ECONOMIC PLANNING

AND STRATEGY
 Economic Planning

Economic Strategy

Economic Growth and

Development
 ECONOMIC GROWTH
• An increase in the capacity of an
economy to produce goods and
services, compared from one period
of time to another.
• Occurs whenever people take
resources and rearrange them in
ways that make them more valuable
 ASPECTS OF ECONOMIC
GROWTH
• Standard of living
• Government spending
• Domestic problems
• Global role models
ECONOMIC DEVELOPMENT
• A process that influences growth
and restructuring of an economy to
enhance the economic well-being of
a community
• Long-term, multidimensional,
rational process involving the
reorganization and reorientation off
entire economic and social system
 ECONOMIC PLANNING

• A branch of planning in which a

nation decides in advance what
to be done for the purpose of
stability and development of
economy
COMMON CHARACTERISTICS
OF DEVELOPING NATIONS
• Low levels of living
• Low levels of productivity
• High rates of population growth and
dependency burden
• High and rising levels of unemployment
and underemployment
• Significant dependence on agricultural
production and primary products
• Dominance, dependence, and vulnerability
in international relations
MEASURES OF DEVELOPMENT

• The most popular indicators of

economic development are per
capita gross National Product
(GNP) or per capita Gross
Domestic Product (GDP)
 OTHER INDICATORS OF
DEVELOPMENT
• Physical Quality of Life Index (PQLI)
 An attempt to measure the quality of life or well-being of a
country. The value is the average of three statistics: basic literacy
rate, infant mortality, and life expectancy all equally weighted on a 0
to 100 scale
• Human Development Index (HDI)
 Combines the normalized measures of life expectancy, literacy,
educational attainment, and GDP per capita for countries
• Capability Poverty Measure (CPM)
 Considers three objectives of development:: to be nourished and
healthy, to be capable of safe and healthy reproduction
• Economic Freedom Index
 Uses ten criteria: trade, taxation, government intervention,
monetary policy, foreign investment, banking, wage and price,
property rights, regulation, and black market activities
 THEORIES ON
ECONOMIC GROWTH
 JEAN BAPTISTE SAY

Supply creates its own

demand
ADAM SMITH
• An Inquiry into the Nature and Causes of the Wealth
of Nations
• Believed in the Natural Law
• Natural Law dictates natural Liberty
Natural Liberty
 is a system where anybody can do what he/she
wants to be or anybody can pursue what he wants
to pursue within the bound set by society or the
natural legal system
• The system of natural liberty is associated with the
invisible hand
• The free market economy
• The system of natural liberty promotes self-liberty
ADAM SMITH
• Self-interest promotes exchange
A. More exchange means more goods
1.Market will expand
2.Income will increase
Increase in income will increase demand thereby will
expand further the market
a.Division of labor will happen
b.Specialization will happen
c.It will increase productivity
d.It will result into economic growth (more income, more
output)
e.More income, more goods
f.The process will go on and on again
ADAM SMITH
B. Increase in income means increase in
savings
1. Increase in savings will lead to capital
accumulation
2. Capital accumulation will expand the
market and economic growth
 POLICY INSIGHTS FROM THE
IDEAS OF ADAM SMITH

• There is a need to increase income

by increasing labor productivity and
capitalization in the production
process.
• There is a need to increase savings
by encouraging the activities of
manufacturers and merchants.
 THOMAS MALTHUS

• The power of population is

indefinitely greater than the power in
the earth to produce subsistence for
man
MALTHUSIAN ANALYSIS
• Economic growth will result in a
situation where the demand for labor
is greater than the supply of labor
• Wages will go up
• Standard of living will go up
• Number of marriages will increase
• Population will increase
 MALTHUSIAN ANALYSIS
PROBLEMS SOLUTIONS

1. Population 1. Positive and

Explosion preventive check
2. Food Shortage 2. Technical
3. Collective or Mass Innovation in
Misery agriculture
3. More Equitable
Distribution of
Income
 DAVID RICARDO
• Principles of Political Economy and
Taxation
• Wishes to explain how economic
growth will stop
 RICARDIAN PRINCIPLE
• Ld > Ls
• Wage increase
• Standard of living will increase
• Number of marriage will increase
• Population will increase
• Food demand will increase
• Population pressure in land
• Motivate farmers to use good land (intramarginal
land)
• Use up all good land
• Use of bad land (marginal land)
 EFFECTS OF THE USE OF
MARGINAL LAND
• Price of food will increase relative to industrial and
manufacturing products
 price of food is determined by the marginal cost of
producing
 marginal cost of producing food in bad or marginal
land is high
 price of food must therefore be high
• If the marginal cost is high, then the price of food must
be high
• Workers in the industrial will demand higher wages
• Profit of capitalists will decrease
• Profit squeeze (Profit=0)
• Economic growth will stop
KARL MARX
• Law of Capital Accumulation
 The desire of capitalists to accumulate more and
more capital
• Law of increasing Centralization and Concentration of
Capital
 As capitalism grows and advances, the competition
among firms will increase
• Law of the Falling Tendency of the Rate of Profit
 As capitalism grows and advances, the rate of profit
of the capitalist will fall and will cause the capitalist
system to breakdown
• Law of Increasing Pauperization
 Capitalism will meet a violent end
 JOSEPH SCHUMPETER
• Popularized the term creative destruction
• Economic Growth = Investment
• Investment = Capital accumulation/Innovation
• Economic Growth = Capital
accumulation/innovation
• Innovation
 Doing things differently in order to improve
productivity
 Make use of the old, but do things differently
• Major Source of Innovation
 Entrepreneur
SCHUMPETERIAN ANALYSIS
• Economic growth depends on investment
• Innovation is a form of investment
• Economic growth depends on innovation
• Since the major source of innovation is the
entrepreneur, economic growth therefore,
depends on entrepreneurship
WHAT DETERMINES THE SUPPLY
OF ENTREPRENEUR?
• Entrepreneurs depend on the social climate
Social Climate
 social, political, socio-psychological
atmosphere within which an entrepreneur must
operate
Elements of Social Climate
 Social Values
 Class Structure
 Attitude of society towards business
success
 PROCESS OF ECONOMIC
DEVELOPMENT

• Innovation in the production method

• Innovation on products
• Innovation in markets
• Innovation in industrial organization
 JOHN MAYNARD KEYNES

• General Theory of Employment,

Interest and Money
• Father of Macroeconomics
 KEYNESIAN ANALYSIS
• A central idea is that when the amount of money being
saved exceeds the amount being invested, then
unemployment will rise
• This is in part a result of people not spending too high a
proportion of what employers pay out, making it difficult,
on aggregate, for employers to make a profit
• In a state of unemployment and unused production
capacity, one can only enhance employment and total
income by first increasing expenditures for either
consumption or investment
• Without government intervention to increase
expenditure, an economy can remain trapped in a low
employment equilibria
• Activist economic policy by government to stimulate
demand in times of high unemployment