Economic Development and Regeneration

Learning outcomesBy studying this section students will be able

to:define and explain economic growthreview critically the concept of economic growthunderstand the determinants of economic

growthevaluate appropriate growth strategies for

developed and developing countriesevaluate the role of the sector in regeneration

strategiesevaluate the contribution of the sector to growth

Meaning and measurement of economic growth

Economic growth is defined as the increase in real output per capita of a country.

The most commonly used measures of output are GDP and GNP.

Problems of measurementFirst there are the problems associated with

collecting national income data.Second some apparent changes in growth may

in fact stem from currency movements against the dollar.

Third, over a period of time the labour force may work fewer hours in a week.

Fourth, GNP per capita figures are an average. They may disguise the fact that there are large differences in incomes of the population.

Finally, economic activity which contributes to GNP has some unwanted side-effects in the form of pollution.

The causes of economic growth

Land UtilizationLabour

It is the quality of the labour force that is important in increasing productivity

CapitalInvestment in new plant, machines and other

capital enables labour productivity and GNP to rise.

TechnologyImproved technology can increase growth by

reducing production costs and creating new products for the market.

Beijing, China, 1990

Lack of capital combined with large population means that labour force has low productivity

Promoting growthInterventionists believe the government should

play a key role in funding appropriate education and training, R&D and investing in projects and infrastructure.

Free marketeers advocate market liberalization and ‘supply side’ policies, e.g:reducing government expenditure to release resources

for the private sectorreducing taxes to increase incentivesreducing trade union power to encourage flexible labour

marketsreducing welfare payments to encourage individual

enterpriseencouraging risk and entrepreneurship and privatisationencouraging competition through deregulation reducing red tape

Economic growth in developing countries

Stages of developmentAdvanced EconomiesCountries in TransitionDeveloping Countries

Advanced EconomiesThe term developed

country is used to describe countries that have a high level of development according to some criteria.

One such criterion is income per capita and countries with high gross domestic product (GDP) per capita being described as developed countries. Another economic criterion is industrialization.

Countries in TransitionA transition economy or transitional economy

is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization (letting market forces set prices and lowering trade barriers), macroeconomic stabilization where immediate high inflation is brought under control, and restructuring and privatization in order to create a financial sector and move from public to private ownership of resources.

These changes often may lead to increased inequality of incomes and wealth, dramatic inflation and a fall of GDP.

Countries in TransitionTransition process is usually characterized by

the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions and the promotion of private-owned enterprises, markets and independent financial institutions.

E.g. Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Cambodia, China, Croatia,

Countries in TransitionPrague, Czech

Republic in transition from communist to market economy

Considerable investment in increasing capacity at Prague airport

Importance of tourism to prosperity of Prague

Developing Countries

A developing country is a country that has low standards of democratic governments, civil service, industrialization, social programs, and/or human rights guarantees that are yet to "develop" to those met in the West or alternative goals of material progress (not necessarily a clone of those of the West).

It is often a term used to describe a nation with a low level of material well being.

Despite this definition, the levels of development may vary, with some developing countries having higher average standards of living.

Developing Countries

Developing countries are in general countries which have not achieved a significant degree of industrialization relative to their populations, and which have, in most cases a medium to low standard of living. There is a strong correlation between low income and high population growth.

The development of a country is measured with statistical indexes such as income per capita (per person) (GDP), life expectancy, the rate of literacy, et cetera.

The UN has developed the HDI, a compound indicator of the above statistics, to gauge the level of human development for countries where data is available.

Human Development IndexThe Human Development Index (HDI)

combines normalized measures of life expectancy, literacy, educational attainment, and GDP per capita for countries worldwide. It is claimed as a standard means of measuring human development—a concept that, according to the United Nations Development Program (UNDP), refers to the process of widening the options of persons, giving them greater opportunities for education, health care, income, employment, etc.

Human Development IndexThe HDI combines three basic dimensions:

Life expectancy at birth, as an index of population health and longevity

Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting).

Standard of living, as measured by the natural logarithm of gross domestic product per capita

Human Development Index

Advanced and Emerging Countries

Level of Incomes and Countries

Newly Industrialized Countries

Barriers to Growth high population growth low incomes: This leads to

low savings, leading to low investment, leading to low incomes (low rate of capital formation)

an undeveloped financial sector.

absence of welfare system: This can lead to over population where children are seen as a financial insurance for old age

low levels of training and education:

existence of a large subsistence sector: This can mean that taxation is difficult.

few resources dependence on raw material

exports employment centred on the

agricultural sector of economy

traditional (non-entrepreneurial) culture

foreign currency shortages poor terms of trade (exports

cheap, imports expensive) international debt

Main sources of investment funds

domestic savings (but these are often low because of low incomes)

government investment funded through taxes or borrowing (but governments often have a low tax base because of low incomes and subsistence economies and high foreign debt repayments

private foreign investmentoverseas aid

Strategies for development import substitution (producing goods that

are currently imported)export-led growth (producing goods and

services where a local cost or other advantage can be established) – leisure and tourism can be important elements in this strategy

population controleducation and training projectsinfrastructure projects

International Tourism: Thailand

Domestic Tourism: Thailand

RegenerationRegeneration is the term used to describe

the process of economic redevelopment generally in an area that has suffered decline because of structural changes in the economy. Urban RegenerationRural Regeneration

Urban Regeneration

Urban renewal (similar to urban regeneration in British English) is a program of land re-development in areas of moderate to high density urban land use.

The process has had a major impact on many urban landscapes, and has played an important role in the history and demographics of cities around the world, including: Beijing, China, Melbourne, Victoria; Glasgow, Scotland; Boston, Massachusetts; and San Francisco, California

Rural Regeneration

A re-development program aims to support rural areas in terms of farming, reforestation, improve employment or self-employment in the areas.

For tourism areas, such as agro-tourism, ecotourism.

Rural regenerationRural

Diversification in Finland: A farmer provides boat trips for tourists.

Thailand: Local people offers home-stay tourism for travellers.

The End