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ECONOMIC DEVELOPMENT

Meaning of development
Is not easy to define economic developed in precise manner because different criterions have been used making

distinction between development and underdeveloped countries. However, some groups of writers consider the national income as an index of economic development. They are, Simon Kuznet, Paul Albert, Youngson and Meier S. Baldwin. On the country, Benjamin Higgins Arthur Lewis etc, favoured per capital income. Economic development is a process whereby economy's real national income increases over long period of time. The definition emphases on three ingredients of economic development. (a) (b) (c) Process. Real national income. Long period.

a) Process: Economic development is viewed as a process which implies the series of changes in social technological and economic forces which are useful in accelerating the pace of development. Process also implies the series of continuous changes in the economic system specifically optimum use of capital, modern techniques of production, technical development, institutional reforms, demographic and social framework. b) Real national income. It refers to the total output of final goods and service expressed in real terms but not in money terms. Therefore it must be viewed as gross national product or net national product. c) Long period.

In economic development, long period occupies a significant place. It implies that the real national income should not only rise in the short period out it must show upward, trend in the long period to sustain economic development. Economic development – means a change overtime, typically involving growth or expansion, involves changes in people’s standard of living or is a process with many economic and social dimensions.

[By Dr. B.K Mutai]

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Per capita/ real income. There is a group of economists who maintains that growth of national income should be considered most suitable index of economic development e. Arguments Against: Despite the favourable arguments. Arguments in favour of national income. we are likely to be put in an awkward situation of saying that a country has not developed if its real national. It cannot definitely be said that economic welfare has increased if the national and even the per capital income may be rising unless the distribution of income is equitable. However. income has increased but its population has also increased at the same rate.Measures of Economic Development Though there are several criteria or principles to measure economic development. If an increase is per capital income is taken as the measure of economic development. Comparative concept. Simon Kuznets. yet none provides a satisfactory and universally acceptable index of economic development. A larger real national income is normally a pre-requisite for an increase in real per capital income and hence. the more commonly used criteria of economic development are: (a) (b) (c) (d) Increase in national income. ii. the population problem may be cancelled. Standard of living. If per capital income is used for measuring development. a rising in N.K Mutai] Page 2 .g. Meier and Baldwin. National income as an index of development. [By Dr. i. (e) 1. iii. as a measure of economic development suffers from certain shortcomings.I can be taken as a measure of economic development. N L. Economic welfare of community etc. B. since population has already been divided out. i.

the real costs.g. greater leisure etc. The per capital income has been favoured on capital -grounds as have been summarized below: i. v. an expansion of output could be accompanied by a depletion of natural resources or it could compose only ornaments or could consist of merely greater output of capital goods. It is. Thus. public health. ii. E. It is only through an increase in per capita^ income that an improvement in level of consumption is possible. . therefore. Per capital real income. desirable that national income may be increasing and living standards may not be rising. Arguments in favour of per capital income. thus. "pain and sacrifice" of the society also grow. i. So Economic development should necessarily imply an enhancement of economy capacity to produce goods and services per head of its population. truly assign that development is taking place. It is possible that per capital income may be rising and still the people may be poor due to excessive concentration of wealth in few pockets. It must not only consider what is produced but also how it is produced. Per capital income estimates do not tell us anything about the distribution of wealth in society. they have said that the meaning of economic development is to increase aggregate output. Their arguments are listed as follows: i. iv. Per capital income as an index of development has been subject to criticism by many economists. It is possible that when real national output grows. ii.national and per capita income cannot be identified with enrichment because the compassion of the total output is also important. It is difficult to determine proper indicators to eliminate the effect of price changes in underdeveloped countries. The main point of difference between underdeveloped and developed is the capital income. thus such a situation is not consistent with the development. Economic growth is multidimension of phenomena which involves not only increase in money income but also improvement in social activities like education.ii. Expansion of . iii.e. Even the carefully calculated national income estimates per capital drawn from the best available data neglects certain aspects of economic development which may be important. Some economists believe that economic growth is meaningless if it does not improve the standard of the common masses. The object of development lies in the realization of higher levels of consumption for the poor and a rising of capital-income. It is also complicated when average income is rising but unemployment exists due to the rapid growth of population. These improvements cannot be measured by changes in per capital income. Arguments against per capital income. More increase in aggregation national income cannot be called an index of economic development. 2.

The comparison can be made in two methods overtime period. In other words it is only a partial index of the welfare of the people. a true economic development not only involves a rising per capital income but also proper distribution of income among them. a) Comparison within the country. time is shown on the horizontal line OX and national income on the vertical line OY. The curve PP depicts the path of development (showing slow rise in income) of country A. For instance. MM curve shows the path of development of country B. a) Comparison within the country: To compare the economic development of a country over time. 3.e. we will have to consider the long period and divide it into different phases. At point E i. B . the national income of a country x in 1985 is $800 million. from comparative concept. In the beginning of the time periods. iii) The data of per capital income are often inaccurate. the rate of development of country A becomes higher than rate of development of country B. Despite the above stated drawbacks per capital income is largely accepted as a suitable and reasonable index of economic development. In the long run or after time interval. national income of country A becomes higher than that of B country. C Y 2400 National income 2200 A 1200 800 400 1985 1990 2000 200 Time period Y b) Comparison with other countries In this diagram. There are certain constrains and problems in the computation of per capital income. Comparative concept: Economic development is a comparative concept and it can easily be understood and measured. An increase in per capital income is not by itself a sufficient condition for an increase in the economic welfare. But in the meanwhile. We can ascertain how much the economic development has been attained in a country. In a simple way. time period 5 the national income of both the countries are equal. This rose to $1200 million in 1990 and $2200 million in 2000. country B is at a much higher level of national income than country A. b) Comparison with other country.Thus. misleading and unreliable because of imperfection in national income statistics and its methods of computation.

In other words. by which it is produced. The very objective of development is to provide better life to its people through improvement or uplifting of the standard of living. Thus. Economic growth means more output and economic development implies more output and changes in the technical and institutional arrangements. Some of the economists are of the view that ultimate objective of economic development is to increase the economic welfare of the people. 1.4.B Singh observes one indicator of the standard well-being attained by a country is the amount of productive assets it has acquired. Difference between economic growth and Economic Development. Standard of living criteria. 5. i. CP. a country has the better is its economic position. The more of these resources. Kindleberger. As an economy advances. standard of living and not rise in per capital income or national income should be considered an indicator of economic development. or any other method. it refers to increase in average consumption level of the individual. standard of living. This criteria is not much practicable true us suppose. Growth involves focusing on height or weight. new productive resources are better utilized and the stock of national and human capital assets is augmented. Criticism. while development draws attention to the changes in functional capacity. Economic Welfare Criteria. An increase in the quality of economic variable is denoted as growth. national income and per capital both increase but the government impose a heavy tax or compulsory deposit scheme. Measure of economic growth. From the welfare point of view we must consider not only what is produced but also how it is produced and how it is distributed. in such a situation. According to this view. Professor D.e. Gross national product (GNP) equals total national consumption or production of all final goods and services plus gross investment (IG) . an increase in economic welfare will be more appropriate index of economic development. where there is no possibility to raise the average consumption level. This means we are interested in value judgment.

Net national product (NNP) equals GNP minus depreciation (D). Per capital income equals GNP divided by population. Personal consumption expenditure equals disposable personal income minus saving. 3. Disposable personal income equals NNP minus personal and corporate taxes and minor adjustments.GNP= C+IG 2. 5. . 4.