Course Code: 4671 Course Name: Development

Economic-I

Assignment no. 1

Question No. 1
Explain how can agriculture and rural development best to be promoted in a
country like Pakistan?
Answer:-

In Pakistan, cottage or household industries hold an important position in rural

set-up. Most villages are self-sufficient in the basic necessities of life. They have their
own carpenters, cobblers, potters, craftsmen and cotton weavers. Many families depend
on cottage industries for income. Cottage industries have also gained immense
importance in cities and towns. There is a great demand for hand-woven (carpets),
embroidered work, brassware, rugs and traditional bangles. These are also considered
important export items and are in good demand in international markets. There are
meager resources to develop large-scale industries. However, a program for developing
and promoting small-scale industries both in rural and urban areas is more feasible that
shows the advantages of establishing such industries.

Advantages of establishing small-scale cottage industries in Pakistan:-

 Cottage and small-scale industries are labor-intensive and provide
employment to 80% of the industrial labor force. This reduces the
unemployment and offers opportunities for self-employment.
 Traditionally, women are not encouraged to work outside their homes.
Cottage or small-scale industries like carpet-weaving, candle-making and
handicrafts can be established in houses and women can be gainfully
employed. This increases the active labor force.
 These industries also meet the local demands for industrial goods, and
save foreign exchange spent in imports.
 There is a demand for rugs, carpets, brassware, handicrafts and
embroidered work in the International market. These goods provide 30%
of the export receipts of the manufacturing sector.
 When people are employed gainfully in villages, the migration of people
from rural to urban areas will reduce. The acute problems of housing,
sanitation, education, transport and health will be reduced in urban areas.
 Many districts are under-developed. With the expansion of such
industries, the regional disparity in income can be reduced.
 These industries make effective use of local raw materials which also
Reg No: 0000104533 Cousre: MSc Economics
Course Code: 4671 Course Name: Development
Economic-I

promotes primary industries like agriculture and mining.

 Small-scale industry does not require much capital and high technology.
I.T is suited to the traditional economic set-up.
 Cottage and small-scale industries do not use much imported material or
equipment.
 The waste of large-scale industries, particularly the cotton, sugar and
steel industries can be used to make by-products.
 Home Decoration

There is a web of cottage and books industries. In almost every village, there
are a number of such industries depending upon the size of the village and the
demand for the products. The establishment of such industry is closely related to the
availability of raw material traditional skills, climatic conditions and, in several cases,
the local specialization in the organized factory sector.
There is a large variety of handicrafts available in Pakistan. They are not only
aesthetically pleasing items, but they also serve the needs of local people. Some of
these industries produce important export items. Recently exports of non-cotton
products have faced increasing trade barriers as public opinion in industrialized
countries has expressed growing concern about child labor, environmental and health
standards. These concerns are being addressed now.

Carpets
In the small scale industries, the most important is the Carpet weaving and its
center are located almost all over the Pakistan. It is also significant in economic terms
and they make valuable contribution in exports. Cotton is the raw material required for
this industry. They also employ women for the production of fine hand woven carpets
and for the production of wool silk or a mixture of the two, as the carpets are of great
significance which generates equal economic opportunities. It is valuable for gross
domestic product of country.

Textiles Embroidery
Embroidery has developed to a fine art with distinctive regional designs and
patterns.

Jewelry
Gold and silversmiths are one of the largest communities of craftsmen. Much of
Reg No: 0000104533 Cousre: MSc Economics
Course Code: 4671 Course Name: Development
Economic-I

the jewelry made and sold in the cities is intricately fashioned and delicate.
Ceramics
Clay and terracotta pottery and utensils continue to be of great practical
importance. Many of the designs of urns, pitchers, bowls, jugs, plates, and pots seen
today are almost identical to those un covered at archaeological sites around the
country. Distinctive glazed blue tiles are used to decorate many of the great
mosques in Pakistan.

Cutlery
Wazirabad is the city of cutlery industry in Pakistan . This industry is growing
day by day and has share of 65 million US dollars in Export for 2010. High Quality
Damascus Steel is manufactured in this city and 95% of world needs are produced
here.

Woodwork
The Swat Valley is perhaps the most famous for its intricately
carved architectural woodwork and furniture, although wood-carving is common
throughout the northern mountains.

Sports good
Sports goods earn about 3.7% of our total exports. The main raw material for
the sports goods industry is leather and mulberry wood that are available in Punjab,
but also imported PVC. Footballs, hockey balls, hockey sticks, cricket bats, and
rackets are mostly manufactured by hand. The skilled workers are available in
Sialkot and Lahore.
In the industry large and medium size factories contract work out to small-scale
and cottage concerns. The local sports goods manufacturing industry is one of the
major source of foreign exchange earnings of Pakistan. It is centralized in and around
the city of Sialkot, where it has flourished as a cottage industry with most of its
production by generations of skilled craftsmen. At the time of independence, this
industry was in an infant stage with a nominal export of Rs. 0.82 million. The
Government took immediate steps to develop this industry by providing loans and
subsidies to the manufacturers and arrangements were made to market the
manufactured goods. Since then, the industry has flourished locally and enjoys good
reputation in the international markets as well. Mostly these goods are provided to
Fatima Syed Productions.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

Production At present, there are more than 2000 units, mostly on small scale in
operation with an installed capacity of Rs. 20 billion per annum. The units are
operating on single-shift basis. Pakistan produces a wide range of sports goods,
accessories, games and athletic equipment generally following the British, American
and German specifications.
The Government is also enforcing on a compulsory basis, minimum quality
standards for sports goods manufacture. The Pakistan Standards Institute, a
government agency, has devised specific standards for different types of sports goods.
The important items being produced are tennis rackets, hockey sticks, hokey balls,
polo sticks, cricket bats and balls, footballs, (complete) and numerous goods used in
both in-doors as well out-door games.
At present, Pakistan's sports goods enjoy a world-wide recognition mainly
because of the care that goes into their designing, manufacturing and selecting of the
finest raw materials. The basic raw materials required for the production of sports
goods, are leather, wood, glue, nylon guts, rubber and chemicals. Out of these, leather
and various kinds of wood are abundantly available in Pakistan.

The industry annually utilizes materials worth Rs. 8 billion including imported raw
material.

Exports This industry is one of the major foreign exchange earners for Pakistan and is,
therefore, receiving full government backing in its development. It is estimated that
more than 75 per cent of the total production is exported every year.

In fact, the export demand has acted as the main stimulus for the rapid growth
of this industry because of care that goes into designing, manufacturing and selecting
of raw materials. There are two factors which are responsible of this.
 Low price as compared to general price level
 Durability plus good workmanship

Export of sports goods increased from $136 million in 1990-91 to $384 million
in 1997-98. Showing an average increase of 23 per cent annum. The export market for
sports goods is fairly diversified. More and more countries are being added to the list
of their imports. In 1990-91 there were in all 50 countries importing these good from
Pakistan. Thereafter, the list has continuously expanded so that during the 1992-
98 period, Pakistan exported sports goods to 90 countries. However, the principal
importing countries are Germany, USA, UK, France and Italy. Others were Spain,
Netherlands, Hong Kong, Denmark, Canada, Belgium, Dubai and Chile.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

In the international market, India, Japan, Taiwan and South Korea are the main
competitors of Pakistan. They are supplying their products at lower prices. While India
has an advantage of cheap labour and raw material. Taiwan, Japan, and South Korea
have semi-automotive and mechanized units and are always engaged in introducing
cheap sports goods such as metal rackets and cricket bats etc.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

Question No. 2
Do you favor industrialization in rural and remote area? Give your view.

Answer:-
Rural discontent over chronic poverty, corruption, and the failure of the
government to foster development is widespread in Pakistan. Land tenure and
property rights are one aspect of these problems, undermining economic growth
and fueling conflict. Post-independence Pakistan has retained a feudal system of
land tenure in which an elite class of landowners owns vast holdings worked by
tenant farmers and laborers who live in persistent poverty.
Seventy percent of Pakistan’s population and 74% of Pakistan’s poor live in
rural areas; among the rural poor, the incidence of poverty is greatest among
agricultural laborers and tenants. Poverty in Pakistan is strongly correlated with
landlessness. According to the World Bank (2009), 2% of households control more
than 45% of all land, severely constraining agricultural competitiveness and livelihood
opportunities. Anwar et al. (2002) found that poverty is highest (54%) among the
landless, noting that only 0.08% of Pakistani households own more than 2 ha of land,
and that unequal land distribution is the primary manifestation of poverty in rural
Pakistan.
Recent analyses and articles suggest that landlessness, power wielded
by the landed class, the government’s inability to administer justice, and
disenfranchisement of customary and religious authorities have fostered strong
resentment among the rural. The articles suggest that the Taliban will gain traction
wherever they respond to the grievances of the rural poor and the landless.
Plans to address Pakistan’s land tenure regime, land access of the poor, or the
security of land rights are notably absent from current plans for development
assistance. Addressing these issues will go a long way to mitigating the spread of
insurgency movements that are capitalizing on social and economic dissatisfaction.
Asian Development Bank report notes that areas with high incidence of
absentee ownership and sharecropping arrangements are correlated with high
incidences of poverty. The ADB report stresses that, “One important result of the
weakening of judicial institutions has been a general decline in the vitality and
effectiveness of regulatory frameworks in the country…[particularly in the]
enforcement and protection of property rights, especially for the poor”.

Large landowning farmers have captured the benefit from significant

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

investments in agricultural productivity associated with the Green Revolution of

the 1960s—such as improved irrigation, fertilizers, seed varieties, access to credit,
and major subsidies for agricultural inputs. Additionally, there is a pattern of bank
lending in which family loans and “loans taken in the name of tenants but used by
landlords” has resulted in large farmers “obtaining a larger de facto share of
production loans than is prescribed by law” or readily apparent from bank ledgers.
The government initiated tenure reform and land redistribution measures in
the early 1970s by discouraging share-cropping, prohibiting tenant evictions and the
exacting of free labor, and otherwise securing land rights of the tenants. However,
due to sporadic implementation and ineffective protection of tenants’ rights,
evictions occurred widely, particularly in areas where landowners feared further
tenant and laborer protections. Evictions, preferential credit for larger landowners,
the high cost of agricultural inputs, and government policies in favor of
mechanization resulted in further concentration of land ownership and increasing
surplus of labor and landlessness in rural areas. In an analysis of change in land
distribution patterns over time, found an increased concentration of land and a
reduction in total area sharecropped out to tenant farmers. Argues that land
redistribution and a functional land market, based upon tenure reforms, would
effectively increase the number of smallholder farms and result in absorption of
labor in the agricultural sector, leading to wider rural employment.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

Question No. 3
Evaluate the role of technological change in the economic and industrial
development.

Answer:-
Economic development of all countries of the world. Economic development
depends on number of factors. Technology for economic development of any country
is an important factor. All developed and under developed countries economy,
agriculture, industry, transport, banking, health, education and improved technology in
all sectors are trying to install.

Meaning of technology
Technology equipment and services for the production of economic resources
or technologies that facilitate learning.

Adoption of technology
Technology and developing countries by developed countries may not adopt
product. Major markets of advanced industrial countries, high income, ample capital
resources, supported by good management and technical skills are the least
developed countries, small income, capital shortages, and unskilled labor is abundant.
Advance technology, so, what can be done for these countries. Developing countries
should adopt appropriate technology to provide the needed employment is based. The
development stage of the country’s current economic policy framework should be
within.

Importance of Technology

Technology is important due to following reason.

 Increase in labor productivity
With labor productivity growth in the use of technology. If we help the
agricultural sector, for example, a farmer with tractor can work more than
ten farmers.
 More human capital
Human capital means skilled and educated labor force when we increase
the use of technology the skills in labor also increase; it leads to human
capital formation.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

 Providing better living standard

We enjoy living facilities per capita income and the quality of life decision.
Technology, national income and per capita income growth using, is it leads to
better quality of life.
 Output increases
As labor productivity increases the production level increase of country. This
cause increase in national income of a country.
 Rapid increase in supply
According to Keynes rapid increase in supply is possible with the help of
technology. If demand of a commodity increase, it is possible to match the
demand with the help of technology. It removes the danger of inflation.
 Trade
The basis of international trade is “a country exchanges its excess production
with the excess production of another country”. So with the use of technology
production and international trade also increase.
 Advancement in infrastructure
Technology itself is the component of infrastructure. with the use of
advancement in technology we can improve .such as use of atomic energy,
use of gas in place of petrol, and computer etc.
 No wastages of resources
Technology helps in removing wastages of resources in production. It is
possible to have more output with same inputs in the presence of technology.
 Cost minimizing
According to the Gallbraith “The increasing use of technology in a society as
the efficiency increases. growth of national income and expense control in
results
 Economics of scale
It means that advantages are attached with high production level.in this
modern era we know that the use of technology production will increase as a
result cost will decrease and profit will increase.
 Overcome vicious circle of poverty.
With the use of technology income of the country increase. When increase in
income saving will increase , demand will increase and as a result investment
and capital formation will increase that help to overcome the vicious circle of
poverty.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

 Improvement of Quality
When we use latest technology in the production of new goods then their
quality of product will improve. If we take the example of textile industry. The
quality of machine made cloth is better than the quality of handmade clothes.
And their production will be more.
 Useful labor force
Skilled labor can also be used for more production. If labor will be highly
skilled than they know how to use the machines effectively. That can also be
profitable for the country and industry.

Economists define technology as ideas, or knowledge, that help us produce

output from inputs. Having more technology means being able to produce more output
with a given amount of inputs. Technology can be in different shape. It may be
engineering discoveries like invention of airplane, light bulb, basic knowledge like
calculus. Services concept like all-in-one shopping of Wall Mart.
Technology is also important because regular inputs are characterized by
diminishing returns the more of an input we use, holding others constant, the less
output each additional unit is able to produce. However, since the same idea is
available to the entire economy, we do not run into diminishing returns with technology.
Technology turns out to have a very important role to play in overcoming the
limitations imposed by diminishing returns to labor and capital. At many points in
history, prophecies of doom have been announced based on the idea that scarcities
in one input or another (land, oil, people) will bring economic growth to a grinding halt.
These prophecies have been disproven so far mostly because of technological
progress: we have learned to produce more with less of the scarce inputs, thus
reducing the dangers poseniteness of available resources
The best way to think of how important technology is, is to consider a simple
example of two countries, Brain land and Brawn land, that have both grown at 5% a
year for the last years. Brawnland can attribute 4% of its growth to increased inputs
and 1% to better use of inputs. Brain land can attribute 4% of its growth to better use
of inputs and 1% to increased inputs.
The Production of Technology
In order to understand the special nature of technology, we need to understand
the under-lying economics. Typically, we classify economic goods along two
dimensions: rivalry and excludability.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

Excludability
The degree of excludability of a good is the extent to which the owner
can restrict access to the product to those who pay for the privilege of using the
product. Non-excludable goods often tend to have spillovers of costs or bents that are
not captured by the producer (owner) of the good; these are also known as
externalities. If these externalities are positive then the good is under-produced by the
market; government intervention to increase production may be necessary (public
goods). Alternatively, the ex-ternalities may be negative so that the good is over-
produced by the market (tragedy of the commons); government intervention to restrict
production may be necessary.

Rivalry
A rival good is a good that when used by one person, cannot be used by
another person. Several people can simultaneously use a non-rival good; use by one
does not preclude its use by another.
The basic nature of non-rival goods implies that a lot of time and money must
be spent to come up with the product but once it is created the good becomes
relatively easy to replicate.
New technology can be thought of as new ideas that enable us to produce more
output with the same amount of inputs. In the classication outlined above, ideas are
non-rival: the use of an idea by one does not preclude the use of an idea by another.

Problems being faced in diffusion of Technology.

Problems can be faced in the diffusion of the technology. Some problems are
given below:
 Illiteracy problem
Literacy rate of developing country is very low. In Pakistan literacy rate is
52% which is not satisfactory. Due to illiteracy people are not aware of
technology.
 Resources are misallocated
Misallocation of resources decreases the productivity of the resources low
productivity creates the problem of low income and saving capacity of nation,
so the people are unable to purchase modern technology.
 Lack of capital.
In underdeveloped countries there is lack of capital due to low per capita
income. That’s why they cannot afford machinery and new technology to
improve their business or expand it.
Reg No: 0000104533 Cousre: MSc Economics
Course Code: 4671 Course Name: Development
Economic-I

 Lack of Efficient administration

In developing countries like pakistan , officers donot know how to use the new
technology nad have no technical training .they have no idea about use of
new machines.

Measure to remove the problems

Different ways can be useful to remove the problems of technology diffusion.

 Services and training center
Training center can helpto promote the economy to equip the labor with
training and technical skills
 Useful labor force
Skilled labor can used the advanced technology. To improve the production
and profit margin of the industry that can help the economy.
 Removal of tax
To encourage business savings, tax concessions should be allowed to those
who save higher ration of their profits and invested for import of technology.
 Efficient capital market
If we have an efficient market i.e. banks and financial institutions then people
would be induces towards savings and use for import of technology
 Market problems
Due to limited markets and slow turn over use of modern technology is not
affordable
 Small incentives
Due to lack of incentives in pakistan most of the people prefer to work
abroad. That’s why most of the skilled people prefr to work in other coutries.
 More guidance
Proper guidance should be provided to investors in technical, financial and
marketing matters. Many people have funds but are unable to invest due to
ignorance
 Educational facilities
In under developed countries maximum educational facilities should be
arranged for the people. Educated people can invent and innovate.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

Question No. 4

Give some arguments in favor of efficiency as a goal of economic

development in Pakistan.

Answer:-
There is a growing awareness that public enterprises can be a major source
of macroeconomic problems. One consequence is that programs of the International
Monetary Fund often contain undertakings relating to the public enterprise sector or to
particular units within that sector. There is, however, a shortage of analytical work on
the macroeconomic role and impact of public enterprises. A principal reason for this is
the scarcity and inadequacy of data on public enterprises.
As a preliminary to such work, this paper provides statistical information on
important macroeconomic dimensions of public enterprise operations. Data are
presented for almost 90 countries, including both industrial and developing countries
and countries with a range of political philosophies regarding public ownership. The
major exclusions are many Middle Eastern countries and most centrally planned
economies in Europe and Asia.
In Section I, some of the problems that arise in compiling consistent data for
public enterprises are discussed. In Section II, data on important characteristics of
public enterprise sectors are presented. Finally, in Section III, statistics are

provided on major indicators of the macroeconomic impact and performance of public

enterprises—the level and composition of their overall financial balances and the
financing they obtain from, in particular, the government and the banking system. A
summary is provided in Section IV.

Public enterprises have two defining characteristics: they are government

owned and controlled; and they are engaged in business activities. Ideally, when
making statistical comparisons, these characteristics should be given a precise and
consistent meaning, but, in practice, this is difficult to do.

This is partly because it is difficult to draw a clear-cut and economically useful

boundary around the public enterprise sector, especially as, in most countries, virtually
all enterprises are subject to some degree of government control. However, more
important, it is because of data problems. None of the international organizations
publishes comprehensive information on public enterprises and statistical sources for
individual countries generally do not separately identify public enterprise operations.
Reg No: 0000104533 Cousre: MSc Economics
Course Code: 4671 Course Name: Development
Economic-I

Moreover, there are differences between countries—and sometimes even between

different sources for the same country—in the exact definition of the public enterprise
sector used for statistical purposes.

In preparing the data for this paper, an attempt was made to adjust the
statistics to a common definition that appeared suitable for statistical analysis. This met
with only partial success. However, as much of the basic information has not
previously been brought together, it was decided to err on the side of
comprehensiveness rather than comparability in choosing which statistics to include.

As far as possible, ownership/control was taken to mean that the government

is able to control management decisions by virtue of its ownership stake alone. This
will be true if the enterprise is directly operated by a government department or, in the
case of a separate enterprise, it the government holds a majority of its shares, either
directly, or indirectly through another public enterprise, A smaller shareholding may
be sufficient to give the government effective control, but this will depend on the
distribution of the ownership of the remaining shares.

For many countries, little information is provided on the criteria used in

classifying enterprises under the public enterprise sector. However, where an explicit
definition is given, this is most often based on majority ownership as, for example, for
Finland and Botswana. For a few countries, for example, Tunisia, some enterprises
with minority government shareholdings are also included in public enterprise
statistics. It is possible that these holdings are sufficient to enable the government to
exercise effective control, but this cannot easily be determined.

More of a problem is that, for a large number of countries, a narrower

definition than majority ownership is used for statistical purposes. There are three main
reasons for this. First, for several countries, public enterprise statistics cover only
enterprises with particular legal forms. Most countries include public corporations in
their statistics. However, some, for example, Malawi, exclude departmental
undertakings, and some, for example, Sudan, exclude publicly owned companies.
Second, for many countries, for example, Turkey, public enterprise statistics exclude
enterprises owned by regional and local governments. Third, for several countries,
statistics are only readily available for a number of the most important enterprises.
These may be, for example, those subject to budgetary control, as in Mexico, or the
largest, as in Mali, or those in receipt of government transfers.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

The impact of these omissions varies widely. Excluded departmental

undertakings are generally not significant in quantitative terms, although they include
postal services, ports, and/or airports in a few countries and limited industrial or
agricultural activities, such as printing or forestry, in several more. Also, in a number of
cases, it was possible to obtain figures for these enterprises from government
accounts. The omission of public enterprises owned by regional or local governments
may be significant in some cases, especially in the larger developing countries of
South America and Europe. However, in most countries where such enterprises are
excluded from the statistics, their operations are mainly confined to limited public utility,
transport, and marketing activities. These are probably small compared with those of
enterprises owned by the national government. The most serious omissions are
publicly owned companies, especially indirectly held ones, and cases where only
major enterprises are included in the statistics. Impressionistic evidence suggests that
such exclusions are significant in quantitative terms in several countries. In a few
cases, for example, Mexico, it was possible to obtain an estimate of the importance of
these enterprises using other statistical sources, but in most cases it was not feasible
to adjust the statistics in this way. These omissions limit the comparability of the data
in the tables. However, the particular definitions used in individual countries often
correspond to ways of classifying public enterprises that are useful for analyzing their
role.
First, an important distinction between public enterprises arises from the
extent and nature of the control actually exercised by the government. It is this that
mainly determines the economic impact of public ownership and, particularly between
countries but also often within countries, there are substantial differences between
public enterprises in this respect. Actual control is extremely difficult to measure and is
not a suitable basis for a statistical definition for use in international comparisons.
Nevertheless, at least implicitly, it is often a factor in classifying enterprises as public
enterprises for statistical purposes. This is likely to be true when the enterprises
included in statistics are only those subject to budgetary control. It may also be true
when the legal form is a factor in defining the public enterprise sector; for example,
publicly owned companies, especially indirectly held ones, are often subject to less
control than other forms of public enterprise.

Second, in several developing countries, the number of public enterprises is

large, sometimes exceeding 100. It is difficult, if not impossible, for the government to
exercise effective control over such a large number of enterprises, especially in

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

countries with weak administrative capacities. The controllable public enterprise sector
may, therefore, be better represented by a few of the larger enterprises.

Third, the distinction between enterprises owned by different levels of

government is also important. Because of the dispersion of control and the large
number of enterprises, it will be more difficult to use the public enterprise sector as a
macroeconomic policy tool when the local or regional element is substantial.

As far as possible, the business characteristic of public enterprises was taken

to mean that the organization's output is sold and is of a type for which, in most
countries, revenue is expected to cover a substantial proportion of costs. This
condition is intended to restrict coverage to activities for which a market test is a major
consideration in judging performance and to exclude public goods and merit goods.
Attention was also confined to nonfinancial enterprises because financial enterprises
have a special role in macroeconomic policy that requires separate analysis.

Most countries use some kind of business criterion in defining the public
enterprise sector, although this is generally implicit and follows from only including
organizations with accounts of a commercial nature. A few restrict the coverage of their
statistics to only certain types of economic activity; for example, France only includes
monopoly enterprises in basic industries. However, most differences in coverage
between countries reflect institutional differences in the extent to which certain
activities are organized in enterprise form or operated on a commercial basis. In
particular, a number of countries include activities with public or merit good
characteristics in their public enterprise statistics; for example, public hospitals in
Belgium, toll roads in Austria, and broadcasting services in many countries. On the
whole, these differences are probably not of major quantitative importance. Also, in a
few cases, disaggregated data were available to enable such activities to be excluded
from the figures.

Nonfinancial public enterprises are identified separately in the statistics of

most countries. However, in a few cases, for example, the United Kingdom, the only
figures available include financial as well as nonfinancial enterprises. As the
quantitative importance of financial public enterprises for many of the variables used in
this paper, most notably capital formation, is likely to be small, this is probably not a
serious problem. There are also some hybrid cases of enterprises engaged in both
business and financial activities. Public agricultural and industrial development
corporations, which are common in developing countries, are a prime example.
Individual country practice was followed in deciding whether to classify these as public
Reg No: 0000104533 Cousre: MSc Economics
Course Code: 4671 Course Name: Development
Economic-I

enterprises.

The differences in coverage noted above should be borne in mind when

considering the figures. Overall, it seems unlikely that they seriously distort the

general picture given by the tables, although they probably mean that the size and
impact of the public enterprise sector is understated, at least on average. These
differences are most relevant when comparisons are made between individual
countries. They are of less significance when considering averages for broad areas or
trends over time.

Reg No: 0000104533 Cousre: MSc Economics

Course Code: 4671 Course Name: Development
Economic-I

Question No. 5

Write notes on the following:

i) Underemployment

Underemployment is a measure of employment and labor utilization in the

economy that looks at how well the labor force is being used in terms of skills,
experience, and availability to work. People who are classified as underemployed
include workers who are highly skilled but working in low- paying or low-skill jobs and
part-time workers who would prefer to be full-time. This is different from
unemployment in that the person is working but not at their full capability.
 Underemployment is a measure of employment and labor utilization in the
economy that looks at how well the labor force is being used in terms of
skills, experience, and availability to work.
 It refers to a situation in which individuals are forced to work in low- paying
or low-skill jobs.
 Visible underemployment and invisible underemployment are types of
underemployment.
 Underemployment can be caused by a variety of factors, from economic
recessions to business cycles.
 The unemployment rate is calculated based solely on the labor force, which
does not include persons who are not seeking a job.

Underemployment is calculated by dividing the number of underemployed

individuals by the total number of workers in a labor force. There are two types of
underemployment: Visible underemployment is underemployment in which an
individual works fewer hours than is necessary for a full-time job in their chosen
field. Due to the reduced hours, they may work two or more part-time jobs in order to
make ends meet. The second type of underemployment is invisible underemployment.
It refers to the employment situation in which an individual is unable to find a job in
their chosen field. Consequently, they work in a job that is not commensurate with their
skill set and, in most cases, pays much below their customary wage.
A third type of underemployment refers to situations in which individuals who
are unable to find work in their chosen field quit the workforce altogether, meaning
they haven't looked for a job in the last four weeks, per the Bureau of Labor Statistics'

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Course Code: 4671 Course Name: Development
Economic-I

(BLS) definition of "not in the labor force." The number of these workers skyrocketed
during the onset of the economic crisis and lockdown in early 2020, which ultimately
resulted in a substantial change in working conditions and coincided with a crash in the
markets. It is statistically difficult to measure the third type of underemployment.

ii) Unbalanced Growth

According to Hirschman, “Development is a chain of disequilibria that must be
kept alive rather than eliminate the disequilibrium of which profits and losses are
symptoms in a competitive economy. If economy is to keep moving ahead, the task of
development policy is to maintain, tension, disproportions and disequilibria.”
“Unbalanced growth is a better development strategy to concentrate available
resources on types of investment, which help to make the economic system more
elastic, more capable of expansion under the stimulus of expanded market and
expanding demand”-H.W.Singer.
According to Alak Ghosh, “Planning with unbalanced growth emphasizes the
fact that during the planning period investment will grow at a higher rate than income
and income at a higher rate than consumption.” It explains the unbalanced growth in
terms of the growth rates of investment, income and consumption. If ∆I/I, ∆Y/Y and
∆C/C denote the rate of investment, income and consumption, then unbalanced
growth implies ∆I/I > ∆Y/Y > ∆C/C i.e., the growth rates are not uniform. According to
Benjamin Higgin, “Deliberate unbalancing of the economy, in accordance with a pre-
designed strategy is the best way to achieve the economic growth.”
According to H.W.Singer, “Unbalanced growth is a better development strategy
to concentrate available resources on types of investment, which help to make the
economic system more elastic, more capable of expansion under the stimulus of
expanded market and expanding demand.” Meier and Baldwin are also of the opinion
that “Planners should concentrate on certain focal points, so as to achieve the goal of
rapid economic development. The priorities should be given to those projects which
ensure external economies to the existing firms, and those which could create demand
for supplementary goods and services.”
Explanation of the Theory:
Albert O. Hirschman in his strategy of economic development goes a step
further from Singer when he says that for accelerating the pace of economic
development in the underdeveloped countries, it is advisable to create imbalances
deliberately. He also recognized the inter-relatedness of different economic activities
as done by Ragnar Nurkse. But he asserts that investment in selected industries or
Reg No: 0000104533 Cousre: MSc Economics
Course Code: 4671 Course Name: Development
Economic-I

sectors would accelerate the pace of economic development.

He regarded, “Development is a chain disequilibrium that must keep alive rather
than eliminate the disequilibria, of which profits and losses are symptoms in a
competitive economy”. There would be ‘seesaw advancement’ as we move from one
disequilibrium to another new disequilibrium situation.
Thus Hirschman argued that, “To create deliberate imbalances in the economy,
according to a pre-designed strategy, is the best way to accelerate economic
development.” Hirschman is of the confirmed view that underdeveloped countries
should not develop all the sectors simultaneously rather one or two strategic sectors or
industries should be developed by making huge investment. In other words, capital
goods industries should be preferred over consumer goods industries.
It is because capital goods industries accelerate the development of the
economy, where development of consumer goods industries is the natural
outcome.

Hirschman has stated that, “If the economy is to be kept moving ahead, the task of
development policy is to maintain tensions, disproportions and disequilibria.”

Process of Unbalanced Growth:

The strategy of unbalanced growth is most suitable in breaking the vicious circle
of poverty in underdeveloped countries. The poor countries are in a state of equilibrium
at a low level of income. Production, consumption, saving and investment are so
adjusted to each other at an extremely low level that the state of equilibrium itself
becomes an obstacle to growth. The only strategy of economic development in such a
country is to break this low level equilibrium by deliberately planned unbalanced
growth. Prof. Hirschman is of the opinion that shortages created by unbalanced growth
offer considerable incentives for inventions and innovations. Imbalances give incentive
for intense economic activity and push economic progress.

According to Prof. Hirschman, the series of investment can be classified into

two parts:

 Convergent Series of Investment:

It implies the sequence of creation and appropriation of external economies. Therefore,

investment made on the projects which appropriate more economies than they create
is called convergent series of investment.

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Course Code: 4671 Course Name: Development
Economic-I

 Divergent Series of Investment:

It refers to the projects which appropriate fewer economies than they create.

These two series of investment are greatly influenced by particular motives. For
instance, convergent series of investments are influenced by profit motive which are
undertaken by the private entrepreneurs. The latter is influenced by the objective of
social desirability and such investment is undertaken by the public agencies.
In the words of Prof. Hirschman, “When one disequilibrium calls forth a
development move which in turn leads to a similar disequilibrium and so on and
infinitum in the situation private profitability and social desirability are likely to coincide,
not because of external economies, but because input and output of external
economies are same for each successive venture.” Thus, growth must aim at the
promotion of divergent series of investment in which more economies are created than
appropriated.

Reg No: 0000104533 Cousre: MSc Economics