Economic Growth & Development Introduction ( Aahil & Harsh)

8/10/2019 Economic Growth & Development Introduction ( Aahil & Harsh)

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Economic Growth &

Development


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Economic growth vs Economic

Development

Economic growth refers to increases in output andincomes over time, often measured on a per capita basis.

On the other hand, Economic development refers to aprocess that leads to improved standards of living for apopulation as a whole.

Increasing levels of output and incomes resulting fromeconomic growth mean that societies can better satisfy the

needs and wants of their populations and secureimprovements in their standards of living. However, whileeconomic growth can make improved levels of livingpossible, it does not by itself guarantee that this will occur


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Economic Development Economic Growth

Implications

Economic development implies changes inincome, savings and investment along with

progressive changes in socio-economicstructure of country (institutional andtechnological changes).

Economic growth refers to an increase inthe real output of goods and services in

the country.

Factors

Development relates to growth of humancapital indexes, a decrease in inequalityfigures, and structural changes that improvethe general population's quality of life.

Growth relates to a gradual increase inone of the components of GrossDomestic Product: consumption,government spending, investment, net

exports.

Measurement

Qualitative. HDI (Human DevelopmentIndex), gender- related index (GDI), Humanpoverty index (HPI), infant mortality, literacyrate etc.

Quantitative. Increases in real GDP.

EffectBrings qualitative and quantitative changes inthe economy

Brings quantitative changes in theeconomy

Relevance

Economic development is more relevant tomeasure progress and quality of life indeveloping nations.

Economic growth is a more relevantmetric for progress in developedcountries. But it's widely used in allcountries because growth is a necessarycondition for development.

ScopeConcerned with structural changes in theeconomy

Growth is concerned with increase in theeconomy's output


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What is Economic development? Economic development is a broad term that does not have a single, unique

definition.

Economist Michael Todaro specified three objectives of development:

1. Life sustaining goods and services:To increase the availability and widen thedistribution of basic life-sustaining goods such as food, shelter, health andprotection.

2. Higher incomes:To raise levels of living, including, in addition to higherincomes, the provision of more jobs, better education, and greater attention tocultural and human values, all of which will serve not only to enhance materialwell-being but also to generate greater individual and national self-esteem

3. Freedom to make economic and social choices:To expand the range ofeconomic and social choices available to individuals and nations by freeing themfrom servitude and dependence not only in relation to other people and nation-states but also to the forces of ignorance and human misery.


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Sources of Economic Growth

Natural Factors- increasing the quantity of natural factorsis mucho difficult. That is why nations focus on

improving the quality of natural factors rather than thequantity. Quality over quantity. They do this by betterfarming techniques, investment in infrastructure andcapital goods to be better equipped.

Human Capital Factors- The most obvious way would be

to aim to increase the population but LEDCs wouldrather not. Most of the labour available in LEDCs is notskilled so training programs, improved health care,improved educations system.


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Physical Capital and technological factors- improving the

countrys infrastructure. Capital widening involves greaterinvestment to make use of existing technology. Capitaldeepening attempts to increase output through better

technology and using the same amount of inputs. i.e. it

attempts to make capital more productive.

Institutional Factors- must have a good central bank.

Good laws. Good government and stable political

situations and a good education system.


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Does economic growth lead to

economic development? Jes, jes it does.

1. Economic growth means higher GDP meaning higher GDP per capita. Higher incomesusually indicate a better standard of living. Though this might be problematic asgrowing GDPs dont always mean better standard of living primarily due to the

presence of income inequality.

2. Data indicates that higher GDP usually leads to better HDI hence improved economicindicators of welfare.

3. Rising GDP means more monies for governments. The increased tax revenue can beutilised on public services to further development.

4. Increased inequality especially if growth is achieved through market-based initiatives.

Developing countries might experience trickle down effect (The trickle-down effectisan economic phenomenon whereby low-income groups benefit indirectly from theaccumulation of wealth of those having higher incomes; that is, the income is said to"trickle down" from the rich to the poor. This phenomenon happens as a result ofeconomic growth.)

5. Negative externalities and much pollution


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U.N. Millennium Development

Goals

1. Reduce poverty & hunger from 17% to 8% of worldspopulation

2. All children complete primary school3. Gender equality in education & literacy

4. Reduce 5-year mortality (now 88 p 1000 LDCs)

5. Reduce maternal death rate (now 1/48)

6. Reduce HIV/AIDS7. Progress in environmental sustainability

8. Global partnership for development


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Economic Growth & Development Introduction ( Aahil & Harsh)