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IB Economics - Essay Economic Development

IB Economics - Essay Economic Development

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Published by: mykiri79 on Jan 22, 2011
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MAGDA NGUYEN Tue, 07.11.

2010 (a) (b) Using examples, explain the difference between economic growth and economic development. (10) Is economic growth always a desirable policy objective for a government? (15)

(a) The concepts “economic development” and “economic growth” both refer to upward changes in an economy. However, these two concepts are distinguished, mainly, based on their economic implications. That is, economic development concerns with changes with a bigger scale in income, savings and investments, which in fact means the changes in standard of living and well-being of population; while economic growth concerns with changes in total real output per capita per person. Clear differences are shown when this is applied to real world economy. Let us look at one example which significantly shows the economic growth: mining in Australia. Since 1840s, mining has become Australia’s primary industry and contributor to the Australian economy. The first Australia’s economic minerals were silver and lead. After that, the discovery of copper at Kapunda in 1861 and gold, which was found near New South Wales in 1851, has led to great economic boom in Australia, called “gold rush”. The gold rush has brought many advantages to Australian economy. Most significantly, by the 1850s, 40% of world’s gold was produced in Australia. Besides, Australia has become the world’s largest coal exporter, with 35% of international trade. The rapid growth of mining industries has immediately led to expanded output of minerals, which results in Australia’s economic growth. One of the most significant evidences is that two thirds of Australian exports to China is energy and minerals. Moreover, more than half of the Australia's iron ore exports are to China. What are the main indicators for economic growth? It is usually recognized that the Gross Domestic Product (GDP) and the Gross National Product (GNP) are the key indicators for economic growth. GDP comprises the total production of a country including all the foreign productions that took place on its land; while GNP also comprises the total production of a country but excluding all the foreign productions on its land, and including all the productions that took place in other countries but by its people. Generally, the total real output of a country is concerned. The great increase in the real output of mining industries is clearly shown ever since the mining resources have been discovered in Australia. One more wellknown indicator for economic growth is the Unemployment Rate. When the total output increases, the unemployment rate should reduce as more people are hired. When mining industries started to expand their production, naturally, more people have been hired, resulting in lower unemployment rates, which led to greater economic growth. Economic growth is generally a shift of the Production Possibility Curve:

Capital goods

Capital goods

Consumer goods

Economic Development is a slightly broader concept than economic growth. Economic Development refers to the changes in a country on a bigger scale. Economic development is estimated based on the standard living and well-being of the population. The main indicators of economic development are economic growth, health care and education. There is one very significant example of economic development: economy of India. Since the mid-1980s, India has opened up its markets through the economic liberalization and it has gradually progressed towards a free market economy. Its economic growth has reached 7.5% by the late 2000s and is highly capable of reaching the government’s target of 10% in 2011. Although there was a quick increase in economic growth of India, and the fast rising of the Indian living standards, there is still more than 70% of Indian population living in great poverty - that is, living on less than $2 per day. On the other hand, since the great development in India, on the agriculture aspect, it has become the largest producer of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper. 60% of Indian population is employed for Indian agriculture. India has ranked second in agriculture output, fourteenth in industrial output, and fifteenth in service output. There is an economic development in India because all the indicators are moving towards to a higher level. Such as: it is clearly shown that Indian economic growth is steadily increasing, improved health care is shown by a lower rate of malnutrition in children, and higher level of education has been reached by less illiteracy.

(b) Generally speaking, economic growth is one of the main objectives of every economy. It is so because economic growth brings about many advantages to the economy, the most important of which is the nation’s wealth. As country’s total output increases, money that flows into the country also increases, thus businesses will be more profitable. The greater the economic growth, the more likely it is to lead to economic development, which will push up the living standards of a country and will lower the poverty rates. Besides, economic growth tends to stimulates higher employment, raise the investments, bring the potential environmental benefits, etc. Therefore, generally, every economy wants its economic growth to be higher and higher. However, economic growth does not come risk-free and that is why economic growth is not always a desirable policy objective for a government. While economic growth brings 4 main benefits, it also brings 4 main costs which may make countries unwilling to push up the growth. First, there might be the inflation risk. When a country’s total output increases, then the demand is likely to grow. If the demand grows beyond the potential productivity, there will be an increasing pressure put on interest rates which causes inflation to increase. Second, while it is concluded that economic growth can bring potential environmental benefits because a country will have more money to spend on environmental problems, if we consider short run, there is a number of negative environmental impacts. As the amount of production and consumption grow sharply, negative externalities come about, such as: noise, pollution and traffic jams. Third, inequalities are taken into consideration. Let’s take an example of the India’s economy. India has reached towards the economic development. However, more than 70% of its population still live in great poverty. That is because of inequalities. The benefits of growth are not equally distributed among the population, which leads to rich people getting richer and poor people becoming poorer. And the last but not least, economic growth might result in regional disparities. Due to the sharp growth of economic factors, although the average living standards seem to be rising, the difference in living standards between different regions might be greater and greater. The gap between the rich and the poor may lead to increase in the relative poverty and increase the gap between different regions within one country.

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