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Economic Growth & Development
 Concept of economic development and growth
 Growth without Development ?
 Development without Growth?
 Measuring economic Growth
o Increase in real national income
o Increase in Per Capita income (PCI)
o Increase in production capacity
 Measuring economic development
o Composite Index of Development (CID)
o Physical quality of Life Index (PQLI)
o Purchasing Power Parity (PPP)
o Human Development Index (HDI)
The terms economic development & economic growth are often understood as referring to the
economic progress of a country. These are taken as pointers of higher standard of living and better
quality of life. However, the perception of economist in this regard is quite different.
Economic Growth :-
Economic Growth refers to long-terms increase in real national income or real national output.
By economic growth we simply mean increase in per capita income or increase in GNP. In recent
times, the term economic growth refers to sustained increase in a countries output of goods & services.
According to some economists, economic growth is a process whereby an economy's gross
domestic product (GDP) increase over a long period of time.
Many economists have defined economic growth as sustained increase in per capita income.
However, economic growth is a complex process and it is not proper to limit it to mere increases in
per capital product. A large number of changes continue to take place during the process of economic
growth. For example GDP & GNP may rise, while PCI may decline. Therefore, it is necessary to
exercise extreme caution while selecting a variable that may be used as an index of economic growth.
Some economists says that improvement in per capita consumption would be most appropriate
indicator of economic growth. But it cannot be regarded as the best indicator of economic growth
because during the process of economic development, many LDES keep the level of consumption low
in a bid to increase saving & investment.
Thus, after considering alternative definitions of the term, economic growth. We feel that the
most appropriate approach to measures economic growth is the term of rise in PEI.
Concept of Economic Development
Compared to economic growth, economic development is a broader concept. It implies
progressive changes in the socio-economic structure of a country. It not only includes the quantitative
change in the economy, but also includes certain qualitative are social changes. Social change refers
increase in the rate of literacy, improvement in health care facilities, conservation of environment etc.
viewed in this way economic development involves a steady decline in agriculture share in GNP and
continuous increase in shares of industries, trade, banking, construction and services. Further whereas

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economic growth merely refers to rise in output, development implies change in technological &
institutional organisation of production as well as in distributive pattern of income.
Growth without Development
Growth without development is a feasible concept, it is quite probable that a country
produces more & more goods & services while basic structure of the economy remains intact. Study
on liberia, Rovert elower had observed that in spite of the fact the various concessions to foreign firms
induced export in a big way as resulted in a considerable increase in GNP, there was virtually no
complementary development in other sectors of the economy. The institutional set up of the economy
remained unchanged i.e. vast majority of country people remained unaffected. clower thus calls
"Growth without Development".
Development without growth
Development without growth is inconceivable. A substantial vise in a country's GNP is
required before it can hope to expand its industries, financial institutions, trade, public utilities and
government administration. Nowhere is the world has the occupational distribution of population
changed in the obsence of growth.
Common Characteristics of LDCs/ DCs
- Lower GNP per Capita
- Scarcity of Capital
- Rapid population growth & high dependency burden
- Low levels of Productivity
- Technological backwardness
- High level of unemployment & under employment
- Lower level of human well-being
- Wide income inequalities
- High incidency of Poverty
- Lower participation of foreign trade
Measures of Economic Development
PQLI –
As an index of economic development Morris D morris has put forth physical quality of life
index, under this concept, on the basis of the following three indicators of a country, composit
physical quality of life index is prepared.
PQLI
life expectancy Infant Mortality Rate (IMR) literacy
IMR – it refers to the no. of infants who die every year per 1000 infants.
Literacy – it refers to the no. of literate persons per 100 person.
Under composite PQLI, Performance of a country is voted on the scale of 1 to 100, where 1
represents the worst performance of any country and 100 represents the best performance.
Once a country's performance in life expectancy, infant mortality and literacy has been rated
on the scale of 1 to 100, The PQLI for the country is calculated by averaging the three ratings, giving
equal weight to each. Higher index is indicative of greater economic welfare and lower index signifies
smaller economic welfare.

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The PQLI appears to be free from the major problems associated with the use of real national
income as a measures of economic welfare. It directly focuses on welfare considerations in terms of
quality of Human life.
Purchasing Power Parity- PPP
Purchasing power parity (PPP) is a method of calculating the correct/real value of a currency
which may be different from the market exchange rate of the currency. Using this method economics
may be studies comparatively in a common currency. This is a very popular method handy for the
IMF & world Bank in studying the living standards of people in different economies. The PPP gives a
different exchange rate for a currency which may be made the basis for measuring the national income
of the economics. It is on this basis that the value of GNP of India becomes the 4th
largest in the world
(US, Japan, China) though on the basis of market exchange rate of rupee it stands at the 13th
rank.
The concept of PPP was developed by Gustav Cassel. This concept work on the assumption
that markets work on the law of one price, i.e., identical goods & services must have the same price in
different markets when measured in a common currency. It this is not the case it means that the
Purchasing Power of the 2 currencies is different.
Let us look at an example. Suppose that sugar is selling $1 in US and Rs. 20 in India a kilo
then the PPP – based exchange rate of rupee will be $ 1 = Rs. 20.
For the calculation of the PPP, a comparable goods & services is selected (a very difficult task)
of the identical qualities & quantities. The other difficulty in computing PPP arises out of the flaw in
the 'one price theory' i.e. due to transportation cost, local taxes, level of production etc. The price of
goods & services can not be same in different market (This is correct in theory only, not possible in
practice).
Human Development Index – HDI
The united nations development Programme (UNDP) introduced the HDI in its first Human
Development Report (HDR) in 1990. HDI was devised and launched by Pakistani economist Mahbub-
ul-Haq.
Human Development index is composite index prepared by UNDP. The HDI went on to select
three broad parameters and allotted them an equal weightage. The three parameters are given below :
HDI
Longevity Knowledge Standard of living
Longevity implies how long a person lives. Alternatively how long a new born is expected to
live. A shorter longevity implies lesser welfare. Knowledge implies the status of education of the
people.
Adult literacy ratio (ALR)
Knowledge
Gross Enrolment Ratio (GER)
Weight 2/3 - Adult literacy ratio refers to the % of people above 15 years of age who can read & write.
Weight 1/3- No. of students enrolled for different levels of education such as primary, secondary &
tertiary level is estimated.

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GER Primary – 5th
class
Secondary – Middle class
Tertiary – College & university level of education.
No. of students enrolled for education
GER =
Total population
Standard of living (PPP) – It reflects purchasing power of the people or the capacity to buy goods &
services. It is measured terms of per capita real GDP.
Longevity – Max. 85, Mini 25
HDI (Before 2010) Literacy – GER – Max 100, Min-0 ALR – Max 100, Min – 0
Standard of living – PCI (Max 40000$, Min 100$)
or
PPP
Having defined the minimum & maximum values, the sub-indices are calculated as follows
Actual Value – Minimum Value
Dimension index =
Maximum Value – Minimum Value
It means HDI would measure the basic concept of human development to enlarge peoples
choices, those choices covered the desire to live long, to acquire knowledge to have a comfortable
standard of living.
The value of each index (Ilife, Iedu, I log) varies between 0 to 1. For example, it the index of
educational attainment work out to be 1, if would mean 100% educational attainment of the people of
country.
HDI is estionated by taking the simple average of three index (HDI)
Ilife + Iedu + I long
HDI (Before 2010) =
3
The UNDP ranked the economies in accordance of their achievements on the above given three
parameters on the scale (0-1).
1- High Human Development Index (0.8-1)
2- Medium Human Development Countries(0.5-0.799)
3- Low Development Countries (.000-0.499)
HDI After 2010
HDR 2010 & HDR 2011 defines HDA as the geometric mean of normalized indices measuring
achievement in each dimension.
HDI
Life expectancy Knowledge Stand as living
Average year of schooling GNP Per Capita
Expected year of schooling in PPP $.

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In HDR 2010, the ability to enjoy a long & Healthy life is defined in terms of life expectancy
at birth which is same as in earlier retorts. However, changes in definition of the knowledge dimension
& standard of living dimension have been carried out. In earlier reports,
GDP per capita in PPP dollars was used as a measures of standard of living while in HDR
2010 it has been replaced by GNP per capita in PPPs.
As for the knowledge dimension is conquered, mean year of schooling replaces literacy &
GER is recast as expected year of schooling – the year of schooling that a child can expect to receive
given current enrollment rates.
HDR 2010 defines HDI as the geometric mean of the three dimension indices.
HDI = (I1/3
life. I1/3
education, I1/3
income)
Gross National Happiness (GNH)
The term GNH was coined in 1972, by Bhutan's king Jigme Singye Wangchuck. GNH was
designed in on attempt to define an indicator that measures quality of life or social progress is more
holistic & Psychological terms than the economic indicator of GDP.
A second – generation GNH concept, treating happiness a socio-economic development
metric, was proposed in 2006, by med Jones. GNH value is proposed to be an index function of total
average per capita of the following measures.
- Economic wellness
- Environmental wellness
- Physical wellness
- Mental wellness
- Workplace wellness
- Social Wellness
- Political Wellness