ECONOMIC DEVELOPMENT (PRELIMS)
Governments are under pressure due to the
Module No.1: Introduction to Economic
Development
Factors Affecting Economic Development
- Economic development implies an
improvement in economic welfare through
higher real incomes and other welfare indices
such as improved literacy, better infrastructure,
reduced poverty and better health care. It
requires a degree of political stability,
investment and mixture of public and private
initiatives to increase economic potential.
1.) Levels of infrastructure
2.) Education
3.) Levels of inward investment
4.) Levels of savings / capital
5.) Political stability / Law and order
6.) Macroeconomic stability
- involves low rates of inflation and
exchange rate stability.
7.) Foreign aid
8.) Regional effects
9.) Natural resources
Differentiating Economic Growth from
Economic Development
Economic Growth
- is the increase in the real output of the
country in a particular span of time.
- does not consider the income from the
Informal Economy. The Informal economy is
unrecorded economic activity.
- does not reflect the depletion of natural
resources. Depletion of resources such as
pollution, congestion & disease.
environmental issues, majorly the problem is
due to Global warming.
- is the subset of economic development.
- indicates the expansion of the Gross Domestic
Product (GDP) of the country and the concept
of Economic Growth is basically related to the
developed countries.
- Economic growth is an automatic process.
- refers to the rise in the value of all the
products produced in the economy.
Economic Development
- is the increase in the level of production in an
economy along enrichment of living standards
and the advancement of technology.
- takes consideration of all activities, whether
formal or informal and eases people with low
standards of living a suitable shelter and with
proper employment.
- is concerned with Sustainability, which means
meeting the needs of the present without
compromising.
- is a broader concept than the Economic
Growth. Economic Development refers to the
increase of the Real National Income of the
economic and socio-economic structure of any
country over a long period of time. Economic
Development is related to underdeveloped or
developing countries of the world.
- economic development is the outcome of
planned and result-oriented activities.
* Economic Growth and Economic Development
both have different indicators for their
measurement. Economic Growth can be
measured through an increase in the GDP, per
capita income, etc. However, Economic
Development can be measured through
Improvement in the life expectancy rate, infant
mortality rate, literacy rate, and poverty rates.
The Three Core Values of Economic
Development
1.) 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.
2.) 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 on countries
that possess economic wealth and
technological power- those that have
developed.
3.) Freedom from Servitude
- 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.”
Wealth can enable a person to gain
greater control over nature and his
physical environment than they would
have if they remained poor. It also gives
them the freedom to choose greater
leisure. The concept of human freedom
should encompass various components
of political freedom, freedom of
expression, political participation and
equality of opportunity.
Amartya Sen’s Capability Approach
- The capability theory in economics states that
personal well-being is the most important
factor in life. This approach is a normative
economic theory that emphasizes the concept
of well-being as the most important moral
factor of human life. This approach was first
explained by an Indian economist Amartya Sen.
The capability approach has been used by
scientists to derive several more normative
theories, the theory of social justice, and the
ethics of development.
- Amartya Sen developed the capability
approach during the 1980s. There are two
central normative demands in this theory.
Firstly, the achievement of well-being is the
fundamental freedom every person strives for.
Secondly, well-being must be interpreted within
a person real capabilities and opportunities.
Hence, the understanding of what people can
actually do is imperative for Sen capability
approach. This approach, therefore, cannot
offer explanations but focuses on normative
concepts. The capability approach does not try
to explain what poverty is, but is more
concerned with the conceptualization of this
social phenomenon. From Sen perspective, it is
wrong to interpret one well-being based just on
his or her material possessions or riches
because it offers an improper theoretical focus.
Four Key Elements that Amartya Sen Sees as
Crucial for Evaluating the Well-being of a
Person:
1.) Differences in Abilities
2.) Adaptive Preferences
3.) Achievements and Effective
4.) Reflecting Complexity

Development and Happiness
- Development and Happiness The World
Happiness Report (WHR) is a landmark survey
of the state of global happiness that ranks 156
countries by how happy their citizens perceive
themselves to be.
Top Ten Happiest Countries in the World:
1.) Finland
2.) Denmark
3.) Norway
4.) Iceland
5.) Netherlands
6.) Switzerland
7.) Sweden
8.) New Zealand
9.) Canada
10.)Austria
Module No.2: Understanding Economic
Development and Poverty
Economic development is the process of
improving economic welfare in an economy. It
can involve a stronger economy enabling a
greater range of social services that improve a
nation’s welfare.
Indicators or Economic Development
1.) Real GDP per capita
- The nation’s total economic output
which is the same as a nation’s income.
2.) GDP at purchasing power parity (PPP)
takes into account the local purchasing
power of the currency and is a better
guide to actual living standards.
3.) Levels of absolute poverty, e.g., % of
population with income less than
minimum necessary to meet basic
necessities of life.
4.) Malnutrition levels
- Percentage of population with
insufficient food – levels of
malnutrition.
5.) Access to safe water
- Percentage of population with access
to safe water supply and sanitation
6.) Literacy rate
- The percentage of a population that
can read and write. Also consider
gender discrepancy.
7.) Mean years of education
- Length of education gives indication
on deeper education standards.
8.) Number of doctors per 1,000 of
population.
9.) Average life expectancy
- Life expectancy generally rises with
economic development.
10.)Openness of economy to international
trade
11.)Quality of nation’s infrastructure
12.)Share of agriculture in economy
13.)Political stability and security
14.)Wildlife diversity
Poverty
- the state of one who lacks a usual or socially
acceptable amount of money or material
possessions. It is said to exist when people lac
the means to satisfy their basic needs; near the
borderline of starvation or death from
exposure.
- satisfy their basic needs; near the borderline
of starvation or death from exposure. However,
Okalow (2020) states that poverty is not just
about money, but also includes issues of access
to services such as health care and education,
marginalization and exclusion. Essentially,
poverty refers to lacking enough resources to
provide the necessities of life—food, clean
water, shelter and clothing. But in today’s
world, that can be extended to include
provision of quality health care, schooling, and
even transportation.
Eleven Top Causes of Global Poverty
1.) Inequality and marginalization
2.) Conflict
3.) Hunger, malnutrition, and stunting
4.) Poor healthcare systems
5.) Little or no access to clean water,
sanitation, and hygiene
6.) Climate change
7.) Lack of education
8.) Poor public works and infrastructure
9.) Lack of government support
10.)Lack of jobs or livelihoods
11.)Lack of reserves
Human Development Index (HDI)
- was introduced in 1990 as part of the United
Nations Development Programme (UNDP) to
provide a means of measuring economic
development in three broad areas – per capita
income, health and education. The HDI tracks
changes in the level of development of
countries over time.
- The HDI is a very useful means of comparing
the level of development of countries. GDP per
capita alone is clearly too narrow an indicator of
economic development and fails to indicate
other aspects of development, such as
enrolment in school and longevity. Hence, the
HDI is a broader and more encompassing
indicator of development than GDP, though
GDP still provides one third of the index
Module No.3: Theories on Economic
Development
I. Rostow’s Stages of Growth
- is a foray into positioning the sweep of
modern economic history under capitalism into
neat and hopeful epochs. Rostow’s version is an
outstanding example of continuity and
evolution. Moreover, if Marx’s theory is
regarded as the banner of capitalism doomed,
Rostow’s version may be referred to as a
capitalism viable
Five Universal Stages of Growth:
1.) The Traditional Society
- is one of the simplest and primitive
forms of social organisation. It is one
whose structure is developed within
limited production function, based on
Pre-Newtonian science and technology
and old Pre-Newtonian attitude to the
physical world.
Characteristics:
a.) Per Capita
b.) Employment in Agriculture
c.) Social Mobility
d.) Political Power
2.) Pre-Conditions for Take-Off
- It is that stage of economic growth in
which the progressive elements creep
into the otherwise barbaric and
primitive members of the society.
 People try to break free from the
rigidities of the traditional society and a
scientific attitude, a quest for
knowledge in short, a questioning mid-
set is very much visible in the changing
face of the society.
Features of pre-conditions for take-off:
a.) Economic Progress
b.) New Enterprises
c.) Infrastructure
d.) Credit Institutions
e.) Mobilisation of Work Force
f.) Decline of Birth rate
g.) Political Power
3.) The Take-Off Stage
- marks the transition of the society
from a backward one to one that is on
the verge of freeing itself from the
elements that retard growth. In fact, it
is one stage in which there is a dynamic
change in the society and there is a
meteoric rise in the
standards set by the members of
society in all walks of life like industry,
agriculture, science and technology,
medicine, etc.
Characteristics:
a.) The Rate of Investment
b.) Development of One Leading Sector
c.) Existence of Different Frameworks
in the Society
4.) The Drive to Maturity
- Maturity is a period when a society
effectively applies the range of available
modern technology to the bulk of its
resources; and growth becomes the
normal mode of existence. Industries
like heavy engineering, iron and steel,
chemicals, machine tools, agricultural
implements, automobiles etc. take the
driver’s seat.
Economic Characters:
a.) Shift in the Occupational
Distribution
b.) Shift in the Comsumption Pattern
c.) Shift in the Consumption of Leading
Sector
5.) The Age of High Mass Consumption
- From maturity the economy moves
with growth to high mass consumption,
the stage at which durable consumer
goods like radios, TV sets, automobiles,
refrigerators, etc., life in the suburbs,
college education for one-third to one
half the population came within reach.
In addition the economy, through its
political process, expresses willingness
to allocate increased resources to social
welfare and security. This stage was
defined in terms of shift in emphasis
from problems of production to that of
consumption.
What made Rostow’s doctrine plausible is that
its main facts were on continuity and evolution
of society treated each stage as being mutually
inclusive from the other stages. Despite the
plausibility of his theory, write a critical review
of the Rostow’s Theory of Growth.
II. Harrod Domar Model
- shows the importance of saving and investing
in a developing economy. The model was
developed independently by Roy F. Harrod and
Evsey Domarin 1939. The growth of an
economy is positively related to its savings ratio
and negatively related to the capital-output
ratio. It suggests that there is no natural reason
for an economy to have balanced economic
growth. It implies that a higher savings rate
allows for more investment in physical capital.
This investment can increase the production of
goods and services in a country, therefore
increasing growth. The capital-output ratio
shows how much capital is needed to produce a
dollar’s worth of output. It reflects the
efficiency of using machines. This efficiency
means that a lower capital-output ratio leads to
higher economic growth since fewer inputs
generate higher outputs.
Problems with the Harrod-Domar Model
a.) Development
b.) Foreign Aid
c.) Physical Capital
d.) Savings Ratio
e.) Financial System
III. Lewis Model of Structural Economic Growth
and Development
- Arthur Lewis put forward a development
model of a dualistic economy, consisting of rural
agricultural and urban manufacturing sectors.
Initially, the majority of labor is employed upon
the land, which is a fixed resource. Labor is a
variable resource and, as more labour is put to
work on the land, diminishing marginal returns
eventually set in. There may be insufficient
tasks for the marginal worker to undertake,
resulting in reduced marginal product or output
produced by an additional worker and
underemployment.
IV. Neoclassical Growth Theory
- is an economic theory that outlines how a
steady economic growth rate results from a
combination of three driving forces—labor,
capital, and technology. The National Bureau of
Economic Research names Robert Solow and
Trevor Swan as having the credit of developing
and introducing the model of long-run
economic growth in 1956. The model first
considered exogenous population increases to
set the growth rate but, in 1957, Solow
incorporated technology change into the
model.
- The theory states that economic growth is the
result of three factors—labor, capital, and
technology. While an economy has limited
resources in terms of capital and labor, the
contribution from technology to growth is
boundless.
Module No.4: Population Growth and
Economic Development
Malthusian Theory of Population
- The most well-known theory of population is
the Malthusian theory. Thomas Robert Malthus
wrote his essay on “Principle of Population” in
1798 and modified some of his conclusions in
the next edition in 1803. The rapidly increasing
population of England encouraged by a
misguided Poor Law distressed him very deeply.
He feared that England was heading for a
disaster, and he considered it his solemn duty
to warn his country-men of impending disaster.
He deplored “the strange contrast between
over- are in breeding animals and carelessness
in breeding men.”
- His theory is very simple. To use his own
words: “By nature human food increases in a
slow arithmetical ratio; man himself increases in
a quick geometrical ratio unless want and vice
stop him. The increase in numbers is necessarily
limited by the means of subsistence Population
invariably increases when the means of Adverse Effects of Urbanization
subsistence increase, unless prevented by
1.) Housing Problems
powerful and obvious checks.”
2.) Overcrowding
- Malthus based his reasoning on the biological 3.) Unemployment
fact that every living organism tends to multiply 4.) Development of Slums
to an unimaginable extent. A single pair of 5.) Water and Sanitation Problems
thrushes would multiply into 19,500,000 after 6.) Poor Health and Spread of Diseases
the life of the firstpair and 20 years later to 7.) Traffic Congestion
1,200,000,000,000,000,000,000. 8.) Urban Crime

- Such is the prolific nature of every specie. The

power of procreation is inherent and insistent,
Characteristics of Rural and Urban Areas
and must find expression. Production of food,
on the other hand, is subject to the law of 1.) Size of the Community
diminishing returns. On the basis of these two 2.) Density of Population
premises, Malthus concluded that population 3.) Agriculture is the Main Occupation
tended to outstrip the food supply. If preventive 4.) Close Contact with Nature
checks, like avoidance of marriage, later 5.) Homogeneity of Population
marriage or less children per marriage, are not 6.) Social Stratification
exercised, then positive checks, like war, famine 7.) Social Interaction
and disease, will operate. 8.) Social Mobility
9.) Social Solidarity
10.)Joint Family
Module No. 5: Urbanization and Rural-Urban
Migration
Characteristics of Urban Community

1.) Large size and high density of

Meagcity – a city that has more than 10 million
population
inhabitants.
2.) Heterogeneity
3.) Anonymity
4.) Mobility and transiency
Urban Sprawl - when the population of a city
5.) Formality of relations
becomes dispersed over an increasingly large
6.) Social distance
geographical area.
7.) Regimentation
8.) Segmentation of personality

Positive Impact of Urbanization

1.) Industrialization
2.) Commercialization
3.) Social Benefits and Services
4.) Employment Opportunities
5.) Rural-urban Transformation