Topic1: Introduction
Growth vs Development Economics
Developing vs Developed Countries
Balanced Growth Models and unbalanced growth models
Economic Development
Economic development is fundamentally about enhancing a nation’s factors of productive
capacity, i.e., land, labour, capital, and technology. It is a process of improving the quality of
all human lives and capabilities by raising people’s levels of living, self-esteem and freedom.
It is concerned with the efficient allocation of existing scarce resources and with sustained
growth over time, it must also deal with the economic, social, political and institutional
mechanisms necessary to bring about rapid and large scale improvements in levels of living
for people. It can be defined in terms of the reduction or elimination of poverty, inequality
and unemployment within the context of a growing economy.
Development Economics is the study of how economies are transformed from stagnation to
growth and from low income to high income status and overcome the problems of absolute
poverty. In less developed countries, commodity and resource markets are highly imperfect,
consumers. Producers and consumers have limited information.
The public sector generally seeks to increase incomes, the number of jobs, and the
productivity of resources in regions, states, counties, cities, towns, and neighbourhoods. Its
tools and strategies have often been effective in enhancing a community's:
*labour force (workforce preparation, accessibility, cost)
*infrastructure (accessibility, capacity, and service of basic utilities, as well as transportation
and telecommunications)
*business and community facilities (access, capacity, and service to business incubators,
industrial/technology/science parks, schools/community colleges/universities, sports/tourist
facilities)
*environment (physical, psychological, cultural, and entrepreneurial)
*economic structure (composition)
*Institutional capacity (leadership, knowledge, skills) to support economic development and
growth.
However, there can be trade-offs between economic development's goals of job creation and
wealth generation. Increasing productivity, for instance, may eliminate some types of jobs in
the short-run. Economic development encompasses a broad and expansive set of activities
and tools that assist communities in growth and prosperity. The best economic development
practitioners strive to bring quality jobs, new businesses and increased services (along with
numerous other benefits) to communities through innovative approaches and outcome driven
strategies.
Technology development has added a new dimension to the role of economic development
professionals. The quest for increased technology can be confusing and challenging from
many perspectives. Communities must judge to what extent they should strive to recruit and
support the technology industry, how to determine the proper role of advanced technology on
the organization’s everyday activities and design ways to help local businesses tap into
technology opportunities. Many communities have been able to incorporate technology into
both their practices and programs while others have struggled to understand the capabilities
of this industry. As the information age and technology sector maintain steady growth, the
need for more advanced economic development activity is expanding as well. Technology
development encompasses increased infrastructure capabilities, advanced financing options,
innovative marketing processes and start-up business assistance.
Economic Development vs. Economic Growth
Development is a qualitative change, which entails changes in the structure of the
economy, including innovations in institutions, behaviour, and technology.
Growth is a quantitative change in the scale of the economy - in terms of investment,
output, consumption, and income.
According to this view, economic development and economic growth are not necessarily the
same thing. First, development is both a prerequisite to and a result of growth. Development,
moreover, is prior to growth in the sense that growth cannot continue long without the sort of
innovations and some structural changes. But growth, in turn, will drive new changes in the
economy, causing new products and firms to be created as well as countless small
incremental innovations. Together, these advances allow an economy to increase its
productivity, thereby enabling the production of more outputs with fewer inputs over the long
haul. Environmental critics and sustainable development advocates, furthermore, often point
out that development does not have to imply some types of growth. An economy, for
instance, can be developing, but not growing by certain indicators. Indeed, the measure of
productivity should not be solely monetary; it should also address the issues like how
effectively scarce natural resources are being used? How well pollution is being reduced or
prevented?
Objectives of development
1. To increase the availability and widen the distribution of basic sustaining goods such
as food, shelter, health, protection.
2. To raise levels of living including, in addition to higher incomes, the provision of
more jobs, better education and greater attention to cultural and human values, all of
which will serve not only why to enhance material well-being but also to generate
individual and national self-esteem.
3. To expand the range of economic and social choices available to individuals and
nations by freeing them from servitude and dependence not only in relation to other
people and nations but also to the forces of ignorance and human misery.
Characteristics of Developing Economies
A developing country is one with real per capita income that is low relative to that in
industrialised countries like US, Japan and those in Western Europe. Developing countries
typically have population with poor health, low levels of literacy, inadequate dwellings, and
meagre diets. Life expectancy is low and there is a low level of investment in human capital.
1. Deficiency of capital: One indication of the capital deficiency is the low amount of capital
per head of population. Shortage of capital is reflected in the very low capital-labour ratio.
Not only is the capital stock extremely small, but the current rate of capital formation is also
very low, which is due to low inducement to invest and to the low propensity to save. Thus
low level of per capita income limits the market size.
2. Excessive dependence on agriculture: Most of the less-developed countries are agrarians.
In Pakistan, most of the people are engaged in agriculture. Whereas in developed countries
15% of the population is engaged in agriculture. The excessive dependence on agriculture in
less developed countries is due to the fact that non-agricultural occupations have not grown in
proportion with the growth in population. Hence, the surplus labour is to be absorbed in
agriculture.
3. Inequalities in the distribution of income and wealth: In under-developed countries, there is
a concentration of income in a few hands. In other terms, the income is insufficient to meet
the requirements of the whole economy. Such income is diverted to non-productive
investments such as jewellery and real-estates, and unproductive social expenditure.
4. Dualistic economy: Dualistic economy refers to the existence of two extreme classes in an
economy, particularly less-developed economy. There are old and new production methods,
educated and illiterate population, rich and poor, modern and backward, capitalists and
socialists, donkey carts and motor cars existing side by side. This situation creates an
atmosphere of great conflict and contradiction, and hampers the economic development in the
long-run.
5. Lack of dynamic entrepreneurial abilities and highly skilled labour
6. Inadequate infrastructure: like airports, rail roads, highways, overheads, bridges,
telecommunication facilities, sewerage and drainage, power generation, hospitals, etc.
7. Rapid population growth and disguised unemployment
8. Under-utilisation of natural resources
9. Poor consumption pattern: In less-developed countries, most of the people’s income is
spent on basic necessities of life. They are too poor to spend on other industrial goods and
services.
10. Larger rural population but rapid rural-urban migration
11. Lingering colonial impacts
Approaches to Economic Development
The following approaches are developed in recent years to explain the economic development
and answer the question how countries break out of the vicious cycle of poverty to virtuous
circle of economic development:
1. The Take-off Approach: Take-off is one of the stages of economic growth. Different
economies have been benefited from ‘take-off’ approach in different periods, including
England at the beginning of eighteenth century, the United States at the mid of nineteenth
century, and Japan in early twentieth century. The take-off is impelled by leading sectors
such as a rapid growing export market or an industry displaying large economies of scale.
Once these leading sectors begin to flourish, a process of self-sustained growth (i.e. take-off)
occurs. Growth leads to profits, profit are reinvested, capital, productivity and per capita
income spur ahead. The virtuous cycle of economic development is under way.
2. The Backwardness Hypothesis and Convergence: The second approach emphasises the
global context of economic development. Poor countries have important advantages that the
pioneers of industrialisation had not. Developing nations can draw upon the capital, skills and
technologies of advanced countries. Developing countries can buy modern textile machinery,
efficient pumps, miracle seeds, chemical fertilisers and medical supplies. Because they can
lean on the technologies of advanced countries. Today’s developing nations can grow more
rapidly than Great Britain, Western European Countries and United States in past. By
drawing upon more productive technologies of the leaders, the developing countries would
expect to see convergence towards the technological frontier.
3. Balanced Growth: Some writers suggest that growth is a balanced process with countries
progressing steadily ahead. In their view, economic development resembles the tortoise
making continual progress, rather than the hare, who runs in spurts and then rats when
exhausted. Simon Kuznets examined the history of thirteen advanced countries and conceived
that the balanced growth model is most consistent with the countries he studied. He noticed
no significant rise or fall in economic growth as development progressed.
Note one further important difference between these approaches. The ‘take-off’ theory
suggests that there will be increasing divergence among countries (some flying rapidly, while
others are unable to leave the ground). The ‘backward’ hypothesis suggests ‘convergence’,
while the ‘balanced-growth’ model suggests roughly ‘constant’ differentials.
Strategies of Economic Development
Following are the strategies commonly applied in economic planning:
1. Balanced vs. Unbalanced Growth: there are two major schools of thoughts regarding the
process of growth, i.e., balanced growth strategy and unbalanced growth strategy:
(a) Balanced Growth Strategy: Economists like Ragnar Nurkse and Rosenstsein-Rodan
strongly advocate balanced growth strategy. According to them, the pattern of investment
should be so designed as to ensure a balanced development of the various sectors of the
economy. They advocate simultaneous investment in a number of industries so that there is a
balanced growth of different industries.
(b) Unbalanced Growth Strategy: Economists like H.W. Singer and A.O. Hirschman, on the
other side, believe that rapid economic growth follows ‘concentration’ of investment in
certain strategic industries rather than an even distribution of investment among the various
industries. In the view of these economists, unbalanced growth is more conducive in
economic development than a balanced one.
2. Big-Push Strategy: The big-push strategy is associated with the name of Rosenstein-Roden
and Harvey Leibenstein. It is contended that a big-push is needed to overcome the initial
inertia of a stranger economy. Rosenstein-Roden observes that there is a minimum level of
resources that must be devoted to a development programme if it is to have any chance of
success. Launching a country into self-sustaining growth is like getting an airplane off the
ground. There is critical ground speed which must be passed before the craft can become
airborne.
3. Balanced, Unbalanced and Big-Push (BUB) Strategy: The advocates of this strategy
suggest that no single strategy will take us to the goal of economic development. Not only
has the strategy to be changed from time to time as the situation may require, but it may be
necessary sometimes to strike a balance between the alternative strategies. In the initial stage,
which is characterised by unbalances, counter-unbalance strategy is to be adopted. But once
an appropriate balance is attained by a fair dose of big-push, the strategy of balanced growth
may be applied to further planning.
