growth and Economic Development Economic Growth is narrow concept. Economic development is broader in nature. Economic Growth includes the quantitative changes economic development also includes certain qualitative changes in the economy. Economic growth means just Physical increase in the real per capita income where as Economic Development is the reduction in economic- divide, poverty, illiteracy and unemployment. Thus, economic development includes both economic growth as well as social welfare. Economic development focuses on inclusive growth – Growth that includes all sectors of the economy and all sections of the society. www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 12
  • 13. The following discussion outlines the basic differences between Economic Growth and Development: Difference between Economic Growth Economic Development Economic Growth is Single dimension Concept: Economic growth is merely a quantitative concept. It is concerned with rate of increase in national income. Economic Development is Double / Multi dimension Concept: Concept of economic development is both quantitative and qualitative in nature. It is concerned with welfare of people (a qualitative aspect) along with increase in per capita income (a quantitative concept). www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 13
  • 14. Growth Ignores Distribution of Income: Distribution of income is ignored in case of economic growth. In spite of increase in income, number of poor people may rise if the distribution of income becomes further unequal. Development Considers Distribution of Income: In case of economic development, distribution of income is given due consideration. Reduction in inequality (of income distribution) is one of the principal targets of economic development. Inequality of income and wealth must be reduced. www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 14
  • 15. Independent of Structural, Institutional and Technical Changes: Economic growth may occur independent of any structural, institutional and technical changes in the economy. Associated with socio-technological Change: Economic development is invariably associated with significant structural, institutional and technical changes in the economy. Development is a qualitative concept and relates to human development index (HDI) Gender Development Index (GDI) Human Poverty Index (HPI). Growth is quantitative concept. www.ghadoliyaseconomics-mahendra.blogspot.in14-04-2017 15