SESSION 4:ECONOMIC
GROWTH AND
DEVELOPMENT
DR. AJAY MASSAND
Definition of Economic Growth & Development
• An increase in the Economic Variables over a period of time is Economic growth.
• Economic growth can be expressed in terms of gross domestic product (GDP) and gross
national product (GNP), that helps in measuring the size of the economy.
• Economic Growth is defined as the rise in the money value of goods and services
produced by all the sectors of the economy per head during a particular period.
• Economic Development is defined as the process of increase volume of production along
with the improvement in technology, a rise in the level of living, institutional changes,
etc.
• Human Development Index (HDI) is the appropriate tool to gauge the development in the
economy.
SPEAK TO YOUR PARENTS AND GRANDPARENTS ABOUT THEIR
LIFE WHEN THEY WERE YOUNG,
YOUR STANDARD OF LIFE IS MUCH HIGHER THAN THEIRS. WHY?
•
LEVEL OF INCOME
SOURCES OF ECONOMIC GROWTH
• ECONOMIC GROWTH IS A COMPLEX PROCESS THAT GENERALLY INVOLVES SEVERAL INTERRELATED
FACTORS. ECONOMISTS STRESS THE IMPORTANCE OF THREE MAJOR SOURCES OF ECONOMIC PROGRESS:
• A) INVESTMENT IN PHYSICAL AND HUMAN CAPITAL,
• B) TECHNOLOGICAL ADVANCES, AND,
• C) INSTITUTIONAL AND POLICY CHANGES THAT IMPROVE THE EFFICIENCY OF ECONOMIC
ORGANISATION.
• I) COMPETITIVE MARKETS,
• II) STABLE PRICES,
• III) FREE TRADE,
• IV) FLEXIBLE CAPITAL MARKETS
• V) AVOIDANCE OF HIGH MARGINAL TAX RATES
• VI) SECURE PROPERTY RIGHTS, AND
• VII) POLITICAL STABILITY,
Difference Between Growth & Development
Growth Development
• Broader Concept.
• Narrow concept
• Increase in the indicators like GDP, per • Improvement in life expectancy rate, infant
capita income etc. mortality rate, literacy rate and poverty rates.
• Short term process. • Long term process.
• Applicable to developed economies. • Applicable to Developing Economies.
• Quantitative. • Quantitative & Qualitative.
• Measured in a particular period. • It’s a continuous process.
Indicators of Economic Development
Human
Development Development Index
Indicators of Economic
development
Growth Other measures
1) Growth Indicators
• National Income.
• Gross Domestic Product GDP
• Real GDP verses Nominal GDP
• Gross National Product GNP
• Per Capita
2) Development Indicators
• Poverty
• Inequality
• Progress
• Sustenance
• Self esteem
• Freedom
(Primary/Secondary/Teritary)
3) Human Development Index
The HDI was created to emphasize that people and their capabilities should be the ultimate
criteria for assessing the development of a country, not economic growth alone. The HDI can
also be used to question national policy choices, asking how two countries with the same
level of GNI per capita can end up with different human development outcomes.
[Link]
4) Other Measures
• Number of Doctors per head
• Number of fridges per head
• Number of TV’s per head
• Number of car’s per family
• Disease indicators
• Economic activity per sector
• Stress levels
• Crime levels
• Health care data
WHY INDIA IS STILL A DEVELOPING COUNTRY?
COUNTRIES
Classification According to World Bank-Report- 2015
• Low income countries with GNI (Gross National Income) per capita $728 or less. E.g. Malawi with per capita
GNI is $270.
• Middle income with per capita GNI of more than $4,754 or less than $12,616.
• Lower-middle income countries with per capita GNI of more than $2,074 but less than $7,604.
• Upper middle income countries with per capita GNI $7,604.
• High income countries with GNI per capita $39,812 or more. E.g. Norway with per capita GNI of $1,02,700.
• Todar (2013) Simple division of the world into developed and developing countries is useful for analytical
and policy purposes.
• GNP Per capita of the Arab States has exceeded that of the richest Western states, yet these countries are
found to be poorest and least developed in the world.
STATISTICS
• ACCORDING TO WORLD DEVELOPMENT REPORT (2015), AROUND 18 PERCENT
OF WORLD POPULATION LIVES IN COUNTRIES WHICH ARE CLASSIFIED AS
HIGH INCOME DEVELOPED COUNTRIES SUCH AS USA, CANADA, AUSTRALIA,
COUNTRIES OF WESTERN EUROPE, NEW ZEALAND AND SOME OF THE ASIAN
COUNTRIES LIKE JAPAN, SINGAPORE, AND HONG KONG.
• 82 PERCENT OF WORLD POPULATION LIVES IN MIDDLE AND LOWER INCOME
COUNTRIES.
DEVELOPED & UNDERDEVELOPED
COUNTRIES
• USA, UK, FRANCE, GERMANY, JAPAN ETC. ARE THE DEVELOPED
COUNTRIES.
• ALL HIGH-INCOME COUNTRIES ARE NOT NECESSARILY DEVELOPED
COUNTRIES AS JOAN ROBINSON REMARKED,
“FOR SEVERAL OF THE ARAB STATES, GNP PER CAPITA SUDDENLY
JUMPED TO LEVELS WHICH EXCEEDED THAT OF THE RICHEST
WESTERN STATES YET IN THESE COUNTRIES ARE FOUND SOME OF THE
POOREST AND LEAST DEVELOPED COMMUNITIES IN THE WORLD.”
Developed & Underdeveloped Countries
• Countries that aligned themselves with US tended to be developed, Capitalist and Industrialist nations and referred as
“First World”.
• Countries that aligned themselves wit Soviet Union are called as “Second World” Russia , China E-European.
• “Third World” became the term for all other unaligned-Africa, Asia and Latin America.
DEVELOPED & UNDERDEVELOPED
COUNTRIES
FEATURES OF
FEATURES OF UNDEVELOPED OR
DEVELOPED COUNTRY DEVELOPING COUNTRY
• PER CAPITA INCOME IS HIGH • PER CAPITA INCOME IS LOW
• HIGH STANDARD OF LIVING • HIGH STANDARD OF LIVING
• A FEW PEOPLE BELOW POVERTY LINE • A LARGE AMOUNT OF PEOPLE BELOW
POVERTY LINE
• IMPROVED INFRASTRUCTURE
• POOR INFRASTRUCTURE
• MODERN AND UPDATED TECHNOLOGY
FOR PRODUCTION • TRADITIONAL AND OUTDATED
TECHNOLOGY FOR PRODUCTION
Unequal income distribution, high rate of population, and prevalence of poverty etc. are
also characteristics of developing/under developing economy.
Characteristics of Developing countries
• Lower levels of living and Productivity.
• Lower Levels of Human Capital.
• High Rate of Population growth and Dependency Burden.
• Higher Levels of Inequality and Absolute Poverty.
• Greater Social Fractionalization.
Characteristics of Developing countries
• Larger Rural Population- Rural to urban migration.
• Substantial Dependence on Agricultural Production and Lower Levels of
Industrialization.
• Underdeveloped Financial Market.
• Lingering Colonial Impacts.
• External Dependence.
