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JAIPUR NATIONAL UNIVERSITYSEEDLING SCHOOL OF LAW AND
GOVERNANCE
Economics Assignment
ECONOMIC GROWTH V/S ECONOMIC DEVELOPMENT
Submitted to: Mam MonicaSubmitted From: Krishna Agarwal (II
sem.)
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Economic Growth:Economic growth is the increase in the amount of
the goods and services produced
by aneconomyover time. It is conventionally measured as the
percent rate of
increase in realgross domestic product, orreal GDP. Growth is
usually calculated
in realterms, i.e. inflation - adjustedterms, in order to net
out the effect
ofinflationon the price of the goods and services produced.
Ineconomics,
"economic growth" or "economic growth theory" typically refers
to growth
ofpotential output, i.e., production at "full employment," which
is caused by growth
inaggregate demandor observed output.
As an area of study, economic growthis generally distinguished
fromdevelopment
economics. The former is primarily the study of how countries
can advance their
economies. The latter is the study of the economic aspects of
the development
process in low-income countries.
As economic growth is measured as the annual percent change of
gross domestic
product (GDP), it has all the advantages and drawbacks of that
measure.
Economic Growth is a narrower concept than economic development.
It is an
increase in a country's real level of national output which can
be caused by an
increase in the quality of resources (by education etc.),
increase in the quantity of
resources & improvements in technology or in another way an
increase in the value
of goods and services produced by every sector of the economy.
Economic Growth
can be measured by an increase in a country'sGDP (gross domestic
product).
Historical sources of Economic Growth:Increases in productivity
are the main factor responsible for economic growth,
especially since the mid 19th century. Most of the economic
growth since that time
been due to reduced inputs of labor, materials, energy, capital
and land per unit of
economic output (less input per widget). The balance of growth
has come from using
more inputs overall because of the growth in output (more
widgets). Opening up new
territories was considered a growth factor in the past, being
important until the late
19th century and in limited cases in the 20th century, such as
the Amazon.
During colonial times, what ultimately mattered for economic
growth were the
institutions and systems of government imported
throughcolonization. There is a
clear reversal of fortune between the poor and wealthy
countries, which is evident
when comparing the method ofcolonialismin a region. Geography
and endowments
of natural resources are not the sole determinants of GDP. In
fact, those that were
blessed with good factor endowments experienced colonial
extraction which only
provided limited rapid growth; whereas, countries that were less
fortunate in their
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original endowments experienced European settlement, relative
equality, and
demand forrule of law. These initially poor colonies end up
developing an open
franchise, equality, and broad public education, which helps
them experience
greater economic growth than the colonies that had exploited
theireconomies of
scale.
During theIndustrial Revolution,mechanizationbegan to replace
hand methods in
manufacturing and new processes were developed to make
chemicals, iron, steel
and other products.
Since theIndustrial Revolution, a major factor ofproductivitywas
the substitution of
energy from, human and animal labor,waterand wind power to
electric power and
internal combustion. Since that replacement, the great expansion
of total power was
driven by continuous improvements in energy conversion
efficiency. Other
majorhistorical sources of productivitywereautomation,
transportation
infrastructures (canals, railroads, and highways), new materials
(steel) and power,
which includes steam and internal combustion engines
andelectricity.
Otherproductivityimprovements included mechanized agricultureand
scientificagriculture including chemicalfertilizersand livestock
and poultry management, and
theGreen Revolution.Interchangeable partsmade withmachine
toolspowered
byelectric motorsevolved intomass production, which is
universally used today.
Productivity lowered the cost of most items in terms of work
time required to purchase. Real food
prices fell due to improvements in transportation and
trade,mechanized agriculture,fertilizers,
scientific farming and theGreen Revolution.
Great sources of productivity improvement in the late 19th
century were the
railroads, steam ships, horse-pulledreapersandcombine
harvesters, andsteam-
powered factories. The invention of processes for making
cheapsteelwereimportant for many forms ofmechanization and
transportation. By the late 19th
century, power and machinery were creating overproduction, which
eventually
caused a reduction of the hourly work week. Prices fell because
less labor,
materials, and energy were required to produce and transport
goods; however,
workers real pay rose, allowing workers to improve their diet
and buy consumer
goods and better housing.
Mass productionof the 1920s created overproduction, which was
arguably one of
severalcausesof theGreat Depressionof the 1930s. Following
theGreat
Depression, economic growth resumed, aided in part by demand for
entirely new
goods and services, such as householdelectricity, telephones,
radio, television,automobiles, and household appliances, air
conditioning, and commercial aviation
(after 1950), creating enough new demand to stabilize the work
week.[6]Building of
highway infrastructures also contributed to post World War II
growth, as did capital
investments in manufacturing and chemical industries. The post
World War II
economy also benefited from the discovery of vast amounts of oil
around the world,
particularly in the Middle East.
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ized_agriculturehttp://en.wikipedia.org/wiki/Mass_productionhttp://en.wikipedia.org/wiki/Electric_motorshttp://en.wikipedia.org/wiki/Machine_toolshttp://en.wikipedia.org/wiki/Interchangeable_partshttp://en.wikipedia.org/wiki/Green_Revolutionhttp://en.wikipedia.org/wiki/Fertilizerhttp://en.wikipedia.org/wiki/Mechanized_agriculturehttp://en.wikipedia.org/wiki/Productivityhttp://en.wikipedia.org/wiki/Electrificationhttp://en.wikipedia.org/wiki/Automationhttp://en.wikipedia.org/wiki/Productivity_improving_technologies_(historical)http://en.wikipedia.org/wiki/Water_powerhttp://en.wikipedia.org/wiki/Productivityhttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Mechanizationhttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Economies_of_scalehttp://en.wikipedia.org/wiki/Economies_of_scalehttp://en.wikipedia.org/wiki/Rule_of_law
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Economic growth in Western nations slowed after 1973, but growth
inAsiahas been
strong since then, starting with Japan and spreading to Korea,
China, theIndian
subcontinentand other parts of Asia. The Japanese economy has
been growing very
slowly since about 1990.
Negative effects of Economic Growth:A number of critical
arguments have been raised against economic growth. It may be
that economic growth improves the quality of life up to a point,
after which it doesn't
improve the quality of life, but rather obstructs sustainable
living. Historically,
sustained growth has reached its limits (and turned to
catastrophic decline) when
perturbations to the environmental system last long enough to
destabilize the bases
of a culture.
ConsumerismGrowth may lead toconsumerismby encouraging the
creation of what some regard
as artificial needs: Industries cause consumers to develop new
taste, and
preferences for growth to occur. Consequently, "wants are
created, and consumers
have become the servants, instead of the masters, of the
economy."
Resource depletionMany earlier predictions of resource
depletion, such asThomas Malthus' 1798
predictions about approaching famines in Europe,The
PopulationBomb(1968), Limits to Growth(1972) and theSimonEhrlich
wager(1980) did not
materialize, nor has diminished production of most resources
occurred so far, one
reason being that advancements in technology and science have
allowed some
previously unavailable resources to be produced. In some cases,
substitution of
more abundant materials, such as plastics for cast metals,
lowered growth of usage
for some metals. In the case of the limited resource of land,
famine was relieved
firstly by the revolution in transportation caused by railroads
and steam ships, and
later by theGreen Revolutionand chemical fertilizers, especially
theHaber
processfor ammonia synthesis.
M. King Hubbert's prediction of worldpetroleum production rates.
Virtually alleconomic sectors rely heavily on petroleum.
In the case of minerals, lower grades of mineral resources are
being extracted,
requiring higher inputs of capital and energy for both
extraction and processing. An
example isnatural gasfrom shale and other low permeability rock,
which can be
developed with much higher inputs of energy, capital, and
materials than
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conventional gas in previous decades. Another example is
offshore oil and gas,
which has exponentially increasing cost as water depth
increases.
Environmental impactForest inIndonesiabeing cut forpalm
oilplantation.
Some critics argue that a narrow view of economic growth,
combined with
globalization, is creating a scenario where we could see a
systemic collapse of our
planet's natural resources. Other critics draw onarchaeologyto
cite examples of
cultures they claim have disappeared because they grew beyond
the ability of their
ecosystems to support them. Concerns about possible negative
effects of growth on
the environment and society led some to advocate lower levels of
growth, from
which comes the ideas ofuneconomic growthandde-growth,
andGreen
partieswhich argue that economies are part of a global society
and a global ecology
and cannot outstrip their natural growth without damaging
them.
Canadian scientist,David Suzukistated in the 1990s that
ecologies can only sustain
typically about 1.53% new growth per year, and thus any
requirement for greater
returns fromagricultureorforestrywill necessarily cannibalize
thenatural
capitalofsoilorforest. Some think this argument can be applied
even to more
developed economies.
Those more optimistic about the environmental impacts of growth
believe that,
although localized environmental effects may occur, large scale
ecological effects
are minor. The argument as stated by commentatorsJulian Lincoln
Simonstates
that if these global-scale ecological effects exist, human
ingenuity will find ways of
adapting to them.
Equitable growthWhile acknowledging the central role economic
growth can potentially play inhuman
development,poverty reductionand the achievement of
theMillennium Development
Goals, it is becoming widely understood amongst the development
community that
special efforts must be made to ensure poorer sections of
society are able to
participate in economic growth. For instance, with low
inequality a country with a
growth rate of 2% per head and 40% of its population living in
poverty, can halve
poverty in ten years, but a country with high inequality would
take nearly 60 years to
achieve the same reduction. In the words of theSecretary
Generalof the UnitedNationsBan Ki-Moon:
While economic growth is necessary, it is not sufficient for
progress on
reducing poverty.
Researchers at theOverseas Development Institutecompares
situations such as
in Uganda, where during a period of annual growth of 2.5%
between 2000 and
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2003, the percentage of people living in poverty actually
increased by 3.8%. The
ODI thus emphasises the need to ensure social protection is
extended to allow
universal access and that policies are introduced to encourage
the private sector
to create new jobs as the economy grows (as opposed to jobless
growth) and
seek to employ people from disadvantaged groups.
Implications of global warmingUp to the present there are close
correlations of economic growth withcarbon
dioxideemissions across nations, although there is also a
considerable divergence
in carbon intensity (carbon emissions per GDP). TheStern
Reviewnotes that the
prediction that "under business as usual, global emissions will
be sufficient to propel
greenhouse gas concentrations to over 550ppm CO2e by 2050 and
over 650700ppm
by the end of this century is robust to a wide range of changes
in model
assumptions". The scientific consensus is that planetary
ecosystem functioning
without incurring dangerous risks requires stabilization at
450550 ppm.
As a consequence, growth-oriented environmental economists
propose massive
government intervention into switching sources of energy
production, favouring
wind, solar, hydroelectric, and nuclear. This would largely
confine use of fossil fuels
to either domestic cooking needs (such as for kerosene burners)
or where carbon
capture and storage technology can be cost-effective and
reliable. TheStern Review,
published by the United Kingdom Government in 2006, concluded
that an investment
of 1% of GDP would be sufficient to avoid the worst effects of
climate change, and
that failure to do so could risk climate-related costs equal to
20% of GDP. Because
carbon capture and storage is as yet widely unproven, and its
long term
effectiveness (such as in containing carbon dioxide 'leaks')
unknown, and because of
current costs of alternative fuels, these policy responses
largely rest on faith of
technological change.
On the other hand,Nigel Lawsonclaimed that people in a hundred
years' time would
be "seven times as well off as we are today", therefore it is
not reasonable to impose
sacrifices on the "much poorer present generation".
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Economic Development:The economic development in India followed
a socialist-inspired policies for most ofits independent history,
including state-ownership of many sectors; extensive
regulation andred tapeknown as "Licence Raj"; and isolation from
the world
economy. India's per capita income increased at only around1%
annualized ratein
the three decades after Independence.[1]Since the mid-1980s,
India has slowly
opened up its markets througheconomic liberalization. After more
fundamental
reforms since 1991 and their renewal in the 2000s, India has
progressed towards
afree market economy.[
In the late 2000s, India's growth has reached 7.5%, which will
double the average
income in a decade.[1]Analysts say that if India pushed more
fundamental market
reforms, it could sustain the rate and even reach the
government's 2011 target of
10%. States have large responsibilities over their economies.
The annualized 1999
2008 growth rates forGujarat(9.6%),Haryana(9.1%), orDelhi(8.9%)
were
significantly higher than forBihar(5.1%),Uttar Pradesh(4.4%),
orMadhya
Pradesh(6.5%). India is theninth-largesteconomy in the world and
thethird
largestby purchasing power parity adjusted exchange rates (PPP).
On per capita
basis, it ranks128thin the world or118thby PPP.
The economic growth has been driven by the expansion of services
that have been
growing consistently faster than other sectors. It is argued
that the pattern of Indian
development has been a specific one and that the country may be
able to skip the
intermediate industrialization-led phase in the transformation
of its economic
structure. Serious concerns have been raised about the jobless
nature of the
economic growth.
Favourable macroeconomic performance has been a necessary but
not sufficient
condition for the significant reduction of poverty among the
Indian population. The
rate of poverty decline has not been higher in the post-reform
period (since 1991).
The improvements in some other non-economic dimensions of social
development
have been even less favourable. The most pronounced example is
an exceptionally
high and persistent level of child malnutrition (46% in
20056).
The progress of economic reforms in India is followed closely.
TheWorld
Banksuggests that the most important priorities are public
sector reform,
infrastructure, agricultural and rural development, removal of
labor regulations,
reforms in lagging states, and HIV/AIDS. For 2010, India ranked
133rd in Ease of
Doing Business Index, which is setback as compared with China
89th and Brazil
129th. According toIndex of Economic FreedomWorld Ranking an
annual survey on
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economic freedom of the nations, India ranks 124th as compared
with China and
Russia which ranks 140th and 143rd respectively in 2010.
Economic development is a normative concept i.e. it applies in
the context of
people's sense of morality (right and wrong, good and bad). The
definition of
economic development given by Michael Todaro is an increase in
living standards,
improvement in self-esteem needs and freedom from oppression as
well as a greater
choice. The most accurate method of measuring development is the
Human
Development Index which takes into account the literacy rates
& life expectancy
which affects productivity and could lead to Economic Growth. It
also leads to the
creation of more opportunities in the sectors of education,
healthcare, employment
and the conservation of the environment. It implies an increase
in the per capita
income of every citizen.
Economic Growth does not take into account the size of the
informal economy. The
informal economy is also known as the black economy which is
unrecorded
economic activity. Development alleviates people from low
standards of living into
proper employment with suitable shelter. Economic Growth does
not take intoaccount the depletion of natural resources which might
lead to pollution, congestion
& disease. Development however is concerned with
sustainability which means
meeting the needs of the present without compromising future
needs. These
environmental effects are becoming more of a problem for
Governments now that the
pressure has increased on them due to Global warming.
Economic growth is a necessary but not sufficient condition of
economic
development.
History:Economic development originated in the post war period
of reconstruction initiated
by the US. During his 1949 inaugural speech PresidentHarry
Trumanidentified the
development of undeveloped areas as a priority for the west:
More than half the people of the world are living in conditions
approaching misery.
Their food is inadequate, they are victims of disease. Their
economic life is primitive
and stagnant. Their poverty is a handicap and a threat both to
them and to more
prosperous areas. For the first time in history humanity
possesses the knowledge
and the skill to relieve the suffering of these people ... I
believe that we should make
available to peace-loving peoples the benefits of our store of
technical knowledge in
order to help them realize their aspirations for a better life
What we envisage is a
program of development based on the concepts of democratic fair
dealing ... Greater
production is the key to prosperity and peace. And the key to
greater production is a
wider and more vigorous application of modem scientific and
technical knowledge[
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There have been several major phases of development theory since
1945. From the
1940s to the 1960s the state played a large role in promoting
industrialization in
developing countries, following the idea ofmodernization theory.
This period was
followed by a brief period of basic needs development focusing
on human capital
development and redistribution in the 1970s. Neo-liberalism
emerged in the 1980s
pushing an agenda of free trade andImport Substitution
Industrialization(ISI),
emphasizingcomparative advantage. More recentlyPostdevelopment
theoryhas
emerged to challenge the ideas of western-based development by
arguing against
reductionism, universalism, and euro centricity.
Post-Development Theory is rooted
in the experiences ofLatin America,Africa, andIndia.
Negative effects of Economic Development :Regulation, public
sector, corruptionIndia ranked 133rd on theEase of Doing Business
Indexin 2010, compared with 85th
for Pakistan, 89th for People's Republic of China, 125th for
Nigeria, 129th for Brazil,
and 122nd for Indonesia.
Extent of corruption in Indian states, asmeasuredin a 2005 study
byTransparency
InternationalIndia. (Darker regions are more corrupt)
Corruption in many forms has been one of the pervasive problems
affecting India. For
decades, thered tape, bureaucracy and the Licence Rajthat had
strangled private
enterprise. The economic reforms of 1991 cut some of the worst
regulations that had
been utilized in corruption.
Corruption is still large. A 2005 study byTransparency
International(TI) India found
that more than half of those surveyed had firsthand experience
of paying a bribe or
peddling influence to get a job done in a public office. The
chief economic
consequences of corruption are the loss to theexchequer, an
unhealthy climate for
investment and an increase in the cost of government-subsidised
services. The TI
India study estimates the monetary value of petty corruption in
11 basic services
provided by the government, like education, healthcare,
judiciary, police, etc., to be
around 21,068crore(US$4.6 billion). India still ranks in the
bottom quartile of
developing nations in terms of the ease of doing business, and
compared with China,
the average time taken to secure the clearances for a startup or
to invoke
bankruptcy is much greater.
TheRight to Information Act(2005) and equivalent acts in the
states, that require
government officials to furnish information requested by
citizens or face punitive
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action, computerisation of services and various central and
state government acts
that established vigilance commissions have considerably reduced
corruption or at
least have opened up avenues to redress grievances. The 2006
report by
Transparency International puts India at 70th place and states
that significant
improvements were made by India in reducing corruption.
EmploymentIndia's labor force is growing by 2.5% every year, but
employment is growing only at
2.3% a year. Official unemployment exceeds 9%. Regulation and
other obstacles
have discouraged the emergence of formal businesses and jobs.
Almost 30% of
workers are casual workers who work only when they are able to
get jobs and
remain unpaid for the rest of the time. Only 10% of the
workforce is in regular
employment. India's labor regulations are heavy even by
developing country
standards and analysts have urged the government to abolish
them.
From the overall stock of an estimated 458 million workers, 394
million (86%)
operate in the unorganized sector (of which 63% are
self-employed) mostly as
informal workers. There is a strong relationship between the
quality of employment
and social and poverty characteristics. The relative growth of
informal employment
was more rapid within the organized rather than the unorganized
sector. This
informalization is also related to the flexibilization of
employment in the organized
sector that is suggested by the increasing use of contract labor
by employers in
order to benefit from more flexible labor practices.
Most children never go beyond primary level schooling. Children
under 14 constitute
3.6% of the totallaborforce in the country. Of these children, 9
out of every 10 work
in their own rural family settings. Around 85% of them are
engaged in traditional
agricultural activities. Less than 9% work
inmanufacturing,servicesandrepairs. Child labor is a complex
problem that is
basically rooted in poverty. The Indian government is
implementing the world's
largest child labor elimination program, with primary education
targeted for
~250 million. Numerous non-governmental and voluntary
organizations are also
involved. Special investigation cells have been set up in states
to enforce existing
laws banning employment of children (under 14) in hazardous
industries. The
allocation of the Government of India for the eradication
ofchild
laborwas US$10 million in 199596 and US$16 million in 199697.
The allocation for
2007 is US$21 million.
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Environmental degradationAbout 1.2 billion people in developing
nations lack clean, safe water because most
household and industrial wastes are dumped directly into rivers
and lakes without
treatment. This contributes to the rapid increase in waterborne
diseases in humans.
Out of India's 3119 towns and cities, just 209 have partial
treatment facilities, andonly 8 have full wastewater treatment
facilities (WHO 1992). 114 cities dump
untreatedsewageand partially cremated bodies directly into the
Ganges
River. Downstream, the untreated water is used for drinking,
bathing, and washing.
This situation is typical of many rivers in India as well as
other developing countries.
Globally, but especially in developing nations like India where
people cook
withfuelwoodand coal over open fires, about 4 billion humans
suffer continuous
exposure tosmoke. In India, particulate concentrations in houses
are reported to
range from 8,300 to 15,000 g/m3, greatly exceeding the 75 g/m3
maximum standard
for indoor particulate matter in the United States. Changes in
ecosystem biological
diversity, evolution of parasites, and invasion by exotic
species all frequently result
in disease outbreaks such ascholerawhich emerged in 1992 in
India. The frequency
of AIDS/HIV is increasing. In 1996, about 46,000 Indians out of
2.8 million (1.6 % of
the population) tested were found to be infected with HIV.
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Difference between Economic Growth & EconomicDevelopment:It
is correctly recognized that the terms economic development and
economic
growth are taken as synonym. But, Prof. Schumpeter in his book
"The Theory of
Economic Development" (1911) has made clear distinction between
economic
development and economic growth. Similarly, Ursula Hicks, Alfred
Kindleberger etc.
have also laid stress on the different meaning of these terms.
The main points of
differences between them are stated below:
(i) Single Dimensional and Multi-Dimensional:Economic growth is
single dimensional which is concerned with increase in national
and per capita income. On the contrary, economic development is
multi-dimensional.
It is concerned with both income and structural changes. In
fact, economic
development is a broad term.
(ii) Qualitative Changes:In the opinion of Prof. J.K. Mehta, the
terms development and growth are not
synonymous. 'Growth' is quantitative whereas 'development' is
qualitative.
(iii)Spontaneous and Discontinuous Changes:To quote Prof
Schumpeter, "Development is discontinuous and spontaneous
changes
in the stationary state which for ever alters and displaces the
equilibrium state
previously existing while growth is a gradual and steady change
in the long run
which comes about by general increase in rate of saving and
population." Therefore,
the term 'development' is used for spontaneous and discontinuous
changes. The
term 'growth' is used for continuous and steady changes.
(iv) Economic Development implies Economic Growth:
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Some economists used the term economic development to describe
the
determinants of economic growth, such as changes in techniques
of production, in
social attitudes and in institutions. Due to these changes the
national income
increases and is called economic growth. In this regard,
development is the
determinant of growth.
(v)Special Problems of Underdeveloped Countries:Prof. Ursula
Hicks has correctly stated, "Development should relate to
backward
countries, where there is possibility of developing and using
hitherto unused
resources. The term growth is applicable to economically
advanced countries, where
most of the resources are already known and developed."
Comparison Chart:Attributes Economic Development Economic
Growth
Concept: Normative concept Narrower concept than
economic development
Scope: Concerned with structural
changes in the economy
Growth is concerned with
increases in the economy's
output
Growth: Development relates to
growth of human capital
indexes, a decrease ininequality figures, and
structural changes that
improve the general
population's quality of life
Growth relates to a gradual
increase in one of the
components of GrossDomestic Product:
consumption, government
spending, investment, net
exports
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Attributes Economic Development Economic Growth
Implication: It implies changes in
income,saving andinvestment along with
progressive changes in socio-
economic structure of
country(institutional and
technological changes)
It refers to an increase in the
real output of goods andservices in the country like
increase the income in
savings,in investment etc.
Measurement: Qualitative.HDI (Human
Development Index), gender-
related index (GDI), Humanpoverty index (HPI), infant
mortality, literacy rate etc.
Quantitative. Increase in real
GDP. Shown by PPF.
Effect: Brings qualitative and
quantitative changes in the
economy
Brings quantitative changes in
the economy
