ECONOMIC GROWTH AND DEVELOPMENT – CONCEPTS

Introduction

The term ‘economic growth’ refers to increases over time in a countries real output of goods and services – or more appropriately product per capita output is generally measured by gross or net national product, though other measures could also be employed.

The term ‘economic development’, in contrast is more comprehensive. Economic development implies progressive changes in the socio economic structure of a country.

Viewed in this way, economic development involves a steady decline in agriculture’s share in GDP and corresponding increase in the share of industries, trade banking, construction and services. The transformation in economic structure is invariably accompanied by a shift in the occupational structure of the labor force and an improvement in its skill and productivity.

Most people are now convinced that industrialization and technological progress have overriding influence on this economic transformation. Hence there is a clear “ policy message that to a based a development policy on agricultural activity alone would be misguided, however attractive such aphorisms as ‘back to the land’ and ‘small is beautiful’ may sound to those disillusioned with the recent industrialization experience of the developing countries”.

Distinction between economic growth and economic development

Charles P. Kindle Berger rightly asserts that whereas economic growth merely refers to a rising output, economic development implies changes in technological and institutional organization of production as well as in distinctive pattern of income. Compared to the objective of development, economic growth is easy to realize by mobilizing larger resources and raising their productivity, output level can be raised. The process of development is far more extensive. Apart from a rising output, it involves changes in the composition of output as well as a shift in the allocation of productive resources so as to ensure social justice.

In sum of the under developed countries process of economic growth has been accompanied by economic development. This however, is not necessary. It is quite probable that a country producers more or the same type of goods and services, to keep up with the growing population, while basic structure of the economy remains in tact. In a well known book o Liberia, Robert Clower had observed that in spite of the fact that the various concessions to foreign firms induced exports in a big way and resulted in a considerable increase in GNP of the country essentially remained unaltered in this phase of growth. Further the benefits of this growth were all most exclusively to a privileged few, while the vast majority of the country’s people remained completely unaffected. Clower thus calls it “growth without development”. Hans Singer asserts, “for developing countries it is not difficult to demonstrate from numerical models, given their high rates of population measure. Increasingly capital intensive technological monopoly of the industrialized countries and their limited resources that wide spread ‘trickle down’, let alone the creation of social welfare states is most unlikely in the normal context of purely economic growth’. Development without growth is inconceivable. A substantial rise in a country’s GNP is recurred before it can hope to expand its industries, financial institutions, trade, public utilities and government administration .Now here in the world has the occupational distribution of population changed in the absence of growth.

While considering from the welfare view point of the people the inevitable conclusion is that economic growth is not enough for under developed countries; it must be accompanied by development.

Determinants and issues of economic development

Economic development is a complex process. It is influenced by both economic & non-economic factors. Among the economic factors the most prominent ones are the following:

Ø Capital stock and the rate of capital accumulation

Ø Marketable surplus of agriculture

Ø Conditions in foreign trade

Ø Economic system.

Non-economic factors playing an important role in determining the pace and directions of development are as follows:

Ø Human resources

Ø Technical know-how and general education

Ø Political freedom

Ø Social organization

Ø Corruption

Ø Will to develop

Ø Natural resources

Economic Factors

Economic development is a complex process .It is influenced by both economic and non-economic factors. Among the economic factors which determine the development process in any country, the most prominent ones are follows:

· Capital formation

· Marketable Surplus of agriculture

· Conditions in foreign trade

· Economic system

In a country’s economic development, the role of economic factors is decisive. The Stock of capital and the rate of capital accumulated in most cases settle the question whether at a given point of time, a country will grow or not. There are a few other economic factors which also have some bearing on development but their importance is hardly comparable to that of capital formation.

a) Capital formation:

The strategic role of capital in raising the level of production has traditionally been acknowledged in economics. In fact the Harrod-Domar model of growth has treated capital as the crucial factor of economic growth It is now universally admitted that a country which wants to accelerate the pace of growth, has no choice but to save a high ration of its income, with the objective of rising the level of investment. Great reliance on foreign aid is highly risky and thus has to be avoided. Economists rightly assert that lack of capital is the principal obstacle to growth and no development plan will succeed unless adequate supply of capital is forthcoming. Whatever maybe the economic system, a country cannot hope to achieve economic progress unless a certain minimum rate of capital accumulated is released. Rangar Nurske has elaborately discussed the problem of capital formation in under-developed countries. On the demand side he has argued that there is a problem of small size of market which fails to provide inducement to big scale investment activity. On the supply side low level of per capita income and the demonstration effect in respect of consumption do not permit much improvement in level of savings.

b) Marketing Supply of agriculture:

Increase in agricultural production accompanied by rise in productivity is important from the point of view of development of a country. But what is more important is that the market surplus of the agriculture increases. The importance of marketable surplus in a developing economy emanates from the factor that the urban industrial population subsides on it. In most of the years, during the earlier planning period, Market arrival of food grains were not adequate to support the urban population. In order to avert food crisis in cities, the government imported food grains in large quantities. This indeed solved the problem at the same time, it involved large scale spending of foreign exchange which, if used for other purposes would have contributed more to the economic development of the country. Hence, if some country wants to set up the tempo of industrialization, it must not allow its agriculture to lag behind.

c) The conditions in foreign trade

The classical theory of trade has been used by economists for a long time to argue that trade between nations is always beneficial to them. In the existing context, the theory suggests that the presently less developed countries should specialize in production of primary products as they have comparative cost advantage in their production. The developed countries, on the contrary, have a comparative cost advantage in manufactures including machines and equipments and should accordingly specialize in them. Foreign trade has proved to be beneficial which have been able to set up industries in a relatively short period. The countries sooner or later captured international markets for their industrial products. Therefore a developing country should not only try to become self-reliant in capital equipment as well as other industrial products as early as possible, admit to push the development of its industries to such a high level that in course of time, manufactured goods replace the primary goods as the country’s principal exports.

d) Economic system:

The economic system and the historical setting also decide the development prospects to a great extent. There was a time when a country could have a laissez faire economy and yet face no difficulty in making economic progress. England’s economy was precisely the one in which there was minimal government intervention, and yet it steadily developed over a long period. In Today’s entirely different world situation a country would find it difficult to grow along the England’s paths of development. Japan and Germany had developed in a capitalistic economic system both their path of growth has not been the same as England.

Non-Economic Factors in Economic Development

Non-Economic Factors are as much important in development as Economic Factors.

Human Resources

Population is an important factor in economic development. Man makes positive contribution to growth and provides labor power for production. If labor is efficient and skilled its capacity to contribute to growth will be high. If a country can manage to use its manpower properly, it will certainly prove to be an important factor in development. Unutilized man power remains defective and burden on the economy.

Technical know-how and general education

As the scientific and technological knowledge advances, man discovers more and more sophisticated techniques of production. Schumpeter was deeply impressed by the innovations done by the entrepreneurs and he contributed much of the capitalistic developments to this role of entrepreneurial class. Contribution of education to the increase in output is more relevant.

Political Freedom

Looking to the world history, the processes of development and under development are interlinked. Under development of India, Pakistan, Bangladesh etc which were in the past British colonies was linked with the development of England. The colonies were forced to remain backward in the process. Similarly France’s development was linked with the under development of Algeria and Indo-China.

Social organization

Mass participation in development programmes is a pre-condition for accelerating the growth process. However, people show interest in the development activity only when they feel that the fruits of growth will be fairly distributed. Experiences from a number of countries suggest that whenever the defective social organization allows some groups to appropriate the benefit of growth, the general mass of people develop apathy towards State’s development programmes. Under the circumstances it is futile to hope that masses will participate in the development projects undertaken by the state. Growth of monopolies in industries and concentration of economic power in the modern sector is now an undisputed fact.

Corruption

Corruption is rampant in developing countries at various levels and it operates as a negative factor in the growth process. Until and unless these countries root out corruption in their administrative system, it is most natural that the capitalists, traders and other powerful economic classes will continue to exploit national resources in their personal interests. Furthermore, a substantial portion of the outlay on development projects is appropriated by the government officials and other functionaries by employing corrupt means. The regulatory system is often misused and the licenses are not always granted on merit. Tax evasion, with the connivance of government officials is also a part of corruption.

Desire to Develop

Development activity is not a mechanical process. The pace of economic growth in any country depends to a great extent on people’s desire to develop. If in some country level of consciousness is low and the general mass of people has accepted poverty as its fate, then there will be little hope for development.

Natural Resources

Availability of fertile soil with abundant supply of water for irrigation purposes provides favorable conditions for agricultural development. Similarly, adequate reserves of coal and petroleum and water resources for electricity generation can be profitably utilized by an underdeveloped country for its transformation into a developed country. Minerals like iron ore, copper, tin, bauxite, and uranium, if available in plenty can induce the process of industrialization. Sea coast provides navigation facilities necessary for overseas trade. Without these resources there is not much hope for economic growth.

BIBLIOGRAPHY

1. Economic Environment of Business by S K Misra, V K Puri- Himalaya Publishing House