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Economic growth is the increase in the capacity of an economy to produce goods and services.
Economic growth is measured through gross domestic product (GDP). GDP is the market
value of all the goods and services produced by an economy within a year. The major
components of GDP are Consumption, Investment, Government expenditures, and Net exports.
Economic development is a process of consistent increase in income per capita and living
standards of people of a country. It refers to the improvement in quality of life and living
standards, e.g. education, health, life expectancy and other facilities of life.
Economic Growth is the positive change in Economic development is the quantitative and
Economic Growth refers to the increment in Economic development refers to the reduction and
amount of goods and services produced by an elimination of poverty, unemployment and inequality
Economic growth means an increase in real the quality of life and living standards, e.g.
national income / national output. measures of literacy, life-expectancy and health care.
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Lecture notes by Dr. Muhammad Atiq ur Rehman, Assistant Professor of Economics, Higher Education
Department Punjab/ Adjunct faculty COMSATS University, Islamabad, Lahore Campus
It refers to an increase over time in a country’s Economic development includes process and policies
real output of goods and services (GNP) or real by which a country improves the social, economic
exports.
nature as it only focuses on income of the nature as it focuses on both income and
It is for short term/short period. It is measured development does not have specific time period to
So, Economic growth is relatively narrow concept while economic development is a broader
concept.
Prerequisites mean those pre-conditions and factors which should be available for economic
growth and development. After a deep study of economic growth and development, one thing
is very clear that the process of economic growth and development is influenced by a number
of non-economic and Economic Factors. Economic Factors include capital, labor / Human
Resources, infrastructure and Technology, etc. On the other hand, non-economic factors
Economic development is the expansion of production and consumption faster than population
growth because of steadily higher productivity of resources and factors which should be
1. Economic Factors:
The role of economic factors in the development process of a country values a lot. An increase
or decrease in the economic growth rate of the country mainly affected due change in these
As computed capital accumulation means to increase the capital stock of a country. This stock
of capital may use to enhance the growth and development of a country. Sources of capital
formation includes the volume of savings and investment. Savings is the accumulated capital
which is boosted by different polices and saving schemes of the government i.e National saving
scheme. Investment is the use of capital to make more capital by earning profits. Investment
can be portfolio investment (i.e purchasing shares in stock market, bonds or other securities
deals) or foreign direct investment (i.e directly investing to launch production units, mainly by
multinational corporations).
development. Low capital formation rate is due to low investment, which is 16.6 % of GDP
By Labor can be called human capital or human resources available in a country. The human
knowledge and skills that contribute to the productive activities. Labor is an important factor
in development. Education and the health are the primary factor for the development of a
country. The analysis of investment in health and education is unified in human capital
approach.
The knowledge base of a nation is added by research and disseminated by teaching through
general education and vocational training. Investment in human capital results in new,
technically improved, products and production process which improve economic efficiency
and it can be as significant as physical capital in economic growth. The developing countries
are facing the shortage of skilled persons such as; scientists, managers, engineers,
administrators etc. Investment should be made to setup research and training institutes to
promote the human capabilities that will lead the progress of less developed countries.
Labor force is 53.82 million of the total population in Pakistan. Annual value of productivity
of labour in Pakistan is just $ 100 and it is $2500 in developed countries. Rate of unemployment
is 5.5 %.
Power resources include coal, gas, oil and electricity etc. Today without use of power resources
economic development is impossible. Energy and power resources play very important role in
A better infrastructure plays a major role in the economic uplift of a country as it promotes
internal and external trade, economic use of natural resources, production, mobility of skilled
The transport and communication improvements in Central Africa and Asia has been improved
due to increased investment in roads, railways and seaports. Part of this investment has come
from Chinese companies who have a vested interest in transporting raw materials from Africa
to China.
At present total length of roads is 2,59,618 kilometers and total number of registered motor
vehicles till March 2010 is 67,57,315. More than 91.4 million population is using mobile
phones. The telecommunication sector has attracted an investment of $ 716 million over the
Technological progress regarded as one of the key factors of economic growth of developing
countries. Productivity and efficiency of labor depends upon existing capital, technology and
a scientific discovery
an invention
an innovation
an improvement
Due to shortage of technology in developing countries, LDC’s must import it to accelerate their
production capacity in the short run. LDC’s must develop their technical skills while importing
modern technology from developed countries. However, LDC’s should be very careful while
e. Natural Resources
Natural resources are the material source of wealth, such as mineral deposits, climate,
forest, fisheries and fresh water that occur in a natural state and have economic value.
Accordingly, natural resources are available on the surface, below the level of earth, in the air
and in ocean. If a country has more natural resources then there is more possibility of
development. Availability of natural resources is a necessary but not a sufficient condition for
economic growth & development. More natural resources mean more possibility of increase
in national income.
Natural resources are available in the country but these are not utilized optimally.
Contribution of natural resources to GDP is just 0.8 %. Forest area of Pakistan is 4.21 % of its
2. Administrative Factors
Public administration is concerned with the systematic study and improvement of government
Planning.
Organization.
Direction.
Control.
3. Social factors
The social factors like social inclusion, women rights, and social welfare benefits that are
positively correlated with the economic growth and development. Similarly, the expected years
of schooling and the life expectancy are also affected by the social factors that contribute to the
economic development.
Cast system: People in developing countries have strict attachment with the occupations of
their castes. Adoption of jobs only with accordance of caste is the status symbol.
desirable. People give preference to fortune instead to work-hard. They have no mind to
Control the Customs and Traditions: In developing countries like Pakistan, people have to
spend a large amount of their income to maintain the customs and traditions. A huge proportion
of income is used at the time of death, birth, marriages and other circumstance.
The better education and training facilities can make people more productive and useful. So,
better education and training facilities result in economic development of a country. According
to the new growth theory by David Romer (1990s), the better education and skills can
constantly raise economic growth and productivity in the logrun. So, better education and
Education and training situation in Pakistan is at its low stage. There is shortage of training
institutions and literacy rate is only 57 %. The government has decided to raise the public-
private investment in the educational sector from the present level of 2.0 % of GDP.
5. Political Factors
Political stability and the protection of private property was ranked as the most important
factors to establish the confidence of investors and incentivize investors /firms to invest in the
developing economies through stock market equity or through FDI. Any sign of instability
increases the economic and personal risk of investing in developing countries. Many less
developed countries including Pakistan are facing political instability problem which affects
Stable government and stability in the policies of government is also a major factor of economic
progress. Stability causes more investment and rapid growth and development of an economy.
In most of the developing countries like Pakistan, political situation is not satisfactory.
Better implementation of law and order is compulsory for the development of economy.
Pakistan is a strange country where the Chief Justice (Iftikhar Muhammad Chohdery) was
crying for justice and Chief of Army Staff (General Pervaiz Musharf) was depending on
security.
Democratic Government
developing countries there is absence of election but selection exists at political stages.
Efficient Bureaucracy
servants and administrators should do their jobs honestly and efficiently. Without efficient and
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Students Activity:
I advise the students to consult economic Survey of Pakistan to enter the latest figures about
GDP, GDP per capita, literacy, population, education and health expenditures etc on this page.
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