‘THE ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT IS NOT SYNONYMOUS. “Comparison between Economic Growth and Economic Development” leaning and Scope Economic Growth time ‘eflects positive change in the real output (GDP) of the country in particular span of Value of goods and services = Gross Domestic Product Y GDPis an indication of how produce every year. Y Itreflects the impact of inflation Gross National Product (GNP) Gross Domestic Product (GDP) measures the value of goods and services produced within a country's borders, by citizens and non-citizens alike. Gross National Product measures the value of goods and services produced by only a country's citizens but both domestically and abroad. GDP is the most commonly used by global economies. Economic Development: Not only shows the movement of economic fundamental in its implication but only show technological advancement (literacy rate, poverty rate, etc.) an overall improvement of the country (broader perspective than economic growth) |. Econo I. Econo Growth: Quantitative changes Development: Qualitative and Quantitative changes Ill, Economic Growth: How's the economy doing? IV. Economic Development: How are the people doing? ECONOMIC GROWTH WITHOUT DEVELOPMENT Economic growth benefit only the small % ofthe population Corruption (budget to assess the social issues is syphoned) Environmental Problem (market failure Congestion - Over production Improper appropriation of national budget Notes: ‘+ Economic growth means an increase in real national income / national output. + Economic development means an improvement in the quality of life and living standards, e.g. measures of literacy, life-expectancy and health care. + Ceteris paribus, we would expect economic growth to enable more economic development. Higher real GDP enables more to be spent on health care and education. ‘+ However, the link is not guaranteed. The proceeds of economic growth could be wasted or retained by a small wealthy elite. Measures of economic development will look at is documents avaiable of charg on § studocu Downloaded by What Is Your Name (sismahname@gmail.com)‘© Real income per head - GOP per capita * Levels of literacy and education standards + Levels of healthcare e.g. number of doctors per 1000 population ‘© Quality and availability of housing © Levels of environmental standards + Life expectancy. A key issue is whether the benefits of economic growth are equitably distributed amongst different groups of society. NEW APPROACHES IN MEASURING ECONOMIC DEVELOPMENT Human Development Index (HDI) Y Ratio of a particular country to the most developed country Y Ratio is between O and 1 The HOSEFRHe at RO MISIBEHEF to particular party and vice versa Components: © Per Capita Income © Life Expectancy at Birth Level of Educational Attainment Significane Reflects human progress ina particular country Healthy Life Expectancy > No. of year to be lived in full health > Measures healthy life expectancy not just life expectancy. Green GNP National income measures that consider depletion of natural resources (renewable and non-renewable) and environmental degradation Indonesia Chart example: Downloaded by What Is Your Name (sismahname@gmail.com)Geen GNP ea Green GNP is expected to be lower than Standard GNP because of erosion Exchange Rate Method > The GDP is converted to US dollar Purchasing Power Parity (PPP) > Comparing the consumption of goods in local currency to the US for the same set of commodities Example: A set of products is purchased in the PH cost 1k and convert to US dollars is same 19.20 USD Purchasing power of the PH peso is weaker in comparison of US Dollar 17 SUSTAINABILITY DEVELOPMENT GOALS 2030 ¥ The world's new action plan 15 years to eradicate extreme poverty and hunger, fighting equality, climate change to achieve sustainable development for all, Principles: It is universal, it applies to every country which emphasize the leave no one behind SD6's is a participation of all in nation or local level = Equality Sustainability is about meeting human needs within ecological constraints, and the economy is a strategy to make money while achieving sustainability. Economic Development > Decent work and economy growth Industry innovation and infrastructure > Reduce inequalities > Responsible consumption and production y Social Progress > No poverty > Xero hunger Ths documents abe re of charge on § studocu Downloaded by What Is Your Name (sismahname@gmailcom)Good health and well being Quality education Gender equality Affordable and clean energy Sustainable cities and communities Peace and justice and strong institution vvvvVY Environmental Protection Clean water > Climate action > Life of land > Life below water v These three (3) are connected and have aspect in common to achieve the goal, to develop the approach further it need partnership and peace. it follows the MDG (Millenium Development Goal) GROWTH RATE OF INCOME AND EFFICIENCY ¥ Output by combining factors of production (land, labor and capital) Y Two variable inputs which are combined in a standard production function. Production function - tools for analyzing the process of economic growth. - Inputs of production process such as labor (L) and capital (k) © Output of production, income (¥) from the process. Y=f(K,L) Technical Progress Function Y The impact of technology and technological progress on the total amount of economic output a society can and does produce as well as the productivity of the factors of production that a society employs. ‘Two kinds of technical progress: Embodied technical progress ‘© The changing nature of the inputs into the production process (e.g. highly educated workers, more highly skilled and computer-iliterate, innovation and invention) Notes: Improved technology which is attributed to investments in new equipment. New technical changes that are made are embodied in the equipment. Disembodied technical progress ‘© Factors are combined together in the workplace (computer technology, internet and the flexibility of the production has increased) (e.g. lean manufacturing, warehousing management system, inventory management system) Notes: Improved technology which results in output increases without investing in new equipment. Downloaded by What Is Your Name (sismahname@gmail.com)Total factors productivity (TFP)/ Multifactor Productivity (MFP) Efficiency gains can be due to a number of factors including Greater economies scale Better management Marketing or organizational abilities Shift in production from low productivity activities with the same amount of labor Impact of new technology which enables greater output to be obtained with same capital and labor outputs vvvvvy TFP and MFP denote as A Y=f(K, LA) Growth rate of income: 8(Y) = e(K)W(K) + g(L)W(L) +A a(k) = growth rate of capital inv. a(L) = growth rate of labor W(K), W(L) = weighted shares of capital and labor in the economy. A= efficiency factor ECONOMIC EFFICIENCY ‘+ Production Possibilities Frontier and Technical Progress (A) ‘+ Curve depicting the best possible combination of goods that produced in economy. ‘+The combination utilizes the available input and minimize waste. Notes: “All goods and factors of production in an economy are distributed or allocated to their most valuable uses and waste is eliminated or minimized, Every scarce resource in an economy is used and distributed among producers and consumers in a way that produces the most economic output and benefit to consumers. 1. Static sense = Forms move from inside the production possibility frontier = Refers to making the most efficient use of scarce resources at a point in time "Beyond the frontier 2. Dynamic efficiency = Involves the introduction of new technology and working practices to reduce costs over time. = In Asia, much of the dynamic efficiency resulted from a shift from the less efficient agricultural sector to a more efficient indust = Dynamic efficiency can also result from new innovation and inventions which boost total factor productivity (TFP}. is documents avaiable of charg on § studocu Downloaded by What Is Your Name (sismahname@gmail.com)KEYNESIAN THEORY - Accumulation of Capital « ROSTOW’S HARROR DOMAR GROWTH - Consumption and savings are important factors to achieve higher growth. ~ Does not consider law of diminishing returns - Not realistic «SOLOW MODEL Developed by Solow and Swan (1956) ~ Incorporates the law of diminishing - Assumes the endogeneity of capital-output rai - Output of economy depends on the initial endowments of labor and capital STRUCTURALIST APPROACH - Models economic growth as a process of shifts in resources - Stresses rigidities that hinder this shift and studies how the shift in output among sectors takes place over time as development progresses = Shows the shifts in resources from agriculture to industrial output and services LEWIS-FEI RANIS-MODEL - Explains how the process of industrialization takes place and how inefficiencies can - Low capital accumulation and low labor skill - Low productivity and low earnings Modern Sector - High productivity - Pays higher wages POWER BALANCE THEORY - Popular in North-South - Southern economies were exploited by northern economies - Poor countries exported raw materials to industrial countries in exchange for industrial goods. - Terms of trade i.e., Price of raw materials in relation to price of manufactured goods tend to deteriorate - Developed by younger economists, dissatisfied with the Solow-Swan model. - Attempts to endogenize technical change by using external economies and spillovers. - Effects of technology and education can help generate increasing returns to scale and drives growth process to higher levels of income instead of slowing growth through diminishing returns. - One important feature of this growth theory is the mechanism by which technology is transferred from one firm to another in an industry within the country, and then across international borders. SPILL OVER - Cost or benefits related to production or consumption is passed on to people not involved in the production or consumption of goods. Downloaded by What Is Your Name (sismahname@gmail.com)