2024 – Economics

Notes for Economics

For economic development, economic growth is necessary however, not a sufficient condition.
Sammuel Kuznet – First person to calculate GDP in 1932, he emphasized on the expenditure
method [Private expenditure + Investment]
Senior Notes –
 GDP is a necessary element however not a sufficient element to measure sustainable
economic development.
 It is still used since it is strictly quantifiable, objective and not subjective like other
indexes.
 Weaknesses of GDP =
A. Inequalities cannot be measured
B. household work is not calculated
C. Externalities
D. composition of GDP is not reflected
E. quality of life
F. environment cost
Broken Window Fallacy – Concept given by French economist, Friedrich Bastiat, - GDP only
focusses on what is seen, it is an argument that assumes destruction and subsequent repairs and
creates a net benefit for society. It is a fallacy since it ignores what is unseen.
Degree of popular participation in developmental decisions – “populist policies” – degree of popular
participation in developmental policies, not able to participate in the developmental process – the
participation of the population is very important, still trapped in dogmatic beliefs and caste-class
structures.
Subject matter of developmental economics – movement of countries from a vicious cycle of
poverty to a virtuous cycle of growth.
Transformation from vicous to virtious shall be achieved by exploiting and over-utilising resources,
but that does not take into account sustainable development.
Growth and development
PF = Labour, capital, natural resources.
Labour
For growth and development, labour supply and quantity of labour is important, it is necessary
but not sufficient. For sufficiency – quality of labour is required – skills, knowledge, dexterity
and discipline level needs to be improved in labour – healthy population/labour is required since
that would increase the productivity of labour.
Natural resources - there are certain countries which are resource rich but not developed like
Venezuela. And also vice versa like Singapore and Japan. How to use natural resources - if you are a
natural-resource country, then you have to utilise it and diversify it. If you are poor in natural
resources - then you need to manage the available resources efficiently. For diversifictaion,
technology is required. Initially, protecting your industry, making them strong and when they are
ready for international competiton, then move towards the outward looking strategy. At some moment
of time, you realise that your resources are exhausted, then you should adopt a protectionist policy.
Developed countries are developing at the expense of other countries so that they can save their own
environment.
Capital Formation –
Accumulation of capital is very important. So to do that, you have to high savings. Gross domestic
savings needs to be high. Abstaining from consumption is important for high capital formation.
The period for abstaining from consumption differs from country to country. Three things are
important:
• Increased savings
• Mobilisation of savings
• Financial institutions getting the savings - then channelising the savings. Channelising is very
important - initially agriculture requires more, then moving to MSMEs, then more industries, etc.

Dependency theory
A. It is a theory that explains why development in under-developing countries is slow or remains
slow – Hans Singer and Raul Prebirch.
B. why “under developed” condition is persisting in Economy – under-development is an
outcome of colonial rule, rule of colonial countries for a long-period of time, for years
together, extracted natural resources.
C. Deliberately/strategically – tried to keep the countries under-developed.
D. socio-economic problems are so severed – affect people physically as well as mentally.
E. Dependency theory – creates two groups – CORE and PERIPHERY.
F. Periphery [primary products] – entering into these countries, and compelling periphery to
produce these primary products. Wealth of primary countries lies in the natural resources –
core have tools to finish primary products into finished products – Simple process of value
addition from Periphery [Primary] ---Core[Consumer, finished product]
G. Exporting primary products – their dominant position compelling periphery countries to
produce goods of bare level.
H. Deliberately keep population poor, illiterate, less educated, trapped in rigid social
structures – to create poverty as well as backwardness in the world.
I. Dependency theory manifests in new forms – “neo-colonialism.”
J. Wish to degrade the environment in their society without sharing technology – coming to
exploit natural resources + cheap labour.
Terms of trade – The ratio of price of imports to the price of exports.
Development = reducing deprivation + broadening of choices
Dennis Goulet – Three components of development – Three core components of economic
development
 sustenance
 self-esteem
 freedom
“sustenance” – acquiring/having some basic goods + basic services and goods that are necessary to
sustain – the ability of any individual/society/group/nation to meet LIFE-SUSTAINING Basic needs
and here Goulet discusses four basic needs, basket of BASIC needs may differ from society to society,
 food
 shelter
 health
 security
basket of BASIC needs may differ from society to society, for example, protection maybe a basic
good, if people feel insecure in a society – If any of food, shelter, health, and security is missing 0
then the conditions are of absolute under-development. A sustained economic growth in per-capita
incomes at the individual as well as the society level is required to come out of this absolute stage of
under-development.
“self-esteem” – A core competency of development + universal component – A sense of worth +
self-respect + you exist – people have an identity – people recognize you that way in society –
dignified life dealing with society – a difficult variable to measure – new indices developed to
measure this. Development is legitimized as a goal because it is an important + indispensable way of
getting self-esteem.
“freedom” –
 lack of choice – vicious cycle of poverty in which they are stuck, due to lack of choice.
 Freedom from servitude – ability of a person to choose, from generation together they are
stuck. Freedom is to be understood in the sense of emancipation from restrictive conditions
of life + emancipation from social servitude to nature and other people + misery + oppressive
institutions + dogmatic beliefs especially that poverty is pre-determined.
 Advantage of economic growth is NOT that wealth increases choices rather wealth
increases a range of HUMAN CHOICES
 Freedom = freedom to choose from a number of things [Goulet + Sen] = political freedom +
personal security + rule of law + freedom of expression + political participation + equality of
opportunity.
Amartya Sen
What matters for human beings – the capability to function – goes beyond the concept of poverty –
what you can do from these commodities - value doing/value being is important. My ability to
convert that commodity into a VALUED commodity is important.
Capability – freedom to use functionings, have to convert these resources into actual functionings.
Martha Nussbaum
Extended the definition of capability – a function is to be performed in a truly HUMAN way –
capabilities/capability are the space for opportunity for a particular action and functioning is the
way in which that space is manifested.
Development – sociological, economic perspectives.
Sen v. Martha
Sen – capabilities are real possibilities or opportunities created for an individual to perform an
ACTION.
Martha – Creating opportunities is merely a necessary and not a sufficient condition. She precisely
gave and enlisted these capabilities. Ten Central capabilities by Martha =
1. Life – Able to live to the end of a normal length of human life – not dying prematurely or
not to have one’s life reduced to not worth living. Promote longevity of life, reduction of
mortality and enhance life expectancy
2. Bodily Health – Able to live a good life which includes reproductive health + nourishment
+ shelter.
3. Bodily Integrity – Able to change locations freely + having sovereignty over one’s body
which includes being secured against assaults + right to choose – control over one’s body
4. Sense, senses, imagination and thought –
 able to use one’s sense to imagine, think and reason in a truly human way – this kind
of reasoning comes from a cultivated, acquired education.
 Ability to produce self-expressive works + engage in religious rituals without fear
of political ramifications.
 The ability to have pleasurable experiences + avoid unnecessary pain.
 5. Emotions – able to have attachments to things outside our senses. Grieve at the loss of the
individual + be angry when it is justified + emotional growth of an individual should not be
restricted fear and society.
6. Practical reasoning – Able to form a conception of good + being able to form your own life
+ critically reflect on it.
7. Affiliation – Able to live and show concern for others [to show compassion for others] + In a
stratified society, you wish to show concern for a specific group and you are not scared
of doing such things + institutions enumerate feelings of co-existence, and social factors play
an important role.
7.1. Strong institutional affiliation
7.2. Able to have self-respect + not be humiliated by others – not being ashamed of
belonging to a certain race, caste, group, sex or nationality.
8. Other species – Able to have concern for and live with other species (plants and the
environment at large)
9. Play – Able to laugh, play, enjoy recreational activities
10. Control over one’s environment – able to effectively participate in political life + right to
speech + associate + political freedom without any pressure + able to own property – no
economic development takes place without ownership of a sense.
Human Development Index – Indicator that is required to measure socio-economic development.
HDI was developed by Amartya Sen and Mahboob-Al-Haq. Starting point of such indicators –
Criticizing GDP as a measure of economic welfare, according to Sen, if we need an indicator as
strong as GDP, we need a single indicator.
Erstwhile PQLI – Physical Quality of Life index – went beyond simply measuring income – took into
account infant mortality.
Other indicators published by UNDP
 HDI
 IHDI
 GDI
 GII
 MDI
 Inequality adjusted HDI
 Gender development Index
 Gender Inequality Index
 Multi-dimensional poverty index

Gender Inequality Index – Dimensions –

1. Health
1.1. Maternal mortality rate – maternal deaths per one lakh live births per year.
1.2. Adolescent fertility rate – birth rate amongst the females of age group 15-19 years per
100 women.
Reproductive Health Index – MMR +AFR
2. Empowerment
2.1. Females and males completing secondary education
2.2. females and males share in parliamentary seats
Female empowerment index
3. Labour market
3.1. female labour participation rate
3.2. male labour participation rate
HDI – Dimensions and Indicators
Dimensions
 Long and healthy life
 Knowledge
 A decent standard of living
Methodology – Till 1990-2010, one specific statistical tool. Since 2010, different statistical methods
to make HDI more inclusive.
INDICATORS
1. Life Expectancy
2. Expected years of schooling + mean years of schooling [to measure knowledge]
3. Gross national income – per capital gross national income – to measure decent standard of
living
(PPP – The rate at which currency of one country can be converted into other countries
currency to buy the same quantity of goods and services in each country)
Life Expectancy
 Used to calculate growth and development by almost all new alternative indicators
 Expectancy – Number of years an infant would live if the prevailing patterns of mortality
at birth were to stay same throughout his life.
Knowledge
 Expected years of schooling – Number of years of schooling a child of school entrance age
can expect to receive, if a pattern of specific enrolment continues
 Mean years of schooling – Average years/mean years of education that a country’s
population receives.
HDI = GM of Life Expectancy + Education Index + Income Index
In AM – PERFECT Substitutability of variables is accepted – even if there is variation inside some
variables, in total index it would not be reflected.
18.04.24.
UNDP – Gender Inequality Index – the dimensions to calculate inequality are also different –
gender inequality calculated by three dimensions –
A) Health
B) Labour market
C) Empowerment
Health –
 Maternal mortality ratio – number of maternal deaths per 1,00,000 life births
 Adolescent fertility rate – calculated per 1000 girls, aged 15-19 years,
 Female reproductive index
Empowerment –
 Female and male population with alteast secondary education – moved out of primary and
middle education – empowerment crossed that obstruction of lower education barriers.
 Female and male shares of parliamentary seats –
 Female empowerment index
Labour market -
  If women get opportunities to participate in the labour market – these many people are
ready to join the labour market – all those seeking and willing to work – and getting work
 every time we talk about opportunities are not provided, even if opportunities are
provided – ready to join the labour market – and then directly once this increases, GNI,
GDP would increase.
 Female labour market
GII = female rep. index + fem.empowr.index + fem.lab.mar.index
Planetary HDI
In 2021, two new factors were introduced in HDI – [HDI was adjusted for PLANETARY
pressures, this particular effort was continued in subsequent reports] aka Planetary pressure
adjusted HDI [PHDI] where human development index is multiplied by an adjustment factor –
this is the age of anthropocentric = everything dominated by human being – other species are reaching
towards extinction, material footprint is increasing, due to excessive human consumption patterns,
their contributions in affecting planet – the way we are producing commodities,
A) Co2 emissions
B) Material footprint – the attribution of global material extraction to the domestic final
demand OR narrowing down or closing material cycle.
Adjustment factor is the AM of Co2 emissions per capita and material footprint – combining these
values and dividing by two – known as Adjustment factor
Adjustment factors * HDI = PHDI

Trends of HDI for India

Trends of poverty, inequality, environmental changes – can be fit in a number of places – During
1990s, value of HDI for India (decadel) was 0.434 – country was in low stage of human development
– this status maintained till 2000. (0.491)
2010 – medium developmental group – 0.575 – this time period was the time period – main
agricultural policies were found in the agricultural and service sector. Whenever Indian agricultural
sector has shown a good growth rate – the impact can be seen on all parametres.
In 2018 – HDI further improved to 0.645.
In 2020, HDI came slightly down to 0.642
In 2021, HDI came down to 0.633. [Impact of Pandemic, was seen across the world]
Comparison between Switzerland, India and South Sudan
Switzerland
HDI – 0.962
LI – 84
Expected years of schooling – 16.5
Mean years of schooling – 13.5
GNI - $66,933.
India
LI – 67.2
Expected years of schooling – 11.9
Mean years of schooling – 6 .7
GNI - $6593
South Sudan

GNI - $768.
Corelation between how education plays a role in improving the lives of people –
19.01.24.
Poverty –
Book review – 1000-1200 words, precise and concise summary. Specific and unique contribution –
how that particular contribution is relevant to the economy. APA style of references – give the source
– demographic transitions, what are the causes and what are the factors that are causing and why we
are lacking behind – commodification of data – how data is being used, misused, how is it affecting
human development – your own suggestions and recommendations
Planetary pressure adjusted HDI – adjustment factors is nothing but AM for Co2 emissions per capita
– how material cycles can be closed or narrowed down, this is a challenging task – increasing
consumption of various things – moving in a reverse direction is difficult – move in your reverse
direction – first realise, what are you contributing to that problem – realise how much is your
contribution in polluting the earth – unnecessarily, consuming material things – simply because
society is – you have to realise that change your habits in any which way =
Uncertain times and unsettled lives, shaping our future in a transforming world [Report] –
 90% countries have shown a reversal in almost all dimensions in HDR 2021/22/
 Covid-19 has affected all dimensions, but this reversal has started in 2019, uncertainties
according to the report include –
1. Dangerous of planetary pressures of Anthropocene – Anthropocene was a factor that was
included in the HDR last period. Anthropocene is the excessive dominant influence of
humans on Earth. intensified use of resources by humans combined with stubborn social
deficits – in terms of human development [lack of education, poor health, poor incomes –
increasing inequalities and marginalization further.]

2. The pursuit of sweeping, societal transformations – Societal transformations are

continuously happening like industrialization, people are becoming more isolated, Report
mentions, “the pursuit of sweeping societal transformations on par with Industrial revolution.”
– societal transformation in today’s world is AI and technology.
3. Widespread, intensifying polarization - through the digital world. Political polarization. We
are talking about participation and democracy but people are getting lesser and lesser
chance of expressing themselves. Humans are deciding the fundamental trajectory of
development by exploiting resources for their own satisfaction and material use. Happing due
to social media, incomplete information, fake news being spread leading to groupism, etc.
Extra info - AI is displacing 85 million jobs and creating 95 million jobs.
How uncertainties of the Anthropocene are undermining mental well-being – affecting/undermining
mental well-being by four pathways –
A) traumatizing events
B) physical illness
C) general climatic anxiety – “solastalgia” – the way environment is causing human distress –
D) food insecurity
all the countries are shaping equally, but the impact is more severe in developed countries due to their
lifestyle – chronic diseases, high sugar, high bp – trapped more by this problem – their lives
influenced more by pandemic than ours
“health prices shock” – time period of number of crisis coming together, indirecting uncertainities on
top of each other – climatic, financial crisis – all correlated to each other, all coming together, An
Uncertainty Complex – even advanced countries have seen a decline in their basic human rights
indicators – due to this, human suffering is increasing – strained systems are emerging – the entire
planet is under the threat of acute crisis, not discussing a single, indivudalized crisis, cost of living
crisis, food crisis = novel layers of uncertainties creating a new kind of uncertainity complex – to
meet the pattern of crisis, change our institutions and patterns accordingly – cannot rely only on
existing institutions to overcomes such crisis
“The world is now navigating unchartered waters,”
1) the dangers of planetary pressures of Anthropocene
2) the pursuit of sweeping, societal transformation – what has happened as a consequence of
industrial revolution.
3) widespread, intensifying, polarization – it is vagueries and vacillations of polarized
societies, how human behaviours are changing unexpectedly – all this uncertainty compex is
developing against the backdrop of economic progress – the irony of anthroprocene – we
have more power to influence our future, however, we do not have any control over it
Humans are now shaping planetary trajectory – while shaping this trajectory, they are altering the
fundamental frame of the planet – a good balance between humans, plants and animals is now being
severally disturbed – human made concrete jungles, are overweighing bio masks,
23.01.24.
For more and quicker returns, economic systems are allowing humans to use natural resources –
combined with stubborn, social deficits – intensified use of resources by humans combined with
stubborn social deficits – in terms of human development [lack of education, poor health, poor
incomes – increasing inequalities and marginalization further.]
Disastrous impact of intensified resources – making the people more marginalized, more unequal, it
affects the vulnerable groups more as compared to better groups – can quickly switch to a better
neighbourhood – not the same with vulnerable groups – impact of such crisis is more severe and puts
them in more pressure – environmental impacts are more severe for the vulnerable groups
How uncertainties of the Anthropocene are undermining mental well-being – mental well-being is
being undermined by Anthropocene, climate change, violence, discrimination, insecurities
affecting/undermining mental well-being by four pathways –
E) traumatizing events
F) physical illness
 G) general climatic anxiety – “solastalgia” – the way environment is causing human distress –
H) food insecurity – due to climate change, soil infertility, shifting from food crops to cash crops
for profit purposes, balance is missing in the distribution of food.

[when excessive human activities are causing trauma – feeling of separation from family, survival, in
a family many people survive – the events that are happening – these things are going to leave a long-
term effect on your lives ]
Numerous empirical studies – to capture the kind of trauma that people are facing – all these events
are leading to mental stress – sometimes it may lead to a person committing suicide, productivity
would be affected – low income and leading to economic insecurity – caused not by economic factors
however, economic factors related to social factors – mental disorders occurring as an individual
collective factor – creating physical kind of illness, zoonotic diseases
General climatic anxiety – ecological anxiety and solastalgia – distress produced by environmental
changes when any kind of environment change starts negatively affecting an individual’s quality of
life
Disturbing balance between cash crops and food crops – a big cause of concern – basics of
Economics, due to intensive cultivations, better ecological advancement – that is not easy for them =
for a good business of meet, with the climatic change, with eating habits, there is an imbalance
between food crops and other kind of crops – act like a stressor – “Allostatic Load” – wear and
tear and effect on human body when an individual is exposed to repeated chronic stress – this
stress would be more severe when you are a part of a poor community, secluded and marginalized
community – report discusses the impact of such things when happening in early childhood.
extreme poverty – stresses in which a child is growing up – long-term physiological impact – even the
cognitive skills of the individual – learning capacities would not work properly
Inequality and insecurity is creating problems for intergenerational cycle – very important in case of
capability enhancement – again leading to mental distress – economic insecurities would be there –
they are created by Anthropocene = traumatic events – mental stress created th
Political graph – high in terms of human development countries as well – armed
twin paradox – progress with insecurity and progress with polarization
Societal transformation – the way the economic transformation is taking place – political polarization
is also a good cause for polarization – affecting overall human development – excessive use of
technology which is a double-edged sword
Lives being determined by AI – Technology advancement is in a way good – due to excessive use of
algorithms, every aspect of human life is codifiable
Secluding you from direct participation in activities – some big social and political conflicts taking
place and unrest taking place
How Anthropocene is affecting our mental well-being – mental-distress has a very important tole as
directly affecting an individual’s conversion factor.
For example, a person who has lived in abuse, compared to another person who has lived a happy life,
the cognitive skills of the abused person would be affected – he does not know how to use resources
since he has never participated in decision-making.
Circular and Intergenerational Relation Between Economic Inequality and Mental Distress can
perpetuate economic inequality across generations
Four things –
1. Financial Shocks –
2. Unemployment
3. Low Income
4. Food Insecurity
These are all stresses
Mental well-being should be given importance. All these stresses started affecting economic
development. We saw that GDP and everything is increasing but we are not achieving happiness or
mental satisfaction. Ultimately, HDR suggests how human well-being can be enhanced - 3 Is –
1. Investment - Investment in education, health, sustainable energy, electronic vehicles, etc.
2. Insurance - Insurance is very important because of uncertainties, we require health insurance,
agricultural insurance, etc.
3. Innovation - encouraging innovation. Developing nations are usually imitating developed countries,
this should be changed. Innovative power should be very fast, as there is international connectivity
which spreads innovation very quickly. Innovation keeping the SDGs in mind.
Advantage of HDI
More developed countries should take a lesson from lesser developed countries about how to develop
without exerting planetary pressures
Numerical :
HDI= 0.949
Co2 emissions per capita (in tonnes)= 10.8
Material Footprint emissions Per Capita = 34.8
Max Co2 value = 69.8
Max MF Value = 152.4
Planetary Pressure adjusted HDI (PHDI) = HDI x Adjustment factor
Adjustment Factor = Co2 + MF / 2
= 0.864 + 0.772 / 2
=
Formula : Max Value – observed value / Max Value – Minimum Value
Max value is the max value observed in any country
Co2 Index = 69.8 – 10.8 / 69.8
= 0.846
MF Index = 152.4 – 34.8 / 152. 4
= 0.771
PHDI = 0.949 x 0.809
= 0.786
difference = 19% (approx.)
The PHDI is calculated so that countries can change their consumption and production methods
or patterns
HDI = Health Index, Education Index, Income Index
Health Index = 67.2 – 20 / 85 – 20
= 0.726
(Actual value – min value / max value – min value)
Mean years of schooling = 6.7 – 0 / 15 – 0 = 0.446
Expected years of schooling = 11.9 – 0 / 18 – 0 = 0.661
Education index = 0.446 + 0.661 / 2
= 0.553
Income index = 6590 – 100 / 75000 – 100
8.7933 – 4.605 / 11.27 – 4.605 = 11.22
HDI = (Health Index x Education Index x Income Index) 1/3
= (0.726 x 0.553 x 11.22)1/3
= 0.633
World Bank Classification of countries based on GNI Per Capita in dollars
There are 4 categories:
(i) Low-income countries : ≤ 1135
(ii) Middle income countries : 1136 - 4465
(iii) Upper-middle income countries : 4466 – 13845
(iv) High Income countries : > 13845
Economics – Book Review
Book review format
- 1000 words (around 3 pages)
- Concise summary
- focus upon the problem that author is discussing. Eg: Poverty, Growth and its contradictions
- Give a small introduction about the problem and how it is relevant to development economics
- What new is being done regarding that problem/ what is the author’s contribution. Have they
done a particular experiment, developed a new theory etc. What is unique in that book
- Why have you selected that book
- How do you evaluate the writings of that author
- Graphs should be clear
- Do not repeat stuff
- APA Style footnotes
- Do not use statistical analysis that you do not understand or do not know how to use
- Try to take some topic that hasn’t been taken multiple times before
- Separate Points For Your Own Suggestions/ Recommendations – Super Important
25.01.24.
Gross National Happiness Index –
 Given by the fourth king of Bhutan - King Jigme Wangchuck – It even talks about
spirituality, psychological well-being, and realized that monolithic maximization of GDP
will not serve the purpose.
 Easterlin Paradox - given by Richard Easterlin in the early 1970s. He tried to establish a
relationship between income and subjective well-being.
 This concept was introduced in Bhutan in the 17th Century by the 13th Dragon King. 1729-
legal code of Bhutan which says that government should provide happiness to people. If the
government cannot create happiness for its people then there is no purpose for the
government to exist.
 GNHI creates a balance between spiritual and material life. It is a domain-based
framework.
When and who started working on happiness or subjective well-being? The first proper research was
done by Easterlin. He co-related income and subjective well-being. First theory - 1974. Revisited in
2010. Why income? Income was taken as a measure of welfare or happiness.
It was important to find out to what extent this holds true. His analysis started from USA and 11 more
countries. He learnt that there exists a positive relation between income and subjective well-being but
only up to a certain extent. He reached a conclusion that individually or on a micro level - the
relationship b/w income and subjective well-being are positive. But using this positive relation, you
cannot form policies for the country as a whole as there is no significant relation b/w national income
and the subjective well-being of the country as a whole. Evidence indicated that at the macro-level,
income leading to subjective well-being was not true. Later on, his theory was also criticised. As
it was a paradox.
4 – pillars
9 – Domains
33 – Indicators
120 – variables
GDP is a faulty measures, happiness and satisfaction should be calculated – every country is
concerned about the happiness and well-being of its people
World Happiness Index Report – based on GNHI – why happiness index is being calauted –
calculated with the help of statistical methods – policies are being made to make not very happy
people, happy – for designing and formulating polciies
Four pillars
1) Just and Equitable socio-economic development – equitable and sustainable economic
development
2) cultural preservation
3) good governance
4) ecological conservation
How inclusive this measure is
The 9 Domains – they are equally weighted nine domains
 1) Psychological well-being – how it captures the thing for which is being developed
2) health
3) use of time – how an individual is using time – two indicators
4) education
5) community vitality
6) cultural diversity and resilience
7) ecological diversity
8) living standards
9) good governance
according to their importance – these indicators are differently weighted – inside the domains,
indicators are defined, indicators which are more subjective in nature – less weightage is given –
higher the subjectivity lesser the weight, usually when people criticise these indicators, critcise on the
basis of subjectivity
Questionnaire of GNHI – comprehensive and technical – people are specifically trained – trained
investigators – so that if they are going into the field – easily ask questions and fulfil questionnaires –
so that outcomes would be more accurate – to increase accuracy/
Psychological well-being – till date, no indicator has taken this into account – four indicators to
measure psychological well-being
 life satisfaction
 Positive emotions
 Negative emotions
 Spirituality
Positive emotions – forgiveness, compassion, contentment – these subjective,
Living per capita – economic aspects are giving equal importance as other eight domains – time hues
– work and sleep – eight hours sleep per person per day is required – unhappy, narrowly happy,
extensively happy and deeply happy

 unhappy – 0-49.9%
 narrowly happy – 50-65.9%
 extensively happy – 66-76.9%
 deeply happy –
GNHI – aggregates the proportion of happy people + proportion of not yet happy people and
multiplies it to average sufficiency levels of not yet happy people – once the proportion of happy
people is calculated – GNHI – calculates incidents of happiness, unhappiness, whatever not yet happy
people – sufficient in happy indicators – the overall happiness can be increased – the main aim of
calculating all indicators is to do a COMPARITIVE analysis – to design the policies, so that the
deficiency, wherever it is can be removed – for the betterment of the quality of life – newer and newer
inclusions are coming up to make human lives better
High income countries should work more on this – as a consequence, their life satisfaction is coming
down
UN World Happiness Index Report – there are 146 countries are there for which world happiness
report is being prepared

The significance of this indicator is that it calculates three things - 1. Headcount ratio 2. Intensity of
happiness 3. By combining these two - GNHI itself. This indicator can be decomposed according to
demographic characteristics. Calculation of headcount is easier, without knowing the intensity. This is
done by countries. But knowing the intensity is necessary, which is calculated in GNHI. A small
extension of this is - World Happiness Report (WHR) By 2006-2007, people started realising how
important this indicator is, and that's why every country started calculating happiness. First time
World Happiness Report published - 2012. WHR - Majorly based on Gallup Poll Method. Here, the
interviewer asks every respondent to imagine a 10-step ladder and accordingly give a number. 10 is
the highest level of satisfaction. They are capturing three things using this –
1. Life Evaluation
2. Positive Emotions
3. Negative Emotions
There are six factors influencing life evaluation - 1. GDP per capita or PPP 2. Healthy life expectancy
3. Generosity 4. Social Support 5. Freedoms - to make life choices 6. Perception of Corruption
29.01.24.
How GNHI is calculated
This year’s report takes into account – world happiness report
1. Income – measured by living standards
2. health – measured by life expectancy
3. social support – having someone to count on specifically in the times of trouble – played a
significant role after covid.
4. freedom – having a sense of freedom – to make key life decisions – right to life, liberty,
freedom from slavery, torture, freedom of opinion and expression, the right to work and
education, everyone is entitled to the rights, without any discrimination
5. generosity – how generous you are
6. the absence of corruption
All muti-dimensional indexes – a famous data collection body – Gallop-Pall Method – it usually
collects method – Cantril Ladder Method = imagine a ladder on which you are to rate the service – a
dystopia is set – every country must be compared with the lowest level – all the factors, just to
compare with the lowest level
To promote behaviours and conditions of all kinds which are conducive to happiness – the way it
defines positive and negative emotions – laughter, enjoyment, and interest –
Genuine Progress Indicator -an indicator based on GDP – experiment with this indicator first done by
various states of US
Takes intro account
1. economic
2. environmental
3. social
GDP only takes into account money, monetary benefits – also takes into account cost as well as
benefit of doing the activity – this particular indicator takes into account all negative extranalties
29.01.24 -Jaria’s notes
Divides population into two categories : Not yet happy and happy
Formula : (Happy people + Unhappy people + Percentage of sufficiency level in not yet happy
people)
(Hp + Hu + As)
She won’t give this as numerical
If majority of unhappy people are showing sufficiency level, then policies should be designed
according to the particular sphere in which people are unhappy. Eg: they are happy with everything
except governance, then governance institutions should be made better. The point of this is again that
resource wastage can be reduced.
One major indicator based on GNHI is the World Happiness Report which was first published in
2012.
India’s rank is 126/137. It is evaluated based on 6 factors:
1. Income : which is an indicator of living standards
2. Health : it is measured by life expectancy. It measures both physical and mental health
3. Social Support : Having someone to count on particularly in times of trouble
4. Having a sense of freedom to make key life decisions.
Right to life and liberty – freedom from slavery and torture, freedom from servitude. Freedom of
opinion and expression, right to work and education. Everyone is entitled to these rights without any
discrimination
5. Generosity : how often you’re doing charity
6. Absence of corruption
The Gallup Poll Method is the organization that collects data for all these indices. The most popular
way of collecting this data is the Cantril Ladder Method.
The lowest is Afghanistan
The purpose is to promote behaviours and conditions of all kinds which are conducive to happiness.
Life satisfaction, positive and negative emotions are also taken into account. Positive emotions are
laughter, enjoyment and interest. In the last month, have you had reasons to laugh.
Genuine Progress Indicator
It is based on GDP. 1st experiment was done in mariland. Cost and benefit GPI takes into account the
social cost of an activity whenever there is a trade-off in the cost-benefit of an activity. It takes into
account the negative externalities in the society and the positive externalities are added.
30.01.24.
Precursors for Genuine Progress Indicator – what is the cost of Economic progress in different sectors
of the society – the dominant role played by GDP – how to measure or capture sustainable well-being
of the society, variations done and further components are being included
GPI –
1. Income inequality
2. Unaccounted activities
3. Social and natural cause – takes into consideration
GPI = Cadj +Gnd – D -S-E-N
Includes two major components of GDP – personal consumption exp + non-defensive government
exp – indicators are being adjusted for inequality
these indicators are adjusted for inequality.
Cadj = personal consumption expenditure adjusted to income inequality.
G = non-defensive government expenditure. Net capital growth of an economy basically. This G also
includes change in the international investment position of a country.
W = non-monetized contribution to welfare – unaccounted welfare activities, household activities,
voluntarianism – activity is happening, however that is not monetized
D = Defensive private expenditure, how much individuals have to spend on safety such as CCTV
cameras, security guards, pepper spray, etc. Increasing day by day – for your own security in the
society, you need to spend a lot on yourself – to protect yourself from these – the cost you do not want
to incur, you have to do compulsively - Non-defensive government expenditure – positive side,
creating positive externality = capital growth – creating positive externalities for the population
E = cost of environmental degradation. Example - pollution.
S = negative expenditure created by SOCIAL Capital A kind of defensive expenditure by society as a
whole. Like the crime rate is increasing, family breakdown is increasing, religious conflicts are
increasing, etc. Examples of expenditure - more police patrol cars.
N = Depreciation of the stock of NATURAL CAPITAL - depletion of natural capital. Ecological
degradation. Takes into account the life cycle of flora and fauna. – wetlands, forests coming down
A random thought on an even more random Tuesday, in some multiverse if a parallel could be drawn
between two songs it would be the Eye of the tiger [Rocky] and Haan yahi rasta hein mera [Lakshya]
– not only is the lead actor in both these songs two very sexy actors, but also the underlying theme of
both these songs is the innate ability of humans to strive, to seek, to yield. Not let failure, pull you
down
Happy Planet Index
Sen + Nassbaum + HDI + GNI + HDI Report – 2022 – Uncertanities
Jaria’s Notes – 30.01.24.
Precursors of this indicator:
1. MSW
2. Index of socio-economic welfare
It is being calculated to break the hegemony of the GDP/GNI. Multiple states of the US started it.
Various variations are being made.
What cost is it incurring to multiple sectors of the society?
It takes into account:
- Income inequalities
- Unaccounted activities
- Social and natural costs

GPI = Cadj (adjusted) + Gnd (non-defensive) + W – D – S – E - N

C : Personal Consumption Expenditure adjusted for an income inequality
By calculating income inequalities over diff groups, we can adjust it according to how their
expenditures are affected by inequalities.
Gnd : Non-defensive govt expenditure
Govt expenditure for capital growth. Expenditures that are creating positive externalities for the
population
W: Non-monetized contribution to welfare
Unaccounted household/welfare activities. Eg: volunteerism. Whenever an activity is happening but is
not accounted because it is not monetized. We need to calculate their monetary value – this is done by
looking at other equivalent activities and assume their approximate value.
D: Defensive private expenditure
Expenditure for personal security. You spend a lot on yourself to protect yourself from negative
externalities. It is sort of the broken window fallacy. Example: pollution prevention, air purifiers etc.
S: Negative externalities created by use of social capital
Social capital would include social conflict, social isolation etc. To deal with this, you incur costs to
keep yourself connected to society. Example: you spend on recreation to avoid social isolation. A
disconnected society is emerging.
E: Environmental degradation
Excessive Co2 emissions, excessive use of fossil fuels etc.
N: Depreciation of natural capital
Though it is a very good indicator, it is not used comprehensively. When there already is a
standardized indicator (GDP), authorities would not take the pain to use a better indicator.
It came into existence way back but it isn’t accepted since its calculation has been questioned.
GDP is well-established or standardized.
The biggest criticism is GPI’s subjectivity.
The difference between GDP and GPI :
1. Adjusted for income inequalities
Advantages over GDP:
1. Pollution not taken into account by GDP. GPI takes into account initial pollution.
2. The expenditures incurred in meting out negative consequences can be reduced – services and
positive/negative externalities go hand in hand
Happy Planet Index
A combination of a number of indices that we have already done – countries started calculating HPI –
New Economic Foundation calculates it – it measures sustainable well-being. Countries started
calculating due to criticism of GDP – the most significant part of the HPI – calculating the total
burden or pressure that each human is creating on Earth’s resources. Keeping in mind the bio-capacity
of each country and carbon footprint, each person puts pressure on Earth – consuming beyond our
capacity – world as a whole, breaking the limits and crossing the bio-capacity –
AIM – How an individual can live a happy, long, fulfilling and meaningful life. HPI actually measures
what truly matters to us. Our rate of resource consumption is what matters to the planet – it directly
depends on the resource consumption taking place – combined well-being, life expectancy and
ecological footprint.
HPI = well being * Life expectancy/ Ecological footprint.
Current economic system is driven by GROWTH at all costs – beyond a limit, wealth and possession
of commodities, they play a significant role only to a certain limit – principle of diminishing marginal
utility applies here – this is a self-reported well-being, this self-reported well-being is calculated by
Gallop Wall Method – uses Cathedral letter – every individual or selected population has to self-report
its well-being.
Ecological footprint – how much demand human consumption, places on the available resources or
biosphere. [The average impact that each resident of a country places on the environment] It
talks about the land area required for production, how much pressure we are putting on each
individual,
Global hectare – the unit that measures the ecological footprint. [Individual Co2 emissions +
individual resource consumption – discusses the changing consumption patterns of human beings –
total global footprint also calculated every year] Every individual’s shares – region wise or country
wise – which particular country’s consumption patterns are being risen – shows how the entire planet
can live within prescribed limits. To calculate the deficit or surplus, need to know the biocapacity of
each country.
Biocapacity – Area of biologically productive land and ocean area to provide food, shelter – globally
how much productive land, ocean is available on which our lands it can sustain over a period of time.
If EF more than BC – country is having ecological deficit – that particular country is having huge
pressure on its resources, this particular country has liquidating ecological assets beyond its capacity
OR country is net importing bio capacity through trade
Nauru – due to excessive mining – over-utilization of resources – due to that, excess mining – 80% of
the land you cannot use it for cultivation – has the highest biocapacity deficit – ecological degradation
is so high – unhabitable lands
Singapore – also very high biocapacity deficit – rate at which Singapore is consuming commodities, if
all the people in the world start consuming – four planets would be required.
Due to large availability of land – Cannada is in safe zone
GPI – How individual’s consumption pattern can be controlled or changed so that they can keep
consuming in the limits of the biocapacity.
Remember the status of India in all the indicators.
31.10.24. – Jaria’s notes
Happy Planet Index

New economic foundation calculates HPI and it measures sustainable well-being. Criticising GDP for
creating heavy economic costs. Every region has its biocapacity, this availability is being calculated
by many organizations for multiple reasons, as well as the availability of land in every region. It
calculates availability and the ecological footprint.
The basic objective of calculating HPI is to calculate how an individual can live a long, happy,
fulfilling and meaningful life.

HPI measures what truly matters to us and what matters to the planet. What matters to the planet is
our rate of resource consumption. It is directly correlating human lives, health, happiness to the
resource consumption. This is why they combined:
(i) Well-being of individuals
(ii) Life expectancy
(iii) Ecological Footprint

HPI = Well Being x Life Expectancy

-------------------------------------
 Ecological footprint

Wealth and possessions play a role only upto a limit. The basic principle of diminishing marginal
utility applies. Wealth and possession play only a 10% role in measuring wellbeing.
The well-being in question therefore, is a self-reported wellbeing. Every individual is asked some
questions and on based of their answers, wellbeing is calculated – it is calculated through the Gallop
Wall Method which uses the Cantril Method.

Ecological Footprint : How much demand human consumption places on biosphere’s available
resources.
“The average impact that each resident of a country places on the environment” – it is calculated as
global hectare (gha). It talks about the changing consumption patterns of humans and the pressure
they’re putting on the earth’s resources.

gha : Total ecological footprint / total population

This calculates every individual’s share – it shows which country’s consumption patterns are rising
and policies can be framed accordingly.
The purpose is to show how everyone can live within the limits that have been prescribed.

To calculate the surplus/deficit, we need to know biocapacity.

Biocapacity is the area of biological productive land and ocean area to provide food, shelter.
Biocapacity per person is calculated and then compared with per person ecological footprint.
This comparative data actually matters.

If EF > BC : country has an ecological deficit. That means a country is having huge pressure on its
resources. It means the country is liquidating ecological assets beyond its capacity or; a country is
importing biocapacity through trade.
The highest biocapacity deficit is in Nauru due to excessive phosphate mining. 80% of the land cannot
be used for cultivation. Singapore is among the countries with the highest biological deficit.
A report says that if everyone starts consuming at the rate Singapore is consuming, it will require 4
planets to sustain us.

Now an addition is being made in HPI where Life Expectancy + Well-being is called Life
Satisfaction. This Life Satisfaction is being adjusted for income inequality.

It analyses how every human’s consumption patterns can be changed so that they stay in the limits of
the biocapacity.

We have done
GDP – HDR – GNHI – WHR – GII – GPI – HPI

Role of Gender development

01.02.14.
Overshoot day – shifting very quickly
4 typologies or development paths of biocapacity or ecological footprint trend – discussing the
relationship between ecological footprint and biocapacity – showing the way the countries can be
grouped in these four development paths or typologies – using current data, following are the figures
of biocapacity and ecological footprint per person –
1. Biocapacity per person – 1.5 GHA per person as per 2022 – world figures – declined from
2018
2. Ecological footprint per person – 2.8 (2018), 2.7(2022).
(take the line chart from Baswana – the declining line of biocapacity, and increasing line of
ecological footprint, the gap between the two is increasing
Parallel typology - Graph 1 – when BC is greater than EF – there supply of resources is more as
compared to demand of resources – resources are there however, there consumption is having no
detoriating effect on the resources. Demographically stable economies. These countries are at a
position where their populations are stabilized – high human development – low variations in
demographic trends – know the importance or significance of small family size = hidden momentum
in population growth – self-generating processes
Country examples for parallel typology = Finland, Norway, Sweden, Scandinavian countries – even
countries with low HDI, are in parallel typology since they know how to conserve their resources –
they are able to maintain parallel – naturally how much productive land you are having and how much
you are able to maintain it –
Sweden and all – stable population with LARGE human development.
Cannada – very high biocapacity, but simultaneously very rapidly increasing EF as well
Scissors typology – EF is greater than BC – some specific characteristics – consistently at a very early
stage, intersection of EF, BC – highly industrialized countries, with high per capita incomes and mass
consumption show this kind of typology – where populations or demographic variations are larger as
compared to parallel typology, still can be categorized in low demographic variation – contains
various types of countries. Example, United States – progressive ecological dependence on external
sources is a huge problem – due to this their ecological footprint is increasing.
Wedge Typology – BC is higher than EF – their resource consumption is controlled or in limits – the
pressure or demand on resources is not increasing very sharply (stable), however, the biocapacity is
reducing at a very sharp pace. These are the countries having very high ecological reserves – countries
with low or medium human development – low-income countries – high variability of demographic
changes – consumption pressure is less, however, bio capacity reducing quickly – exporting the
resources – resources are depleting not because of their own consumption however, due to exports.
African countries.
Descent typology - Contains least developed countries of the world- conflict ridden states – example,
Afghanistan – since they do not have their own socio-economic strength, weak countries are
vulnerable, accept the currency of other countries to be on the safer side – Indonesisa, Euthopia, - low
Human development, high demographic variability, Life is actually deteriorating, natural disasters,
natural downturns, social weaknesses, undernourishment, poverty, illiteracy, economic instability –
undeveloped economies.
More female work participation – more labour supply – more opportunities – undoubtedly their
contribution to GDP would increase
Labour force participation – those who are working as well as those seeking group
Work force participation – percentage of actually working population – the state, everyone should try
to generate employment on the basis of those who are seeking employment.
Nordic countries – reasons why they have the lowest gender gaps
HDR Rank GII Rank MMR ABR % share in Secondary Female
parliamentary education Labour force
seats participation
rate.
Norway 2 2 2.3 45 99 60.3
Iceland 8 8 4 47.6 99.8 61.1
Denmark 1 4 1.9 39.7 95 57.7
Sweden 4 4 3.3 47 91.8 61.7
Finland 6 3 4.2 46 99 56.5
The US 44 19 16 27.1 96.51 55.2
The UK 27 7 10.5 31 99.8 58
India 122 133 17.2 13.4 41.8 19.2

India’s public health policies are not working properly

Social support and family support system is very strong in Nordic countries
Specific policies that these countries are using,
 Sweden – Gender budgeting is being done – by using gender budgeting – discussing taxation
benefits, publicly funded welfare services from gender perspectives
 Equal status and equal rights for men and women – equal pay standards – whether equal
wages are being paid to – a complete waste research body is there – keep an eye on the
employer whether this is being followed or not
 In Denmark, active labour market policies combined with good child care policies – parental
leaves are granted to both the parents. Defining mother and father parent quoatas.
 Good primary schools schedule is being created – so that parents can work for long time –
converges with the working pattern
 Active labour market policies – better opportunities must be provided.
06.02.24.
New paths can be chartered or navigated – institutions or policies can be chartered or navigated –
specific refugee trainings – combined in all Scandinavian countries – combination of PUBLIC-
SUPPORTED Child care policies – these are the policy measures taken through public support – long
hours of publicly supported primary schooling – so that parents need not move from full-time to part-
time job. These policies can continue till the time the child is out of school.

Solutions of the HDR Report – Gender empowerment – done in many countries through social-
assistance programmes – multi-targeted, multidimensional problems for a multi-pronged approach of
development

Mexico – Social assistance programme – Condition cash transfer programme – Progresa-

Oppotunidates-Prospera – a very successful conditional cash transfer – this programme was launched
to meet numerous shortcomings in a society –
 Alleviate poverty and reduce inequalities.
 Gender empowerment
 Human capital development – investment done through others however, for children –
specifically to the mothers of the families – mothers are more serious when it comes to the
well-being of the children – this programme initially stated from rural areas targeting rural
families – to remove or eradicate poverty – specific focus on removing rural poverty, is not at
all affecting urban poverty – started in 1997 – immediately before that, a huge financial crisis
was faced by the country – multi-layered and multi-staged programme, every stage should be
targeted properly – in most cases, the targets beings set, of poverty reduction are not being
changed – in most programmes, the problem is that of inclusion or exclusion errors [Inclusion
-including those above poverty line, due to improper implementation of the problem – lack of
solidarity of the poor classes; those simply above the poverty line, people try to include them
and calculate poverty for them]

This particular programme that is benefitting children, through their mothers – simultaneous
benefits, directing financed to children, significance in the family is improving, complementarities
– to education, nutrition and health – a simultaneous push to all these three dimensions

TL; DR – CCD is generating price effect as well as INCOME effect –

Income – increase in family income – as a result expenditure increase – positive spillover effect –
the potential income of the families would also increase – for example, while undertaking a cost-
benefit analyses for education, more inclined to invest in higher education.

Price effect – reduces the relative value of time of children in activities other than schools – why
families were pushing children to join the workforce – schools’ hours would be more – drop out
less – enrolment rate would be more – the way in which money is being used to generate
COMPLEMENTARITY – simultaneous investment in education, nutrition, health – it is not
merely related to the attendance problem, attendance would be better due to investment in
nutrition,

Success – poverty reduction, as a consequence – inequalities have come down, income has risen –
contributed to the asset-building capacity – to develop human development – complementarity in
the human capital – complementarity into various sectors – need not leave school due to health
reasons

Subsidy/financial support providing for attending schools – price effect – targeting elimination of
poverty, gender empowerment, human capital development – all in one go – calculated. As a
consequence, educational achievements have improved, school progressions improved – hurdles
 to cross various transgressions – ease in transition – progression is quicker – programme doubled
the per capita health visits

07.02.24.

Global public goods – non-excludable and non-rivalrous consumption – for example, clean air,
clean environment, peace, security

Eleanor Strong – Nobel prize in Economics – investing in mechanism that prepare local
communities to face rapid environmental changes – if we are successful in doing this – can avoid
problems such as food insecurity

08.02.24.

Nordic Exceptionalism – A cause and effect relationship – Nordic happiness is the outcome and
this outcome depends on numerous factors – happiness is the outcome of numerous factors –
national welfare schemes are actually reaching to the people – welfare schemes in India re multi-
fold, stage-by-stage examination is better – Prepare a note on Nordic Exceptionalism on your
own,

Module II – Economic Models – Economic thoughts of people at different time periods

Classical economists – they developed these theories and specifically developed these models for
advanced economies or industrialized economies.

No theory in Economics is an outdated theory – few of the Economic factors they have emphasized
on, still are very relevant for Economic growth – Classical theory – general pecerption of all the
classists – Smith had certain differences there.

Thomas Malthus – discussed in the population theory

Riccardo

Mill and Smith – combined – Smith differed a little bit – other classists had a Pessimist opinion of
Economic growth. In their model, what is important is –

 Technological Progress
 Population growth [Very important factors – initially economic growth takes place in a
country – ultimately Economy reaches at a standalone stage – at the end of the entire
interactive process, Economic growth reaches a stationary or stagnant stage, Basic
production function – presented in the form of basic production functions ]

Proposition
 1. Q = f(L, K,N,T) – when growth is measured – economic growth in most of the countries
happen due to these factors – N – land and it is a constant – not a variable – overall supply for
land is limited – Quantity of land is given although its quality can be improved to a certain
extent. Increase in output depends upon all these factors.
2. T = f(I)
3. I or delta-K = f(R)
4. R = f(Ls, T)
5. Ls = f(Wf)
6. Wf = f(I)

Net change in stock of capital = capital accumulation. Continuous investment is related to that –
capital accumulation is common to all Economists – profit is consistently increasing and in order to
sustain it, you are constantly investing – Investment is the level of profit. A sort of circular,
cumulative causation – a term being elaborated upon by XXX

How factors are interactive and correlated – everything is dependent on each other – size of labour
force – when industrialists are incurring profits – size of labour force – population would grow –
giving labour services to me – increase in wage parts

Technological progress

Change in profit – change in time – change in investment – Wf --- Investment is changing – Wf

will increase --- population would increase --- size of labour force will increase – more labour cost,
less divulge to technological advancement --- reaching growth and getting stagnant at one place ---
vicious is generally used in the negative connotation --- hidden momentum in population --- once the
process has started – suddenly, depending upon the wages – wont start declining – one industrial
sector, one agricultural sector – if any particular thing is happening – going to affect other sectors as
well – these two important factors – ultimately the Economic growth would get stagnant at one place
– this kind of stationary stage of growth is there when the Economy is reaching to a stage of maturity
– no Economy can grow indefinitely – due to interactive processes – actually at the end,
overpowering of population growth – pessimistic about Economic growth – there is no increasing
returns to scale they are talking about – Interactive theory – circular cumulative causation.

08.02.24. – Jaria’s Notes on Economic MODELS

In the initial period when economics was taking shape, there were economists such as Keynes,
Ricardo, Marx etc. that developed models for industrialized or advanced economies.
“No theory in Economics is an outdated theory”. Almost all theories can be applied to underdeveloped
countries. All factors mentioned by these economics are relevant for growth and development. At that
point of time, there was no difference between growth and development so their theories are
developmental theories only.
 1. Classical Theory of Economic Growth
- Smith was probably the only one who made some difference in growth and development. He
had an optimistic vision – it will be discussed later.
- We will discuss Mill, Smith, Ricardo and one more dude idk.
- All Classicist emphasized on Technological progress and population Growth. All theories
have mentioned a race between technological progress and population growth. They
mention that initially due to these factors; economic growth takes place in an economy and
eventually the economy reaches a stagnant/stationary stage. Marx also said that the economy
grows and then eventually it collapses.
- All theories initially start with a basic production function. They all start with certain
“propositions”. These are:
(i) Q(total output)/ Y = ƒ[L, K, N, T] –
Labour, Capital, Land (it is not variable it is constant b/c overall supply is limited but
the land’s quality can change), Techonological progress.
Acc to this proposition if output is increasing it means economic progress is
happening.
(ii) T = ƒ[I]. Techonological progress is a function of investment.
(iii) I or net change in stock of capital (capital accumulation) = ƒ[R].
Capital accumulation is a very important factor that is common to all classical
economists. It is directly related to the profit making capacity of industrialists.
(iv) R = ƒ[Ls, T]. Profit is a function of size of labour force and technological progress.
A circular cumulative causation is presented in the three positions – investment leads
to tech advancement, profits lead to investment, tech leads to profits. So it is a full
circle.
Size of labor force means population because no other factor was imagined. If
population increases, the rate of profit goes up.
(v) Ls = ƒ[Wf]. Labour force is a function of wage fund. It is the part of the employer’s
profit that is given as wages to the labourers.
(vi) Wf = ƒ[I].

Initially, Labor and technology will lead to more profit. This will lead to an
increase in investment which will lead to increase in wage fund and increase in labor
force.
The population demand for food will increase, more labor will be demanded.
Therefore a major part of industrialist’s profit is going as wages to labors. Therefore,
the profit reduces, wage fund reduces, investment reduces because industrialist
cannot invest more in tech advancement.
It is an interactive cycle.
- The biggest criticism of this cycle is that there is a hidden momentum in population. Simply
because of the wage fund, the labor force will not reduce.
- The classical economists gave importance to both industrial sector and population. Any
change in one sector will lead to change in other sector too. They are not saying that the
economy will collapse or fall – the economy will just reach a stationary point when the
economy matures. Both factors (population and tech) will eventually catch up with each other
due to the law of diminishing returns. The economy cannot grow indefinitely. This is the idea
of circular cumulative causation.

Main Contributions of Adam Smith : Increasing Returns and Division of Labour

- The driving force is still capital accumulation and technological progress. And a role is played
by increase returns and DoL.
- Absolute advantage theory of international trade : trade played a very important role in
Smith’s theory.
- Propositions:
(i) level of output and living standard = ƒ[K. Accumulation and Investment]
(ii) I = ƒ[Savings from profit in industrial and agri sector, Division of Labour]
 Smith says that higher division of labour will lead to more specialization and
therefore more surplus production which can be used internally and traded to other
countries.
(iii) Division of Labour = determines labour productivity.
DoL is dependant and limited by extent of market.
Extent of Market partly depends on DoL
- Three sources of increasing returns that are derived from DoL:
(i) Increase of dexterity (skill level) amongst workers – I.e. learning by doing. Because
tasks are being specialized due to DoL and skill level in all workers is increasing.
(ii) Saving of time
(iii) Innovation and invention of better techniques of production
- According to Smith, the chances of Increasing returns to scale are more in industrial sector.
But this does not mean that agri sector does not matter, it is equally important.
- He is not specifying a particular part of economic growth and development, people will come
if there is free competition.
- He talked about uniform opulents. Smith’s model is a capitalist model – he says the way
industry and agri sector will grow with support of each other through DoL, it will bring
“uniform” wealth, richness etc.
13.02.24.

Marx theory of economic development

Haves and have nots
There are 5 stages of a society:
1. Primitive
a. No resource crunches
b. Some people naturally have more resources/power to produce which leads to their dominance
over another class
2. Slavery
a. A particular class takes decisions for rest.
3. Feudalism
4. Capitalism
5. Socialism
Assumptions:
1. 2 classes
a. Bourgeoises – capitalists/haves- no middle class
b. Proletariat- working class/ have nots
2. The labour theory of value is applicable
a. Value of a good is determined by average number of labour hours required to produce it.
b. It is crystallization of its value. The relative mass of labour necessary for its production
3. Labour is homogenous and perfectly mobile
4. Wages are determined at subsistence level- level which fulfils basic need
5. Factors of production are owned by capitalists
a. Capital is of 2 types
i. Constant – no reproductive
ii. Variable- reproductive
6. Perfect competition
7. National income has 2 components- profits and wages
Gross level of output = V+ c + s
S (surplus value or profit)
Variable capital/ wage bill- represents labour and determined by minimum subsistence level
• Cost of replacing working rate
Constant capital- machinery, plant, raw material
Everything is under control of capitalists
Rate of surplus value and rate of profit
Surplus value = s/v
Profit = surplus value/total capital (whole divided by V)
= s/v/1+c/v
= c/v= organic composition of capital
Capitalist is taking decision and if production gets more capital intensive production, profit?
• Profit will reduce
• Rop reduces
• Therefore, in order to maintain it, the exploitation will have to increase i.e S/v has to increase
If there is surplus labour is avaible then subsistence level can be used, however is not then wages have
to be increased. As capital accusation increase reserved army of labour increases or pushes labour up.
Therefore, they would cut wages or by immiseration of workers, leading to emergence of social
conflict. This would ultimately bring down effective demand so that profit maximization can happen
with wage cuts. This is known as realisation crisis.
This overproduction and social upheaval
Leading to class struggles and social unrest- capitalists have to change their methods and a fair and
equal system of socialism and communism.

14.02.24.

Schumpeter’s Theory of Development

He is a Classical Economist – the first one to emphasize on the role of entrepreneurs in taking
economic decisions. He clearly says that entrepreneurs are not capitalists neither they are managers.
They are those who love to take risks, they are the ones who innovate.
His name is synonymous with innovation in economics.
- He also gave the concept of Creative Destruction: Destruction is happening, but it is also
giving rise to construction simultaneously. There is a perennial Gail of creative destruction.
An old innovation dies and is replaced by something new. Business cycles are happening in
the form of waves.
- Q = ƒ[L, K, N, T, V]
Growth of Output/Economic Progress is a function of labour, capital, natural resource,
technology, and growth of socio-cultural environment/millenieu in which economic
activites are taking place (V).
The socio-cultural environment is new and was not dealt with by previous thinkers.
- S = ƒ[W,R,r]
Savings is a function of workers income, profit (capitalist’s income) and rate of interest (r).
Savings are directly proportional to all three factors.
- I = ƒ[II + IA ]
Investment is a function of induced investment and autonomous investment.
Induced investment depends upon output, national income, individual income, sales and
profit.
- II = ƒ[R, r]
It is directly related to rate of profit and inversely related to rate of interest.
- IA = ƒ[Resource discovery (RD), Technological progress (T)]
Them together will promote innovation.
 Innovation brings in new products and improves the quality of current products.
 Due to tech advancement, production methods will also become more efficient.
 RD increase will lead to new sources of supply.
 RD also introduces new competitive markets.
 Introducing new types of organization – related to how entreprenuers are organizing,
taking new decisions regarding introducing a new product etc.
- RD = ƒ[Es]
Resource discovery is a function of supply of entrepreneurs.
- T = ƒ[Es]
More entrepreneurs will be able to take more risky decisions
- Es = ƒ[R (rate of profit), Sc (Social Climate)]
 Social climate is how society is supporting entrepreneurs. He is taking risks and using
money of the capitalists. He needs a conducive social environment.
Entrepreneurship will grow if they are getting good returns not just in the term of money
but also in terms of social standing and privilege.
If rate of profit is constantly increasing, it means that returns of entrepreneur is increasing.
Society should not squeeze the profits – rate of profit should always increase, not fold.
- change in output = k[ I
Excess of investment over saving financed by credit creation will raise total output in
economy by an amount which will be some multiple of the gap between investment and
saving.
The change in output is multifold of the gap b/w investment and saving and hence this “k” is
called super multiplier since it changes investment multifold.
- Sc = ƒ[R/W]
Social climate is the function of the ratio between the profit going to entrepreneurs pocket and
wages.
This is the ratio that should not be squeezed by say progressive taxation schemes, welfare
programs.
https://acaneretuedutr.weebly.com/uploads/9/0/1/5/9015786/theory_of_unbalanced_growth.pdf.

15.02.24.

Investment – Total, Induced and Autonomous

According to him, any economy not having entrepreneurial spirits cannot grow for a long period
of time.
(Repetition of what we did yesterday)
- Ratio of profit: Ratio of profit in the form of wages should not be higher than the profit going
to the entrepreneur.
- Economic growth is a perennial gale of creative destruction.
It starts with entrepreneurship which leads to innovation which results in economy upswings.
Economy downfalls do come in the form of crisis – eg: great depression, oil crisis. But these
are followed by innovations.
- The role of capitalists is to keep the entrepreneurial spirits at a very high level: whenever this
slows down, the economy slows down.
- After innovation upswing, they always decline. Why?
The innovator is a strong player. Initially, the demand and usage of a new innovation surges.
Countries outside start imitating the innovation, the demand and usage shifts to this country.
Innovation to imitation.
- After a subsequent innovation, the original innovation’s demand subsides. Therefore,
innovations work in the form of waves.
He called these long waves “Kondratieff”. These long waves have a life of about 50-60years.
Inside these waves, there are smaller waves as well. Smaller than Kondratieffs are Jugalars.
The life of these waves are 10-20years. Within the Jugulars are Kitchins (life cycle is about 40
months).
In 1942, Schumpeter explained his model of economic development through these waves.
- This innovative process at some point is going to weaken because the capitalist only thinks
about his own profit. The profit is going into the pocket of one section, other sections remain
dissatisfied.

Schumpeter on creative destruction: It is an evolutionary process within capitalism that

revolutionizes the economic structure within, incessantly destroying the old one and incessantly
creating a new one. That is why he said that creative destruction is a perennial gale.
The 6th Kondratieff is the era of AI and technology

The length of the Kondratieff’s are shortening because Resource Discovery, technology etc. are
becoming better at a faster rate – which is innovating capabilities of entrepreneurs are improving.

19.02.24.

Just on the basis of current research – Provide you MSP for certain crops, if you diversify – keep your
eyes open on all the changes that are happening – diversification – one of the problems is scarcity of
water which Punjab is raising – reliance on imports would be reduced – this kind of diversification is
not going to be cost effective

Harrord-Damor Model – the focus of classists is on Supply side

Keynes – focus was on demand side – undoubtedly, capital accumulation is important, however,
demand is very important – someone has to be there to purchase it – creating such kind of work that
can encourage demand – capital accumulation is a very important factor
His model, according to people is an extension of the Keynes model – always maintaining savings and
investments – Keynes discussed STATIC Equilibarium

For foreign economy to grow on a steady path – depends on numerous factors – whether economy
would be self-correcting or self-aggrevating depends upon various factors – regaining

Based on this model = Mahalonobis Model was prepared – we should also try and use this model

Harold and Domard gave three types of growth rate in their model

1) actual growth rate

2) natural growth rate
3) Warranted growth rate [This is basically a short-term phenomenon – this is the growth rate
required to maintain steady growth rate, if Economy has to grow on that steady growth path
for that period of time, combinedly – according to another Economist – if at any point of time,
these three growth rates are incurred

Natural growth rate – population

Its better to have loved and lost than never to have loved at all

Keynes – Savings = Investment [there are no leakages and no injections – if the change in the
income, induces investment, what must be the rate of growth of income, for plans to save = plans
to invest [Ex-Ante savings and investment]

No government interference in the functioning of the economy, while economy is functioning

APS (average propensity to save) = marginal propensity to save

Warranted growth rate – The rate that induces just enough investment to match planned savings
and therefore, keeps capital fully employed – this kind of investment would keep capital fully
employed – keeping entrepreneurs fully satisfied – this is called the required rate of investment or
required capital output ratio – if economists wish to acquire a higher capital output ration – there
would be no over-productions, or over-utilization of resources

Notes missing for 20.02.24, 21.02.24, 22.02.24.

23.02.24.

Set of theories – These theories were applied to many countries – Balanced vs. Unbalanced
Growth theories – theories of economic development –

Balanced growth – Paul N. Rosenstein Rodan – his main problem was that in every country’s
economic growth there are obstructions which are formatible and pervasive – widely spreader,
to overcome this, no where talking about static equilibrium – path of economic growth or
the path of economic development – happening due to economic forces

Internal economies – which particular model discusses Economies of scales – increasing returns
to scale – IRS – it happens due to internal or external economies to scale – discussing internal or
external economies of scale – when these external economies emerge, they give benefits to
individual industries in terms of costs as well as profits – there are two industries, these industries
are using inputs of each other – if A takes the discussion of expansion – when expansion taking
place, unit cost would come down – this industry, till this point – not spending, now the inputs,
are cheapy available to this industry – A takes some imitative or initial momentum to expand

If there are many industries, they should be given a big push simultaneously – a big push in
terms of investment – some initial push should be given to all the industries in terms of
investment – consumer/capital good industry – a big push is required to be given to them – the
economy would grow when you give a push to all of them simultaneously – later on, when start
developing, can think about this –

He coined concept of “big push” – to overcome the obstructions of economic development – big
push particularly in terms of investment, large investment, then only these formative and
pervasive things can be overcome – why countries remained trapped in the vicious cycle of
poverty

three types of indivisibility

 Indivisibility of production function or indivisibility of supply of social overhead

capital – what do you understand by social overhead capital – takes into account,
electricity, transport, power, communication, education, health – why he emphasized
upon social overhead capital – the supply of overhead capital, should precede any
direct activity – these investments cannot be done in bits or pieces, individually, it
has to come by government in huge investments – in order to strengthen social
infrastructure or infrastructure, only then your production decisions would be better –
characteristics of social overhead capital – minimum durability, long gestation period,
irreversible in nature, irreversible in nature and you cannot import it from somewhere.
A continuous, uninterrupted supply of social overhead capital is required to move on
the path of economic development = this is the most important indivisibility and
external economies – not at all correlated, all of you are getting benefitted – this would
reduce your cost, encourage you to spend – which would encourage you to reinvest in
further economic activities – see the development path of all the developed economies –
how strong, social overhead capital they have built – any productive overhead activities,
they can do so very easily
26.02.24.

Characterises of social overhead capital

1) Irreversible in time
2) long gestation period
3) they have a high-minimum durability
4) They contain minimum, industrial mix of different kind of public utilities

Irrigation, electricity, transportation, water – irreversible in time – long-gestation period – some kind
of industrial mix is required – public utilities + electricity supply – uninterrupted supply of social
overhead capital is very essential – if this supply is disrupted – create IMPEDIMENTS or
Bottlenecks in economic growth

 Indivisibility of demand – One example given by Rodan – place/town – as such there is

no industrial development, government, state development – that one industry –
excess labour – that too in nearby areas – they start earning something – in the form of
wages – where are they going to spend that money, the extra-income, no other industries,
outlets are there – In case of demand, COMPLEMENTARITY of demand is very
essential – simultaneously, you should be provided with – availability of other goods
also on which you can spend – simultaneously, start number of industries – sectorial
economy – one industry would be providing support to the other – indivisibility – huge
demand coming from very sector, then only high economic growth can be achieved
 Indivisbility of supply of savings – In most of under-developed countries, interruption in
supply of savings is a big problem – continuous supply of savings – uninterrupted
supply of savings – how can that be achieved – when uninterrupted supply of
savings are there – somehow true in Indian cases as well – we have a huge
unorganized sector – people are working on a contractual basis – no continuous flow of
income, therefore, no continuous flow of savings – they also don’t have a very high
level of income, majority of farmers are marginal or small farmers.

Criticism of this theory given by Rodan

1) Discussing LDC, under-developed economies – already a resource crunch, thinking big is

good, however, acting big is very very difficult in these economies.
2) Nurkse – He supported Rodan’s theory of minimum quantum of investment to be given
to all the sectors or industries together – emphasized on the two simultaneously running
vicious cycles – small investment, low productivity, low income, low savings + small size of
market – discussing two vicious circles and to come out of these two vicious circles, you
need a simultaneous big push – more or less synchronized accumulation of capital to a
 wide range of different industries – when you are talking about investments, who should
invest – with whose effort, this would be possible? [No one can deny the role of government,
cannot imagine an economy where such push is provided without government intervention.
however, private enterprises also play an important tole – combined effort of public and
private investments] – It is an administrative headache, and not a headache of an economist –
3) Extent of markets, [size of markets] – huge hurdle for under-developed, LDC s –
According to Smith, size of market, partially depends upon division of labour – According to
Smith, free trade – countries should produce what they can produce effectively, and exchange
= Rodan denies this – for extent of market, you should not look at international trade – then
how can size of market be increased – by using PROTECTIONIST trade policies – trade
barriers – Import-substitution industrialization. According to Rodan, developing countries are
producing primary commodities

Protectionist trade policies – impact – the commodities you were relying on for exports – your
industries, would start producing them – compelling them to produce, employment, investment,
savings would grow within – ISI Strategy of growth – Inward Oriented Strategy. [Focus on
import-substitution industrialisation by using protectionist trade policies]

TL;DR- According to Nurkse, you can make your country with the help of balanced-growth
strategy – countries should not always rely on international trade for increasing the size of the
market.

Unbalanced Growth theory

Balancing or investing or giving a big push is not possible for under-developed and LDCs – it is
not always that simultaneous push would be successful -strategy is deliberately creating
unbalance – selecting a few industries where governments can focus initially – deliberate or
strategically the balance is being created by the government – industrial development has
linkages – input-output models prepared by our Economists – whichever industry has highest
linkages – focus first on that huge exercise for Indian economists – to first identify those
industries having linkages

28.02.24.

Criticized the balanced theory - A Hirschman – Singer – this theory was not made for dues of
underdevelopment or come out for conditions of under-development – what happens in case of
severe depression – country has capability of everything but not doing so because of certain
conditions – entire set-up is ready, but entire set-up is not operational – if at the moment, a big-
push is given, chronic conditions of under-development – its not a good model to apply to
under=developed countries

It is not the paucity of investment rather ABILITY to invest [attitudes/skills – more

problematic in case of under-developed countries] – skills, attitudes and abilities cannot grow
proportionally to the amount of investments in these countries – you must match other things
if the country wants to get the fruits of that investment for a longer period of time

According to Hirschman – Deliberate IMBANALCES need to be created in economies – this

deliberate creation of imbalance is going to be a STRATEGY of growth – to select some
industries and create imbalance

On the basis of concepts such as Externalities + Complementarity – reasons behind selecting

one particular industry – whatever the industry required, it is giving an opportunity to other
industries to grow

Hirschman talks about investing in SOC [Social over head capital] or DPA [Directly productive
activities] The series of investments created in SOC is called as DIVERGENT series of
investments whereas the series of investments in DPA is called as CONVERGENT series of
investments.

Once this particular set of industry is selected thorough careful streagey, SOC creates more and
appropriates less – creates a BASE for other directly productive activities to flourish – why
any kind of productive activity can take place without this –

Hirchsman explained via grapgh

Explanation of curve

Search for unbalanced theory and the graph on google – every time the economy is moving to a
larger output point

If economy is at A – If economy takes a decision to invest more in SOC what happens – SOC –
the country would move
29.02.24.

Backward linkage - non-primary activity that employs significant number of intermediate

inputs from other activities which can then induce increase in supply and expand domestic
production

Forward linkage – An activity that is non-final and that does not cater to exclusively final demand
but induced attempts to utilize its outputs as input in some new activity.

01.03.24.
Housman-Rodrik-Velasco – Growth – Diagnostics – Decision Tree

A country is identifying its comparative advantage – at the end the good and services are going
to be produced in SURPLUS – if the policymaker change the policy, and the market starts
opening up – country moves from restrictions to liberalization – re-think about producing a
product in which the country has better or more advantage – initially Hausmann, Rodrik and later
on Velasco – emphasis on economic development as SELF-DISCOVERY – every country must
self-discover that potential, that potential keeps on changing due to market failures

Information externality – your profits start declining – earlier the product that was cost-effective,
the cost of that particular product starts increasing – your willingness to keep working on the
newer areas is not that much – why is excess diversification a bad thing – when a country is
innovating something – through patents a protection is provided to that particular firm – this
was the period when no competitiors can enter – country starts acting like a monopolist – a
country/firm not only produces since the country is enjoying full benefits or profits –
diversification is also taking place – self-discovery, country should try to via beneficiary, cost-
effectively, reduce market failures.

Diagram maam gave

Focus – on private investment, public investment is not a main ingredient of growth and
development rather a support system – why people are not able to take risks or self-discover
comparitive advantage = due to market failures, people they think that they are not
INCENTIVIZED properly when they are investing their money and profits in self-
discovering what the country can produce.
 Countries can be broadly divided into

 Low levels of economic activity

 High returns to finance

Countries have different kind of binding constraints – systematically, country should work on
identifying these problems – no need to waste your scarce resources on things that are not binding –
why social returns or low – poor geography, bad infrastructure, transportation, connectivity,
geographical location is the main problem

poor geography – low social capital – low private investment – identify country wise, which country
fits where

Why countries do not what to continue with self-discovery

 low appropriability – not gaining because of what they are investing.

05.03.24.

Japan – elderly/old age dependency is quite high, while youth dependency is less, but combined
dependency is decreasing

Japan – Population pyramid – female life expectancy is higher compared to male life expectancy

Stable population pyramid – examples – Nordic countries, the shapes are changing – almost taking all
the shapes – till date, our population has not reached that level – most highly developed countries
where populations are stabilized comes under this

Population pyramid anomalies

Exceptionally different kind of population pyramids –

Graph –

right from the beginning males are more than females, then suddenly, population of males is
increasing especially in the working population – this means the spike in population of males is due to
migration in search of work – there is a BULGE –

Monacco – French colony – very high population life expectancy – high population density –
specifically females are having good life expectancy compared to males

Sub-saharan African countries – anomaly – where it is like this and total fertility rate is high – very
high fertility rates till date
Kerala – old age dependency – huge amount of benefits spent on social security benefits

There is another way to represent death and birth rates in a country and how the population structure
is changing over a period of time

Demographic Transition Model

Transformation of the population from high birth and death rates to low birth and death rates –
provides a conceptual framework for identifying the transformation of a country’s population
structure in relation to its socio-economic development

Population remains stable – there is no explosion – number of least developing countries – all low
rank holders in almost all the alternate indicators, India in the early 20 th century – sharp decline –
represents socio-economic and institutional development

It keeps on declining

Life expectancy is increasing

For India, population growth rate was 1%

Lifestyle diseases

Idk what is happening.

04.03.24. – Eco notes – Anshita

March 5 – Asnhita’s notes
06.03.24.

Demography plays a very important role in determining the current status of economies

Even amongst developing nations – transitions are happening at different levels

Explanation of graph II –

most severe case – Nigeria – highest birth rates

Some countries – steep decline in birth rates – South Korea – going into deep demographic crisis –
total fertility rates are falling to 0.2 – lowest in the world

Utility theory – theory of consumer behaviour on fertility decisions of households

 An individual takes decision regarding consumption of products – tries to maximize

satisfaction by looking into consumption of goods – households and consumers income play
an important role in determining utility maximization
  IC Curve – convex to origin, same level of statifaction theoughout the curve, downward
sloping,
 Consumer equilibrium – point where budget line intersects the IC curve

On y-axis – take a good, on x-axis – desired number of children – desired level ofc hildren in
family depends on numerous things – decides which particular combination of goods and children
are being preferred and why they are being preferred

Very interesting theory, very practical

Cd = f[Y, Pc, Pr, t]

 Cd is a function of Y; Cd is the desired number of children – the relationship between Cd

and Y is a direct-relationship. As income increases, the desired number of children increases.
 Y is household income
 Pc represents the net price of children – this is the difference between the cost of rearing the
children – always anticipated – opportunity cost of females’ time – very important factor that
plays a significant role in explaining low fertility rates in developed countries
 Benefits – potential income + old-age support – indirectly related with desired number of
children – if direct costs are increasing, then demand or desired number of children would be
less
 Pr – price of all the other related goods relative goods – leisure time – leisure goods – own
house, trip to Europe, wage gap – less wages, denial of promotion benefits for children
 T – greater strength of tastes and preferences for goods related to children – how is this
different from the previous one
07.03.24.

Increase in income – leads to rightward parallel shift of the budget constraint curve

Privatization of education – increase in the opportunity cost of having children – steeper budget curve

Where both things are happening = when household income is increasing, thereby family income is
increasing and when net price is also increasing – net price maybe increasing due to opportunity cost
of female employment – complete anticipated increase in the cost of education –

shift in increase in income as well as increasing opportunities for women

Graph-II –

People are preferring lesser children due to increase in opportunity cost and more other number of
goods due to increase in household income

Sometimes increase in household Income is much more than increase in opportunity income or
increase in opportunity income is much more than increase in household –
Every extra addition of children, how they are behaving is also important – marginal utility or
addition measuring the changes – increase in number is creating different effects – the impact of such
things – varies from country to country

Show the impact of increase in income as well as increase in net prices, resulting into fewer children

The cost of rearing children is also increasing

In developing countries, less educated, getting less lucrative employment opportunities – financial
trade off is happening – educated children with high income potential, with high income earning
potential – parents are doing cost-benefit analysis

Total fertility rate has fallen and is lowest in the country – 0.78 was the total fertility rate in 2022, 0.2
in 2023 – given estimates to everyone – by

Increase in expenditure on old-age people – huge role for low fertility – debt-GDP ration is more, on
old age pensions, healthcare, - South Korea, etc

benefits of lesser number of children, increase in income and lesser number of burden – children
around you is nothing but chaos – spend not on public houses – and easy loans – countries are
spending billions of rupees on child care facilities

cultural factors – advancing economy that is not preferring child birth out of bed lock-

situation in Japan – slightly better – 4 out of every 10 people is 65 or greater – number of marriages
are falling – cost of living is increasing + work culture among the population is increasing + female
participation is increasing [essential for GDP growth rate] – has some darker sides as well = some
kind of balanced system has to be created to escape this kind of situation

Due to increased expenditure on old age population – investment, productivity would decline – since
working age population would decline

Death rates are much higher – more than 7 lakhs deaths are there on 4 lakhs births – they are going for
selective –

08.03.24.

How to measure Inequality

Functional distribution of income –

Personal/size distribution of income

How much share of income an individual or a household should have, out of the total income, what is
my share of income – ignoring the source/size of the income – does not take into account occupational
or locational factors while calculating distribution of income – getting some monthly income,
irrespective of that, what share of income I am getting out of the total income,

Functional – related with the source of the income – it does not matter from where the income is
generated – my earning of income is coming through these sources – we have to target these sources,
if they are to get happiness

The incomes are calculated and then the first step is to arrange them in ascending order – next step,
percentage share of each individual in this income distribution – after adding them, very easy to
calculate individual share in each income

Quintiles – 10th of the population, or 10% of the total numerical value

Bottom 20/poorest 20% population – the poorest or least income people are coming here

Kuznet also worked on calculating ratio – 51/14 – calculating inequality or size distribution with the
help of personal distribution of income

Lorenz curve – graphical representation of inequality for comparative analysis for research studies or
comparison of economies over a period of time

Line would go and merge into the line of perfect equality – exactly equal size distribution of the
income

Read online

Lorrenz’s curve – seniors notes.

Gini coefficient – very common way of measuring inequality – value varies from 0 to 1.

12.03.24.

Functional distribution of income –

Resources distribution – people have for a long-period of time worked on the concept of inequality,
for economists, it is more important to alter distribution of income – those who have to give results to
political parties

Simon Kuznet – cross-country examination of inequalities – worked on the causal relationship

between GDP per capita and inequality – explained the inequalities on the basis of the structural
transformation of the economies

Any economy which is transforming [Dual-sector model] In his model, there is Agriculture +
Modern-Industrial Sector – transition of the economy from agriculture to modern-industrial
economies – as the economies are transforming, countries need not take any specific policies to
reduce inequalities – they would emerge because of few things – this theory was more criticized than
accepted – number of scholars used these concepts to explain various kinds of inequalities.

 structural changes
 migration
 returns to education
 Initially, a few industries are there, basically the bargaining power of one section is weaker –
initially, wage gap would increase, inequalities would also increase – wherever it was
applicable, this kind of pattern was observed – structural changes happen gradually stage by
stage

Migration – simultaneously explains what is happening – rural-urban transformation – labour power

is weak, later on labour union would become more active – with growth of modern-sector, inverted-U
shaped Kuznet’s curve is emerging – as soon as the other sector feels that there is a labour crunch
appearing there – on the whole, more inequality would be there – returns to education

Initial phase of industrialization –

Demand of skill-labour higher than supply of labour – demand and supply both are simultaneously
increasing – now more would be interested in increasing or improving their – results were supporting
Kuznet’s result

If inequalities are emerging, in very few cases they would be reduced simply br growth – biggest
criticism of the theory is that this co-relationship was established by Kuznet by analysis of short-run
data – some external policy measures have to be taken to reduce inequalities.

Alvaredo – Atkinson- Piketty-Saiz

It is a critique of Kuznets’s work – the period of their study is 1913 – 2012 – explaining the changes
in inequality and growth for a small period – exactly opposite kind of behaviour is being observed by
Picketty

Picketty – Capital in the 21st century – identifying the forces of divergence in the distribution of
income – Picketyy says that this is happening because of functional distribution of income – skills of
labour, capital, where precisely taking about profits, dividends, interest payments and capital gains –
and land, providing to the rent of the owner of the land – most of the resources are being owned by
the richest few – always few in numbers – which translates functional distribution into personal
distribution

Picketty – r > g – explaining why inequalities are arising, since return on capital is higher than GDP
growth rate –
r <g – if this is the situation, then societies would move towards more equal distribution of income –
labours are getting larger share – growth rate of labour income is higher than growth rate of capital

Inequalities in the US coming down – period of great depression – before that economy was at its
peak, post WW-I – whenever

Roosevelt’s new deal – federal activism in stabilizing wages + controlling inflation + deflation of
savings was saved like anything – creating public work programmes for unemployed, friendly policies
for supporting work unions, all of these things made returns to labour high, and returns to capital low
– inequalities have dipped down to 9%.

Regan-Thetcher-Conservative-Counter revolution – with Piquetty, Stiglets theory also started working

13.03.24.

Joseph Stiglitz – Price of Inequality

Equalities start emerging from CONCENTRATION of economic power – this is leading to

concentration of political power – few people are holding the market, resources – this is leading to
concentration of political power – this further leads to market and Political Rule – how through rent-
seeking – what is “Rent seeking” – manipulation of prevailing economic conditions and public
policies by a few elitist people, few people who are having political as well as economic powers, try
to manipulate these policies for their own gains and benefits – so powerful and politically connected,
this concentration is creating other type of concetration – one is DIRECT concentration of political
power – through market and rent-seeking activities – gaining tax advantages, gaining a decline in
corporate taxes, state taxes – they also gain from decline in competition, decline in restrictions on
campaign contributions.

Change in market or political power or rule – trying to manipulate policies etc by presuurizing the
system – every country through seeking some relief, the thing from where problems are being created
– outcomes –

1. Decline in public expenditure – specifically, detrimental for social reform programmes or

social welfare programmes.
2. De-regualtion of sectors of

Tunnel Effect – Hirschman and Rothschild – start waiting for traffic to be cleared

14.03.24

Poverty – not having access to school, hunger, poverty is not having a job, fear for the future, living
one day at a time, poverty is losing child to illness, brought about by unclean water, powerlessness,
lack of representation and freedom – removed from goods, services and then to well-being
Impoverishment encompasses poor living conditions, exclusion from social structures, inability to
meet basic needs, proper sanitation, health – dynamic – multi-dimensional aspect

Some poorest countries are sub-Saharan African countries, south-Asia, Latin American countries,
locational factors play an important role in determining extent of poverty – many current sociologists,
compared and visualized poverty, in the form of a wheel – central portion is called as periphery,