DEVELOPMENT (MODULE II) Economic Growth Economic Growth refers to the process of increase in production of goods and services in an economy over a (long) period of time. It also refers to persistence increase in real GDP or real per capita income.
Economic Development It refers to that process of economic growth which is accompanied by improvement in well being of people. It also refers to progressive changes in the socio-economic structure of an economy. Economic Economic Growth Development
Increased production as Increase in production. well as social welfare.
It is a quantitative It is a qualitative concept. concept.
It is a unidimensional It is a multi-dimensional concept. concept.
It is just a means of well
It is an end in itself. being.
It can be achieved It can seldom be
without economic achieved without development. economic growth.
Indicators: Human Indicators: Real GDP, Development Index, Real Per Capita Income. Multidimensional Poverty Index, Real PCI.
Inclusive Growth UNDP (United Nation Development Programme) has defined it as 'it is the process as well as outcome where all groups of people have participated in the organization of growth and have benefited equitably from it'. Economic Inclusive Growth Development
It is a Process (means) that the means should It is an Outcome (end). be participative i.e. through employment.
It can achieved by It cannot be achieved redistribution. For by redistribution. It can example, food subsidies be achieved through and welfare scheme like employment. old age pension.
Components of Inclusive Growth
Increasing Employability It means to enhance human capability to be employable through education, health, skill development. Access to basic amenities. Equal opportunities to all. Women Empowerment Employment Generation Promote Investment under schemes like Make in India which focuses on EoDB (Ease of Doing Business). MSME should be promoted. Entrepreneurship Development Support to labour intensive sectors. Poverty alleviation and Employment generation programmes.
Human Development UNDP has defined it as the process of widening people's choices as well as raising the level of well being achieved.
Human Resource Development (HRD)
HDR is also called Human Capital Formation. HDR refers to the process of enhancing productive potential of human beings. It is achieved by providing health care, education, skill development, etc.
Sustainable Development It refers to that process of economic development which can be sustained in future. UN World Commission on Environment and Development (UNWCED) defined Sustainable Development as 'the development which meets the need of the present without compromising the ability of future generation to meet their own needs'. It calls for inter-generational equity. It is related with carrying capacity i.e. capacity of environment to absorb the adverse impact of human activity.
Features of Sustainable Development
Increase in real GDP Social Welfare Conservation of Environment
Dimensions of Sustainable Development
Economic Dimension Social Dimension Environmental Dimension
Indicators of Sustainable Development
Green GDP: It is the GDP adjusted for the cost of environmental degradation. Genuine Savings : It means gross savings i.e. total savings. Formula for Genuine Savings: Gross Savings - Depreciation in Man Made Capital - Depreciation in Natural Capital.
Threats to Sustainable Development
Depletion of Resources Degradation of environment like pollution, soil erosion, deforestation. Loss of biodiversity. Measures We should be cautious using non-renewable resources. Recycling Non-biodegradable goods must be reduced. Promote organic farming. Product subsidy should be replaced with Direct Benefit Transfer. Alleviation of poverty. Economic incentives like carbon tax. Public awareness should be increased. Local bodies should take up environmental programme and play a vital role in promoting awareness. International Cooperation.
Indicators of Economic Development
Net Economic Welfare (NEW) (~Paul Samuelson)
Real Per Capital Income (PCI)
PCI = National Income / Population It is regarded as an indicator of standard of living. It is not a satisfactory indicator of economic development because: It is based on national income which itself is not a satisfactory indicator of economic development. It does not takes into account the composition of national income. That is it also includes the production of tobaccos, cigarettes, alcohol, etc which does not increase welfare. It does not takes into account of the distribution of the national income i.e. inequalities. It is silent on the welfare dimension of economic development viz. education, health, psychological well-being, political liberty, clean environment, etc. Physical Quality of Life Index (PQLI) (~M.D. Morris, 1979) It is based on three components: Infant Mortality Life Expectancy at the age of 1 year Adult Literacy Human Development Index (HDI) It was developed by UNDP in 1990 and it was developed by team of economists of UNDP led by Prof. Mehboob-ul-Haq. Prof. A.K. Sen was also a prominent member of this team. Since 1990 it is being published in the Human Development Report of UNDP. It is based on the following three dimensions:
Mean Years of Schooling: It is the average number of years of education
received by people aged 25 years or above during their lifetime. It is also the the indicator of inclusive growth. Dimension Index = Actual Value - Minimum Value / Maximum Value - Minimum Value. Range of Value is from 0 to 1. GM of the three dimension indices had made it sensitive to the inter- dimensional inequalities. Classification of Countries on the basis of HDI:
Classification of Countries Developed Countries/Advanced Countries Underdeveloped Countries/Developing Countries/Third World Countries Least Developed Countries (LDCs) Countries were designated/classified as LDCs by UN Economic and Social Council (UN ECOSOC) in 1971. Criteria for LDC: Low Income Countries as per World Bank. Human Assets Index (HAI) based on Education and Health. Economic Vulnerability Index (EVI)
HDR (Human Development Report)
Human Development Index (HDI) Inequality-adjusted HDI (IHDI) Introduced in 2010. It accounts for inequalities in the three dimensions of HDI by discounting each dimensions value according to its level of inequality. It is more sensitive to both intra-dimensional inequality as well as inter- dimensional inequality. MPI Gender Inequality Index (GII) It was introduced in 2010. It measures gender disparities in respect of the following three dimensions:
It measures disparities in empowerment and participation of women.
Gender-related Development Index (GDI) It was introduced in 2014. It measures gender disparities in respect of the three dimensions of HDI: Health Knowledge Standard of Living GDI = HDI female / HDI male It measures disparities in basic amenities.
Global Gender Gap Index
It is published by World Economic Forum (WEF). It is based on following dimensions: Health and Survival Educational Attainment Economic Participation Political Empowerment Global Hunger Index It is published by International Food Policy Research Institute (IFPRI). It is developed by three organization: IFPRI Welthungerlife Concern World Wide Dimensions/Components Undernourished Population Child Stunting (Low height as per age). It happens because of chronic (longer) hunger. Child Wasting (Low weight as per height). It happens because of acute (intense) hunger. Child Mortality (under 5 years). Range of GHI is 0-100 Classification of Countries as per GHI: Low (0-10) Moderate (10-20) Severe (20-35) Alarming (35-50) Extremely Alarming (50-75)
Psychological Wellbeing Indices
Gross National Happiness (GNH) It was developed by the fourth king of Bhutan J.S. Wangchuck in 1972. It is based on four pillars: Sustainable socio-economic development. Good governance. Preservation of cultural values. Conservation of environment.
World Happiness Report
It was developed by UN Sustainable Development Solutions Network (UNSDSN). It was introduced in 2012. It is based on six components: Real PCI (Per Capita Income) Healthy Life Expectancy Social Support (Having someone to count on) Perceived freedom to make life choices. Freedom from Corruption (related to governance). Generosity (being plentiful)
Determinants of Economic Development
Economic Factors Capital Formation / Investment It refers to the process of increase in the physical stock of capital like machinery, equipment, factories, etc. It is the most important determinant of economic growth. It increases productivity, production as well as future productive capacity of an economy. Harrod-Domar Growth Model (First Five Year Plan was based on this Model) Economic Growth = Investment / ICOR (Incremental Capital Output Ratio) ICOR measures the number of units of capital that are required to produce an additional unit of output. Higher ICOR shows lower efficiency. Stage In Capital Formation: Savings Saving = Disposable Income - Consumption
Dividend is the part of profit which is distributed among
shareholders/owners. Developing Vs Developed Countries
Finance : Mobilization of savings of households for investment by
firms through financial institutions. Investment : Expenditure on capital goods (machinery and factories). Investment / Gross Domestic Capital Formation (GDCF) is 33.3% of GDP Private Sector invest about 85% Public Sector invest about 15% Components of Investment Fixed Investment Valuables e.g. Gold, Silver, etc. Change in stocks/inventories (raw materials and unsold finished goods). Determinants of Investment Interest Rates Higher interest rate will have lower investment. Profitability Expectation (Business Environment) Ease of Doing Business (EoDB) Skilled Labours Tax Rebate Infrastructure Demand Vicious Circle of Poverty ~ Prof. Ragnar Nurkse It is a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in the state of poverty.
Economic System Economic Policy Structure of an Economy Level of Specialization Global Factors Natural Resources Non Economic Factors Socio-Cultural Factors Political Factors Psychological Factors Religious Factors Demographic Factors
Millennium Development Goals (MDGs)
8 Goals (1990 - 2015) 1. Poverty Reduction by half. 2. Universal Primary Education 3. Reduce Gender Gaps In Education In Work 4. Reduce Child Mortality Rate 5. Reduce Maternal Mortality Rate 6. Reduce Diseases HIV Malaria 7. Environmental Sustainability Increase Forest Cover Ensure Safe Drinking Water Provide Sanitation 8. Partnership for Development International Cooperation Domestic (IT)
Sustainable Development Goals (SDGs)
Title: Transforming Our World : The 2030 Agenda for Sustainable Development 17 Goals and Targets 169. Elaboration of Goals and Addition of New Dimensions. Elaboration of Existing Dimensions Goals Related to Environment Climate Action Life on Land Life below Water Clean and affordable Energy Safe drinking water and sanitation Sustainable cites and Communities Goals Related to Poverty End Poverty End Hunger Reduce Inequalities New Dimensions/Goals Economic Decent work and economic growth. Responsible consumption and production. Industry innovations and infrastructure Governance Peace, Justice and Strong Institutions Other Goals Education Quality Education Gender Gender Equality Partnership Partnership for Goals Health Health and Wellbeing Approach of these Goals More emphasis on Participation. Private sectors like NGOs should be promoted. PPP should be encouraged. Increasing the participation of civil society and local bodies. Qualitative Aspect Absolute Zero or Final Targets (e.g. End Poverty, End Hunger). Focus is shifting from developing countries towards global approach to global problems. Based on internal sources of funding. Linking of social goals with economy.
Side Notes: Closed Economy : It is an economy which does not have any economic relations with the rest of the world.
