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 Home » Tutorials » Economics » Economic Growth and Development

Economic Growth and Development


A D V E R T I S E M E N T
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Growth Rate

Economic Development



Some economists hold a view that the economic development is not much different from economic growth. For them, both are processes of long-term increase in per capita income. Some other economists believe that development is distinctly different process than growth and covers other dimensions of change besides growth. Still others hold that, development is nothing but the level of per capita income achieved in a particular year.
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A D V E R T I S E M E N T


Whole human history may be thought of as a succession of developments or changes, largely in positive direction. Looking from a distance, we find that production structure of the economy has changed: from hunting-gathering to settled agriculture, from agriculture to manufacturing, from manufacturing to automatic production, from production of goods to production of services. It does not mean services were not produced, say thousand years ago; it only means that its relative importance has changed and that this might have occurred with increase in all activities in a broad sense.

However, economics takes most of its lues from the economic history of the West during the last two centuries or so. During this period, a variety of sweeping changes took place in Europe, which may broadly be categorized as technological and institutional. Early economists working in the field of development economics took notice of change in the composition of output and deployment of labour in activities. They called it structural change. Structural change meant relative increase in terms of proportion of non-agriculture/nonprimary output and concomitant changes in proportion of employment of labour in non-agricultural activities (and also in that of allocation of capital and land). However, this structural change has to take place along with increase in output of all (or majority of) goods, not with decrease. They defined economic development as economic growth with structural change in favour of nonagricultural activities. And structural change was understood in terms of composition of GDP and industrial distribution of labour. This was a reflection of changing demand for goods and services on the one hand and changing demand for labour by production technology in different sectors on the other. Most of the mainstream economists believed that all economies in the West traversed the same path and believed that other economies would also follow the same path. When they did not find it happening they pointed out that institutional changes are equally important. Institutional changes could mean emergence of new institutions in governance, as also in capital market and money market. Some pointed out necessity of attitudinal changes in people – a leap from traditional value system to modern value system. In order to accommodate this thought, economic development could be defined as economic growth plus, that is, something more than economic growth. There were attempts to emphasize technological dimension of development. It was pointed out that economic growth should be accompanied by rise in productivity. Then, we could define economic development as economic growth accompanied by rise in productivity.

Development is, however, just not concerned with description of economic history. It is to be pursued as a deliberate mechanism of deliverance of the masses from poverty and idleness in a relatively short period of time. Developments in the fifties and sixties did not perceptibly change the scene in these crucial areas. Many economists felt disillusioned and started showing their anguish. One such Western economist who had been dealing with problems of development asserted in a World Conference in Delhi: “The questions to ask about a country’s development are: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all the three, it would be strange to call the result ‘development’ even if per capita income doubled.”

Indeed, here is a reference to conscious attempts made to develop an economy by adopting a strategy. If the strategy brings in growth in capacity to produce more and in actual output, transformation in structure of economy in terms of composition of output of goods and services or even in deployment of labour force, emergence of institutions in terms of variety of banks, and technology making use of machines and power instead of men and cattle, but makes no significant dent on basic problems of underdeveloped countries, what use are the efforts or the strategy? This implies that development has to be related to welfare of people. It was suggested much earlier that welfare of people depends on the size of the cake as well as its distribution. One is entitled to one’s wages when one is employed. One should get adequate wages, if employed or should get remunerative prices for what one produces, if self-employed. Mass poverty was one particular problem we attributed to the colonial rule and wanted to secure self-governance in order to eradicate it. If that scourge still persists on a large scale, we have a cause to worry about. In short, the suggestion is that the income should get redistributed in favour of relatively worse-off. Keeping this in view, some economists prefer to define economic development as economic growth with redistribution of resources in favour of the relatively worse off. In this concept, it is believed that reduction in inequality will reduce poverty and will lead to reduction in unemployment too.





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