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Development Economics Chapter outline: • • Indicators of Development Pre-Requisite of Development Indicators of Development: Economic Growth: Economic Growth: Using measures of economic performance in terms of the value of income, expenditure and output GDP – Gross Domestic Product GNP – Gross National Product The value of output produced within a country plus net property income from abroad Real GDP/GNP The value of output produced within a country during a time period Accounts for differences in price levels in different countries GDP/GNP per capita Takes account of the size of the population Economic Development: Development: Development incorporates the notion of a measure/measures of human welfare What should it include? Development: includes: Poverty? Political freedoms? Sustainable development? Self esteem? Proportion of activity in different sectors of the economy: Primary Sector Secondary Sector Development: Human Development Index (HDI) HDI – A socio-economic measure Focus on three dimensions of human welfare: Longevity – Life expectancy Knowledge – Access to education, literacy rates Standard of living – GDP per capita: Purchasing Power Parity (PPP) Other Measures: Pre-Requisites of Economic Development Economic development is a complex process. It is influenced by a number of factors. All the factors having strong bearing on economic growth are divided into two categories. 1. Economic Factors 2. Non- Economic Factors We discuss these determinants or factors of economic development in detail. Requisites of Economic Development (A) ECONOMIC FACTORS: Economic factors play a very important role in the development of a country. The aggregate output rises or falls mainly due to changes to them. The main economic determinants are: 1. Natural Resources: The natural resources is the principal factor which affects the development of an economy. If a country is rich in natural resources, it is then able to make rapid progress in growth. In case a country is deficient in forest wealth, mineral resources, water supply, fertility of land etc. it is then normally not in a position to develop rapidly. Requisites of Economic Development 2. Capital Formation: Capital formation is an important factor in the economic growth of a country. Capital formation refers to the process of adding to the stock of capital over time. 3. Capital market: The capital market consists of financial institutions like development banks, stock exchanges and investment banks. In low income countries, the capital market is less developed. Requisites of Economic Development 4. Human Resources: human resources of a country is an important factor in economic development. If the population of a country is educated, efficient, patriot, skilled, healthy, it makes significant contribution to economic development. On the other hand, if a country is overpopulated, labour force is unemployed, uneducated, unskilled it can put serious hurdles on the path of economic development. 5. Power: power resources are the foundation of economic development. It includes oil, gas, hydel, thermal electricity, nuclear, animal power, fuel, wood, cowdung etc. Requisites of Economic Development 6. The Means of Transport and Communication: The means of transport and communication have an important bearing on the economic growth of a country. If a country is well connected with rail road, sea ports and has a developed means of communication including information technology, it then helps in improving the productive capacity of the various sectors of the economy. An efficient transport and communication network contributes to improving the quantity and quality of goods due to competition and reduction in production costs. Requisites of Economic Development 6. Education and Training: Education and training is a factor of considerable importance to economic growth. The modern economists are of the view that the expenditure on education and training is most valuable of all the capital. We now get the larger part of our industrial growth not from more capital investment but from investment in men and improvements brought about by improved man. Requisites of Economic Development (B) NON- ECONOMIC FACTORS: Non-Economic factors are as much important as economic factors in economic development. It is rightly pointed out by Nurkse “Economic development has much to do with human endowments, social attitudes, political conditions and historical accidents.” 1. Social Factors: • Social attitudes, values and institutions strongly influence economic development of a country. • People in LDCs are mostly conservative in their habits. They feel pride in their native culture and are generally not receptive to new methods of production. Requisites of Economic Development • The caste system functioning mostly in terms of occupation (tailors, carpenters, gold smiths etc) is restricting the occupational and geographical mobility. The occupational classification which is mostly village centered is also hampering the economic progress. • The people in LDCs are mostly influenced by traditional customs. The unnecessary expenditure on marriages, death, births, litigations, class pride etc has reduced domestic savings and has adversely affected economic growth. • About half of the population comprises women folk. The social taboos and customs prevent them from working with men and so improving their standard of living. Requisites of Economic Development 2. Political Factors: Political factor is an important variable in the economic development of a country. If the government of a country is stable, it can play an important role in encouraging economic activity. The state, for instance, can bring changes in the socio-cultural attitudes of the people for economic uplift of the masses. A stable government can develop means of communication and transport for the expansion of the size of the market in a planned manner. It can also adopt approved monetary and fiscal policies for accelerating economic development. Requisites of Economic Development 2. Administrative Factors: The administrative factor has an important bearing on the economic progress of a country. If the administration of a country is efficient, honest and strong, it can give a big push to the economic development. Thank you