3.urban labor markets

8/8/2019 3.Urban Labor Markets

1/26

Urban labor markets and Economic Development

Urban labor markets are characterized by the spatial proximity of households and businesses, which offfirms and workers advantages that lead to more efficient markets, enhanced productivity, and greaeconomic success. Nevertheless, the nation's city, while generating a large proportion of the natiowealth, houses much of the nation's economic disadvantaged workers.

In every developed economy, cities are the center of economic activity and opportunity. They brtogether businesses, workers, and customers into close physical proximity, which offers firms and workadvantages that lead to more efficient markets, enhanced productivity, and greater economic succe

These benefits come about in several ways. Large metropolitan areas allow firms and workers to specialin activities in which they hold a comparative advantage. By being close to suppliers and customers, fircan build efficient supply networks that lower costs and enhance productivity. Also, dense, urbenvironments enhance the flow of ideas and the transfer of technology through informational networwhich create growth enhancing spillovers to firms. Workers also rely on informational networks to addtheir general knowledge, establish support groups, enhance job-related skills, and gain access to jopenings. Consequently, the physical and informational proximity of businesses and workers witmetropolitan areas yields the nation's most productive activities, spawns technological and organizatioinnovations, and launches new business ventures.

For most urban residents, economic success is determined by the jobs and income generated by lab

markets. A labor market rewards those people with the appropriate skills, energy, and ideas. Acquisitionthese qualifications results from long-run decisions to invest in education and training, to choose work ovleisure, and to be networked with people who been successful. Labor markets also provide the signals aincentives for individuals to make these decisions and to be in a position to take advantage of opportunitwhen they arise. By offering the greatest opportunity for economic success, cities attract both the natiomost talented and successful individuals and the most disadvantaged. While people of all skills aimportant to generate the economic complementarities that enhance productivity, many of the least skilpeople do not find the success they had hoped for. Therefore, cities stand as a stark dichotomy of thowho have succeeded and those who have not. They generate a large proportion of the nation's wealth also house much of the nation's poverty and homelessness. Cities have always exhibited this stcontrast between those who have achieved economic success and those who have not. The ancient Gre

philosopher Plato gave commentary to his times in observing that "there are two cities: One for the rich aone for the poor" (TheRepublic). The ability of urban labor markets to improve the quality of life forgroups of workers varies over time. In recent years, opportunities for economic advancement hadiminished. Real earnings growth has slowed to a paltry 0.9 percent during the last decade. Worse yonly those individuals with college degrees experienced improvements in real income; people with hschool degrees or less saw their real earnings decline.

The slowdown in earnings and the rise in income inequality have placed considerable stress on citieMany cities have been unable to make sufficient investments in physical and human capital required efficient markets and the easy flow of information. As the core structure of cities deteriorates and tadvantages of close proximity diminish, businesses and households have left inner cities for outlying are

This shift in location has left inner cities with fewer resources to devote to mounting social problems. Tshift has also helped to diminish the nation's capacity to spawn high-productivity, high-growth activities. Findividuals, these issues include slow wage growth, increased earnings inequality, persistent earnings gbetween whites and minorities, disparity in job opportunities and earnings between inner cities asuburbs, the spatial mismatch of jobs, and the increased isolation of many inner city residents.

For the nation, the issues are the social fallout from growing income disparities and reduced incomobility and the economy's diminished growth capacity as the physical and social infrastructure supporturban area markets deteriorates. It is appropriate for the federal government to create and carry ou


2/26

national urban policy for two reasons. First, many of the issues listed above are related to the redistributiof income, which is a traditional function of the federal government. Second, the close proximity of activitwithin metropolitan areas generates externalities that contribute more than proportionately to growth athat compound the many social problems facing cities. Therefore, to reflect the urban environment thgenerates these economic and social trends, a national urban policy must incorporate these externalitiThe policy statement should emphasize the effect of physical and informational proximity on growth, benefits of efficient urban markets, and the importance of the access of workers to urban labor markeThese characteristics distinguish a national urban policy from simply a national policy targeted at peowho happen to live in cities.

I Metropolitan Growth

The fiscal and social distress experienced by cities in recent years has been well documented. Yet, despincreased concern about urban crime, congestion, air quality, and high housing prices, metropolitan arecontinue to grow and to offer their expanding populations greater job opportunities and higher income ththe declining nonmetropolitan areas. This ability to create relatively high paying jobs attests to advantages cities offer to firms through higher labor productivity and proximity to suppliers. The economperformance of central cities and suburbs is strongly linked. Workers in both central cities and sububenefit to a large extent from the growth of the entire region. In addition, job growth was markedly better metropolitan areas with smaller disparities between central city and suburban income. The linkagbetween the two entities continue to strengthen as a greater percentage of holders of central city joreside in the suburbs.

Even with these linkages, considerable disparity exists between central cities and outlying suburbs. Tmedian income of central city residents is 40 percent lower than that of suburban residents. Also, centcity residents are less educated and have a significantly higher unemployment rate than suburbanites. Texodus from central cities and the persistent economic disparities heighten the physical and intellectbarriers between central cities and suburbs.

Central cities have also experienced a shift in industrial composition from manufacturing to service jowhich has contributed significantly to the income differential between central cities and suburbs. Tdecline in the percentage of manufacturing jobs has had a large effect on low-skilled workers. Factory jotraditionally offered low-skilled workers higher wages than they could find in other jobs. Metropolitmanufacturing employment substantially impacts the employment and earnings of young men, with a hschool education or less.

II. Slow Earnings Growth and Rising Income Dispersion

The traditional role of cities as a place to seek job opportunities and achieve income advancement hbeen eroded during the last two decades by historically low earnings growth for most groups of workeThe less skilled workers have experienced a loss in real income, and consequently a decline in their livstandards. While city dwellers on average have fared better than the national average, their earnings hafollowed the national trend of slower earnings growth. These trends stem from a complex assortment

economic, demographic, and social forces. Many of the factors are symptomatic of urban problemFocusing on the more important factors offers perspective on how a national urban policy might prioritthe host of problems facing urban labor markets.

Many economic factors are responsible for slower productivity growth, including a decline in worker sklack of adequate investment in private and public capital, and decline in innovative activities. With cittraditionally at the forefront of the nation's productivity gains, the slowdown draws attention to urbconcerns that may have contributed to this problem. Current urban problems of poor educatio


3/26

opportunities in inner cities, the movement of jobs away from the urban core, and the decline in investmin urban infrastructure may have contributed to the productivity slowdown. Urban social issues, such as lskills, lack of an adequate support structure, and lack of participation in the workforce, have also prevenmany urban workers from enjoying the benefits of productivity growth. Changes in social characteristalso contributed to the change in household income. According to one study, social characteristics hadeven greater effect than economic factors. Ryscavage, Green and Welniak (1991) show that the declinemarried couple households as a percentage of all households and the increase in educational attainmhad large offsetting effects on household income. Of seven factors considered--age, race, type household, education, work experience and head of household, work experience of spouse, and industryhousehold head--type of household and education registered the largest effects.

III. Minority Earnings Gap

One of the most troubling and persistent concerns in the performance of urban labor markets, and one ta national urban policy must address, is the earnings gap.

IV. Lack of Economic Progress

For college graduates, changed occupational composition, shifts in industry demand, and growth in relatsupply are major contributors. For high school dropouts, the reduction in the real minimum wage lowearnings, and the increase in the proportion of people with criminal records are major causes of reducemployment. The fall in employment is largely accounted for by a rise in the number of men wexperienced long spells of labor market inactivity, and not in more frequent spells. The increasing numbof working age males who are detached from the labor force has long-run economic and soconsequences. Without more frequent work experience, a growing portion of the work force loses valuajob skills, which is detrimental to the national economy in wasting valuable labor resources as well asindividuals who lose income. They also lose the job contacts necessary to retain employment or find betjob prospects. Nonparticipants in the labor market contribute to social problems. Those who unemployed and no longer actively look for employment are much less likely to marry and live withspouse than labor market participants.

V. Barriers to Economic Success

Urban workers benefit from metropolitan economic growth only if they have access to the urban lamarket. For minorities and low-skill workers, this access is impeded by physical barriers of spatial isolatand intellectual barriers of poor education and inadequate support groups and referral networks. Therefoin designing a national urban policy, efforts should also be made to increase access to the urban labmarket. The shifting industrial mix of central cities and suburbs has left some groups of workers isolafrom decent-paying jobs. The movement of manufacturing jobs to the suburbs has made it increasindifficult for many inner city residents to finds jobs close by that offer the same wages as manufacturjobs. Various types of service jobs have concentrated in central cities, but either the pay is lower or the srequirements are higher than the qualifications of many residents.

Physical distance is not the only barrier that prevents low-income inner city residents, from gaining acceto better-paying jobs. Intellectual barriers also play a major role. Intellectual barriers prevent people frparticipating in the formal and informal information networks through which people learn about opportunities, are referred to employers, and gain appropriate role models and support groups. Thebarriers stem in part from physical isolation, such as the increasing concentration of poverty. But they aresult from a growing gap in the ability of inner city residents to meet the skill requirements of tworkplace and to communicate and move comfortably within an increasingly sophisticated wenvironment. While distances may become effectively shorter because of better transportation, intellect


4/26

barriers may continue to grow as businesses demand higher skills than many inner city workers can matThe growing gap between skill requirements of the workplace and skills of inner city residents deters maworkers from participating in urban labor markets. Without appropriate skills and workplace know-howorkers are shut out of many jobs, even entry-level ones.The spatial separation of households with different income and educational levels is more pervasive thsimply between central cities and surrounding suburbs. Concentration of poverty, and thus the lossnetworks of families and friends with positive work experience, has occurred within central cities. Studhave shown that low-income households have become increasing concentrated in central neighborhoods. Unfortunately, the tremendous increase in crime in inner city neighborhoods mdiscourage the location of businesses, which reduces the number of jobs available to these residents.

VI. Policy Issues and Suggestions

An effective national urban policy must embody the unique characteristics of cities while addressing ttrends that pervade the national economy. The distinguishing features of cities include the spatial proximof businesses and households, the flow of information between these parties, and the linkages of markwithin urban areas. Consequently, government's role and the primary purpose of a national urban polshould be to design programs that promote growth, internalize externalities, improve market efficiency, astrive for a more acceptable income distribution. The slowdown in productivity growth has resulted in tmajor national issues: sluggish real income growth and widening income dispersion. These trends direcaffect the welfare of urban workers and indirectly alter the structure of metropolitan areas by promotdecentralization of businesses and households. Weakening the core structure of metropolitan areas mdiminish the economic advantages of cities. A national urban policy should address the underlyeconomic and social causes of the productivity slowdown. Increased productivity is critical to boearnings and create additional employment opportunities. Long-term growth hinges on investmentphysical and human capital. Consequently, a national urban policy should include provisions to increathe national savings rate and allocate resources to education, research and development, and a moefficient flow of technological information. Cities are the obvious place for this investment, as they offer greatest return per dollar spent. However, in doing so, redistributing growth across metropolitan arethrough favorable tax incentives or government subsidies for selected areas should be minimized.

Efficient Urban Markets

Growth policies should also focus on increasing the efficiency of urban markets. Cities provide businessaccess to skilled labor, to supplier networks, to product markets, and to information. However, access hbeen impeded by congestion, the decentralization of employment, and deficiency in skills of some workeWidening gaps between central cities and suburbs with respect to earnings, employment, and quality of have also reduced the efficiency of urban markets and has impeded overall growth. In addition, inner cresidents benefit from growth of the entire metropolitan economy, not only in the neighborhoods in whthey live. A national urban policy should include measures to narrow these disparities through promotthe establishment of regional governments, sharing tax bases, and coordinating metropolitan provisiongovernment services. Urban externalities can be internalized by reducing fragmentation of metropolitarea governments, which will enhance overall metropolitan growth. The benefits of the concentration

economic activities in the urban core as well as the costs of supporting social problems of urban areas cbe shared throughout the metropolitan area. This would reduce the fiscal incentives to leave the inner citand help revitalize these areas.

Increase Access to Urban Labor Markets

Increased economic growth benefits only those people with access to urban labor markets. A growinumber of urban residents face physical and intellectual isolation from urban opportunities. Isolat


5/26

deprives individuals of greater economic success and deprives the nation of potentially productive workeIt also breeds behavior that is burdensome to society, such as welfare dependency, the breakdownsupport networks, the decline in traditional married-couple families, and involvement in criminal activitynational urban policy must address the disadvantages faced by minorities in qualifying for and obtainjobs and the disenfranchisement of low-income urban minorities. These programs should strive to people into jobs and keep them employed. Improving the quality of education and work-related training inner city residents will help to overcome intellectual barriers. Establishing support groups and supplyappropriate role models through mentoring and employment advocacy programs will provide access to tlabor market and ensure that workers remain in the labor force. Providing more convenient and affordapublic transportation to people who must commute in directions and at times not typically served by matransit will increase access to jobs. In addition, setting up an electronic job placement system that offeinformation on job seekers and job vacancies for the greater metropolitan region would give inner cresidents access to the broader labor market. Workers benefit from on-the-job learning and frestablishing a network and support system of economically successful people, which offer opportunities future advancement. Programs, such as wage supplements and public service employment, have provsuccessful in getting disadvantaged workers into the workplace and on their way to more actinvolvement in the labor force.

Economic Growth

Economic growth is the increase of per capita gross domestic product (GDP) or other measureaggregate income. It is often measured as the rate of change in real GDP. Economic growth refers onlythe quantity of goods and services produced.

Economic growth can be either positive or negative. Negative growth can be referred to by saying that teconomy is shrinking. Negative growth is associated with economic recession and economic depression

In order to compare per capita income across multiple countries, the statistics may be quoted in a sincurrency, based on either prevailing exchange rates or purchasing power parity. To compensate changes in the value of money (inflation or deflation) the GDP or GNP is usually given in "real" or inflatadjusted, terms rather than the actual money figure compiled in a given year, which is called the nominacurrent figure.

Economists draw a distinction between short-term economic stabilization and long-term economic growThe topic of economic growth is primarily concerned with the long run. The short-run variation of economgrowth is termed the business cycle.

The long-run path of economic growth is one of the central questions of economics; despite somproblems of measurement, an increase in GDP of a country is generally taken as an increase in tstandard of living of its inhabitants. Over long periods of time, even small rates of annual growth can halarge effects through compounding (see exponential growth). A growth rate of 2.5% per annum will leada doubling of GDP within 29 years, whilst a growth rate of 8% per annum (experienced by some FoAsian Tigers) will lead to a doubling of GDP within 10 years. This exponential characteristic can exacerbdifferences across nations.

In 1377, the Arabian economic thinker Ibn Khaldun provided one of the earliest descriptions of economgrowth in his Muqaddimah (known as Prolegomena in the Western world):

"When civilization [population] increases, the available labor again increases. In turn, luxury agincreases in correspondence with the increasing profit, and the customs and needs of luxury increaCrafts are created to obtain luxury products. The value realized from them increases, and, as a res
http://en.wikipedia.org/wiki/Muqaddimahhttp://en.wikipedia.org/wiki/Muqaddimah


6/26

profits are again multiplied in the town. Production there is thriving even more than before. And so it gowith the second and third increase. All the additional labor serves luxury and wealth, in contrast to toriginal labor that served the necessity of life."

In the early modern period, some people in Western European nations developed the idea that economcould "grow", that is, produce a greater economic surplus which could be expended on something oththan mere subsistence. This surplus could then be used for consumption, warfare, or civic and religioprojects. The previous view was that only increasing either population or tax rates could generate mosurplus money for the Crown or country.

Later it was theorized that economic growth also corresponds to a process of continual rapid replacemeand reorganization of human activities facilitated by investment motivated to maximize returns. Texponential evolution of our self-organized life-support and cultural systems is remarkably creative aflexible, but highly unpredictable in many ways. As there are difficulties in modelling complex sorganizing systems, various efforts to model the long term evolution of economies have produced mixresults.

During much of the "Mercantilist" period, growth was seen as involving an increase in the total amounspecie, which is circulating medium such as silver and gold, under the control of the state. This "Bulliontheory led to policies to force trade through a particular state, the acquisition of colonies to supply cheapraw materials which could then be manufactured and sold.

Later, such trade policies were justified instead simply in terms of promoting domestic trade and indusThe post-Bullionist insight that it was the increasing capability of manufacturing which led to policies in t18th century to encourage manufacturing in itself, and the formula of importing raw materials and exportfinished goods. Under this system high tariffs were erected to allow manufacturers to establish "factorieLocal markets would then pay the fixed costs of capital growth, and then allow them to export abroundercutting the prices of manufactured goods elsewhere. Once competition from abroad was removprices could then be increased to recoup the costs of establishing the business.

Under this theory of growth, one policy attempted to foster growth was to grant monopolies, which wogive an incentive for an individual to exploit a market or resource, confident that he would make all of tprofits when all other extra-national competitors were driven out of business. The "Dutch East Incompany" and the "British East India company" were examples of such state-granted trade monopolies.

In this period the view was that growth was gained through "advantageous" trade in which specie woflow in to the country, but to trade with other nations on equal terms was disadvantageous. It should stressed that Mercantilism was not simply a matter of restricting trade. Within a country, it often mebreaking down trade barriers, building new roads, and abolishing local toll booths, all of which expandmarkets. This corresponded to the centralization of power in the hands of the Crown (or "Absolutism"). Tprocess helped produce the modern nation-state in Western Europe.

Internationally, Mercantilism led to a contradiction: growth was gained through trade, but to trade with otnations on equal terms was disadvantageous.

Classical growth theory

The modern conception of economic growth began with the critique of Mercantilism, especially by tphysiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith, and foundation of the discipline of modern political economy. The theory of the physiocrats was that productcapacity, itself, allowed for growth, and the improving and increasing capital to allow that capacity was "t
http://en.wikipedia.org/wiki/Bullionismhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/British_East_India_Companyhttp://en.wikipedia.org/wiki/Monopolyhttp://en.wikipedia.org/wiki/Physiocratshttp://en.wikipedia.org/wiki/Scottish_Enlightenmenthttp://en.wikipedia.org/wiki/David_Humehttp://en.wikipedia.org/wiki/Adam_Smithhttp://en.wikipedia.org/wiki/Political_economyhttp://en.wikipedia.org/wiki/Political_economyhttp://en.wikipedia.org/wiki/Bullionismhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/British_East_India_Companyhttp://en.wikipedia.org/wiki/Monopolyhttp://en.wikipedia.org/wiki/Physiocratshttp://en.wikipedia.org/wiki/Scottish_Enlightenmenthttp://en.wikipedia.org/wiki/David_Humehttp://en.wikipedia.org/wiki/Adam_Smithhttp://en.wikipedia.org/wiki/Political_economy


7/26

wealth of nations". Whereas they stressed the importance of agriculture and saw urban industry "sterile", Smith extended the notion that manufacturing was central to the entire economy.

David Ricardo argued that trade was a benefit to a country, because if one could buy a good more cheafrom abroad, it meant that there was more profitable work to be done here. This theory of " comparatadvantage" would be the central basis for arguments in favor of free trade as an essential componengrowth.

Creative destruction and economic growth

Many economists viewentrepreneurship as having a major influence on a society's rate of technologiprogress and thus economic growth.[5]Joseph Schumpeterwas a key figure in understanding the influenof entrepreneurs on technological progress.[5] In Schumpeter's Capitalism, Socialism and Democrapublished in 1942, an entrepreneur is a person who is willing and able to convert a new idea or inventinto a successful innovation. Entrepreneurship forces "creative destruction" across markets and industrisimultaneously creating new products and business models. In this way, creative destruction is largresponsible for the dynamism of industries and long-run economic growth. Former Federal Resechairman Alan Greenspan has described the influence of creative destruction on economic growth follows: "Capitalism expands wealth primarily through creative destructionthe process by which the caflow from obsolescent, low-return capital is invested in high-return, cutting-edge technologies."

The neo-classical growth model

The notion of growth as increased stocks of capital goods (means of production) was codified as Solow-Swan Growth Model, which involved a series of equations which showed the relationship betwelabor-time, capital goods, output, and investment. According to this view, the role of technological chanbecame crucial, even more important than the accumulation of capital. This model, developed by RobSolow[7] and Trevor Swan[8] in the 1950s, was the first attempt to model long-run growth analytically. Tmodel assumes that countries use their resources efficiently and that there are diminishing returnscapital and labor increases. From these two premises, the neoclassical model makes three importpredictions. First, increasing capital relative to labor creates economic growth, since people can be moproductive given more capital. Second, poor countries with less capital per person will grow faster becaueach investment in capital will produce a higher return than rich countries with ample capital. Thibecause of diminishing returns to capital, economies will eventually reach a point at which no new increain capital will create economic growth. This point is called a "steady state".

The model also notes that countries can overcome this steady state and continue growing by inventnew technology. In the long run, output per capita depends on the rate of saving, but the rate of outpgrowth should be equal for any saving rate. In this model, the process by which countries continue growdespite the diminishing returns is "exogenous" and represents the creation of new technology that alloproduction with fewer resources. Technology improves, the steady state level of capital increases, and country invests and grows. The data does not support some of this model's predictions, in particular, tall countries grow at the same rate in the long run, or that poorer countries should grow faster until threach their steady state. Also, the data suggests the world has slowly increased its rate of growth.

However modern economic research shows that the baseline version of the neoclassical modeleconomic growth is not supported by the evidence. Calculations made by Solow claimed that the majorof economic growth was due to technological progress rather than inputs of capital and labour. Receeconomic research has, however, found the calculations made to support this claim to be invalid as they not take into account changes in both investment and labour inputs. Dale Jorgenson, of Harvard UniversPresident of the American Economic Association in 2000, concludes that: Griliches and I showed th
http://en.wikipedia.org/wiki/David_Ricardohttp://en.wikipedia.org/wiki/Comparative_advantagehttp://en.wikipedia.org/wiki/Comparative_advantagehttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Entrepreneurshiphttp://en.wikipedia.org/wiki/Entrepreneurshiphttp://en.wikipedia.org/wiki/Economic_growth#cite_note-Britannica_Growth-4http://en.wikipedia.org/wiki/Joseph_Schumpeterhttp://en.wikipedia.org/wiki/Entrepreneurhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-Britannica_Growth-4http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracyhttp://en.wikipedia.org/wiki/Inventionhttp://en.wikipedia.org/wiki/Innovationhttp://en.wikipedia.org/wiki/Creative_destructionhttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Alan_Greenspanhttp://en.wikipedia.org/wiki/Means_of_productionhttp://en.wikipedia.org/wiki/Exogenous_growth_modelhttp://en.wikipedia.org/wiki/Technological_changehttp://en.wikipedia.org/wiki/Capital_accumulationhttp://en.wikipedia.org/wiki/Robert_Solowhttp://en.wikipedia.org/wiki/Robert_Solowhttp://en.wikipedia.org/wiki/Robert_Solowhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-6http://en.wikipedia.org/wiki/Robert_Solowhttp://en.wikipedia.org/wiki/Trevor_Swanhttp://en.wikipedia.org/wiki/Trevor_Swanhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-7http://en.wikipedia.org/wiki/Economic_growth#cite_note-7http://en.wikipedia.org/wiki/Efficiency_(economics)http://en.wikipedia.org/wiki/Diminishing_returnshttp://en.wikipedia.org/wiki/Steady_state_economyhttp://en.wikipedia.org/wiki/David_Ricardohttp://en.wikipedia.org/wiki/Comparative_advantagehttp://en.wikipedia.org/wiki/Comparative_advantagehttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Entrepreneurshiphttp://en.wikipedia.org/wiki/Economic_growth#cite_note-Britannica_Growth-4http://en.wikipedia.org/wiki/Joseph_Schumpeterhttp://en.wikipedia.org/wiki/Entrepreneurhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-Britannica_Growth-4http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracyhttp://en.wikipedia.org/wiki/Inventionhttp://en.wikipedia.org/wiki/Innovationhttp://en.wikipedia.org/wiki/Creative_destructionhttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Alan_Greenspanhttp://en.wikipedia.org/wiki/Means_of_productionhttp://en.wikipedia.org/wiki/Exogenous_growth_modelhttp://en.wikipedia.org/wiki/Technological_changehttp://en.wikipedia.org/wiki/Capital_accumulationhttp://en.wikipedia.org/wiki/Robert_Solowhttp://en.wikipedia.org/wiki/Robert_Solowhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-6http://en.wikipedia.org/wiki/Trevor_Swanhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-7http://en.wikipedia.org/wiki/Efficiency_(economics)http://en.wikipedia.org/wiki/Diminishing_returnshttp://en.wikipedia.org/wiki/Steady_state_economy


8/26

changes in the quality of capital and labor inputs and the quality of investment goods explained most of tSolow residual. We estimated that capital and labor inputs accounted for 85 percent of growth during period 19451965, while only 15 percent could be attributed to productivity growth This has precipitatthe sudden obsolescence of earlier productivity research employing the conventions of Kuznets aSolow.

Taking the G7 economies and the largest non-G7 economies, Jorgenson and Vu conclude: the growthworld output between input growth and productivity input growth greatly predominated Productivgrowth accounted for only one-fifth of the total during 1989-1995, while input growth accounted for almfour-fifths. Similarly, input growth accounted for more than 70 percent of growth after 1995, whproductivity accounted for less than 30 percent.

Regarding differences in output per capita Jorgenson and Vu conclude: differences in per capita outlevels are primarily explained by differences in per capital input, rather than variations in productivity.

Development economics

The latter half of the 20th century, with its global economy of a few very wealthy nations and many vepoor nations, led to the study of how the transition from subsistence and resource-based economiesproduction and consumption based-economies occurred. This led to the field of development economincluding the work ofNobel laureatesAmartya Sen and Joseph Stiglitz. However this model of econodevelopment does not meet the demands of subaltern populations and has been severely criticized by latheorists.

New growth theory

Growth theory advanced again with the theories of economist Paul Romer in the late 1980s and ea1990s. Other important new growth theorists include Robert E. Lucas and Robert J. Barro.

Unsatisfied with Solow's explanation, economists worked to "endogenize" technology in the 1980s. Thdeveloped the endogenous growth theory that includes a mathematical explanation of technologadvancement. This model also incorporated a new concept ofhuman capital, the skills and knowledge tmake workers productive. Unlike physical capital, human capital has increasing rates of return. Therefooverall there are constant returns to capital, and economies never reach a steady state. Growth does slow as capital accumulates, but the rate of growth depends on the types of capital a country invests Research done in this area has focused on what increases human capital (e.g. education) or technologchange (e.g. innovation).

Recent empirical analyses suggest that differences in cognitive abilities, related to schooling and othfactors, can largely explain variations in growth rates across countries. Cognitive abilities comprintelligence and knowledge and are more important than education itself. Cognitive abilities are morelevant than the classical growth factor "economic freedom". In comparison of low, mean and high abigroups within societies the competence level of the high ability group is the most important, stimulatthrough research and innovation economic growth and other favorable aspects of countries democracy.

Other theories

Theories of economic growth, the mechanisms that let it take place and its main determinants abound. Opopular theory in the 1970s for example was that of the "Big Push" which suggested that countries needto jump from one stage of development to another through a virtuous cycle in which large investments
http://en.wikipedia.org/wiki/Development_economicshttp://en.wikipedia.org/wiki/Nobel_laureateshttp://en.wikipedia.org/wiki/Amartya_Senhttp://en.wikipedia.org/wiki/Joseph_Stiglitzhttp://en.wikipedia.org/wiki/Joseph_Stiglitzhttp://en.wikipedia.org/wiki/Paul_Romerhttp://en.wikipedia.org/wiki/Robert_Lucas,_Jr.http://en.wikipedia.org/wiki/Robert_Barrohttp://en.wikipedia.org/wiki/Endogenous_growth_theoryhttp://en.wikipedia.org/wiki/Human_capitalhttp://en.wikipedia.org/wiki/Physical_capitalhttp://en.wikipedia.org/wiki/Steady_state_economyhttp://en.wikipedia.org/wiki/Human_capitalhttp://en.wikipedia.org/wiki/Educationhttp://en.wikipedia.org/wiki/Innovationhttp://en.wikipedia.org/wiki/Intelligencehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Democracyhttp://en.wikipedia.org/wiki/1970shttp://en.wikipedia.org/wiki/Big_Push_Modelhttp://en.wikipedia.org/wiki/Development_economicshttp://en.wikipedia.org/wiki/Nobel_laureateshttp://en.wikipedia.org/wiki/Amartya_Senhttp://en.wikipedia.org/wiki/Joseph_Stiglitzhttp://en.wikipedia.org/wiki/Paul_Romerhttp://en.wikipedia.org/wiki/Robert_Lucas,_Jr.http://en.wikipedia.org/wiki/Robert_Barrohttp://en.wikipedia.org/wiki/Endogenous_growth_theoryhttp://en.wikipedia.org/wiki/Human_capitalhttp://en.wikipedia.org/wiki/Physical_capitalhttp://en.wikipedia.org/wiki/Steady_state_economyhttp://en.wikipedia.org/wiki/Human_capitalhttp://en.wikipedia.org/wiki/Educationhttp://en.wikipedia.org/wiki/Innovationhttp://en.wikipedia.org/wiki/Intelligencehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Democracyhttp://en.wikipedia.org/wiki/1970shttp://en.wikipedia.org/wiki/Big_Push_Model


9/26

infrastructure and education coupled to private investment would move the economy to a more productstage, breaking free from economic paradigms appropriate to a lower productivity stage.[16]

Analysis of recent economies' success shows a close correlation between growth and climate. It is possithat there is absolutely no actual mechanism between the two, and the relation may be spurious. In eahuman history, economic as well as cultural development was concentrated in warmer parts of the wolike Egypt.

According to Acemolu, Johnson and Robinson, the positive correlation between high income and cclimate is a by-product of history. Europeans adopted very different colonization policies in differecolonies, with different associated institutions. In places where these colonizers faced high mortality ra(e.g., due to the presence of tropical diseases), they could not settle permanently, and they were thus molikely to establish extractive institutions, which persisted after independence; in places where they cosettle permanently (e.g., those with temperate climates), they established institutions with this objectivemind and modeled them after those in their European homelands. In these 'neo-Europes' better institutioin turn produced better development outcomes. Thus, although other economists focus on the identitytype of legal system of the colonizers to explain institutions, these authors look at the environmenconditions in the colonies to explain institutions. For instance, former colonies have inherited corrgovernments and geo-political boundaries (set by the colonizers) that are not properly placed regarding tgeographical locations of different ethnic groups, creating internal disputes and conflicts which in tuhinder development. In another example, societies that emerged in colonies without solid natpopulations established better property rights and incentives for long-term investment than those whenative populations were large.

Substantial academic literature and government strategies support the finance-led growth hypothesbased on an observation first made almost a century ago by Joseph Schumpeter that financial markesignificantly boost real economic growth and development. Schumpeter asserted that finance hadpositive impact on economic growth as a result of its effects on productivity growth and technologichange. (Schumpeter, Joseph A. The theory of Economic Development, 1912, translated by RedvOpie. Cambridge. MA: Harvard University Press, 1934). As early as 1989 the World Bank also endorsthe view that financial deepening matters for economic growth by improving the productivity of investme(World Bank, World Development Report, Washington DC, 1989, 9. 30). A number of case studies on Aand Southern African countries show the positive nexus between development of financial intermediatand economic growth.

Positive effects of economic growth

Income distribution

Economist Xavier Sala-i-Martin argues that global income inequality is diminishing, and the World Baargues that the rapid reduction in global poverty is in large part due to economic growth. The declinepoverty has been the slowest where growth performance has been the worst (i.e. in Africa).

Quality of life

Happiness has been shown to increase with a higher GDP per capita, at least up to a level of $15,000 pperson.

Resource depletion
http://en.wikipedia.org/wiki/Economic_growth#cite_note-15http://en.wikipedia.org/wiki/Spurious_relationshiphttp://en.wikipedia.org/wiki/Daron_Acemo%C3%84%C5%B8luhttp://en.wikipedia.org/wiki/Simon_Johnson_(economist)http://en.wikipedia.org/w/index.php?title=James_Robinson_(economist)&action=edit&redlink=1http://en.wikipedia.org/wiki/Xavier_Sala-i-Martinhttp://en.wikipedia.org/wiki/Xavier_Sala-i-Martinhttp://en.wikipedia.org/wiki/Income_inequalityhttp://en.wikipedia.org/wiki/Kuznets_curvehttp://en.wikipedia.org/wiki/World_Bankhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-15http://en.wikipedia.org/wiki/Spurious_relationshiphttp://en.wikipedia.org/wiki/Daron_Acemo%C3%84%C5%B8luhttp://en.wikipedia.org/wiki/Simon_Johnson_(economist)http://en.wikipedia.org/w/index.php?title=James_Robinson_(economist)&action=edit&redlink=1http://en.wikipedia.org/wiki/Xavier_Sala-i-Martinhttp://en.wikipedia.org/wiki/Income_inequalityhttp://en.wikipedia.org/wiki/Kuznets_curvehttp://en.wikipedia.org/wiki/World_Bank


10/26

Many earlier predictions of resource depletion, such as Thomas Malthus' 1798 predictions abapproaching famines in Europe, The Population Bomb (1968), Limits to Growth (1972), and the SimoEhrlich wager(1980) have proven false, one reason being that advancements in technology and scienhave continually allowed previously unavailable resources to be utilized more economically.

Economists theorize that economies are driven by new technology and ongoing improvementsefficiency. In the book The Economic Growth Engine: How useful work creates material prosperity, 20Robert U. Ayres and Benjamin Warr present time series of the efficiency of primary energy (exergconversion into useful work for the US, UK, Austria and Japan revealing dramatic improvements Ayres aWarr, 2009. With useful work as a factor of production they are able to reproduce historical rateseconomic growth with considerable precision and without recourse to exogenous and unexplaintechnological progress, thereby overcoming the major flaw of the Solow Theory of economic growth. Wregards ICT, we have faster computers today than a year ago, but not necessarily computers requirmore natural resources to build.

Also, physical limits may be very large if considering all the minerals in the planet Earth or all possibresources from space colonization, such as solar power satellites,asteroid mining, or a Dyson sphere. Tbook Mining the Sky: Untold Riches from the Asteroids, Comets, and Planets provides an alternatexample of such arguments. However, depletion and declining production from old resources csometimes occur before new resources are ready to replace them. This is, in part, the logical basis of tPeak Oil theory. Although individual oil wells and mines for other nonrenewable resources are oftdepleted, the availability of these resources has generally risen and their prices have dropped over tlong-run.

Environmental impact

Those more optimistic about the environmental impacts of growth believe that, although localizenvironmental effects may occur, large scale ecological effects are minor. The argument as stated commentators Julian Lincoln Simon states that if these global-scale ecological effects exist, humingenuity will find ways of adapting to them.

Negative effects of economic growth

A number of critical arguments have been raised against economic growth.

Growth 'to a point'

It may be that economic growth improves the quality of life up to a point, after which it doesn't improve tquality of life, but rather obstructs sustainable living. Historically, sustained growth has reached its lim(and turned to catastrophic decline) when perturbations to the environmental system last long enoughdestabilise the bases of a culture.

Consumerism

Growth may lead to consumerism by encouraging the creation of what some regard as artificial neeIndustries cause consumers to develop new taste, and preferences for growth to occur. Consequen"wants are created, and consumers have become the servants, instead of the masters, of the economy."

Environmental impact
http://en.wikipedia.org/wiki/Thomas_Malthushttp://en.wikipedia.org/wiki/Thomas_Malthushttp://en.wikipedia.org/wiki/The_Population_Bombhttp://en.wikipedia.org/wiki/Limits_to_Growthhttp://en.wikipedia.org/wiki/Simon%C3%A2%E2%82%AChttp://en.wikipedia.org/wiki/Simon%C3%A2%E2%82%AChttp://en.wikipedia.org/wiki/Simon%C3%A2%E2%82%AChttp://en.wikipedia.org/w/index.php?title=Ayres_and_Warr,_2009&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ayres_and_Warr,_2009&action=edit&redlink=1http://en.wikipedia.org/wiki/Space_colonizationhttp://en.wikipedia.org/wiki/Solar_power_satellitehttp://en.wikipedia.org/wiki/Asteroid_mininghttp://en.wikipedia.org/wiki/Asteroid_mininghttp://en.wikipedia.org/wiki/Asteroid_mininghttp://en.wikipedia.org/wiki/Dyson_spherehttp://en.wikipedia.org/wiki/Mining_the_Sky:_Untold_Riches_from_the_Asteroids,_Comets,_and_Planetshttp://en.wikipedia.org/wiki/Mining_the_Sky:_Untold_Riches_from_the_Asteroids,_Comets,_and_Planetshttp://en.wikipedia.org/wiki/Peak_Oilhttp://en.wikipedia.org/wiki/Consumerismhttp://en.wikipedia.org/wiki/Thomas_Malthushttp://en.wikipedia.org/wiki/The_Population_Bombhttp://en.wikipedia.org/wiki/Limits_to_Growthhttp://en.wikipedia.org/wiki/Simon%C3%A2%E2%82%AChttp://en.wikipedia.org/wiki/Simon%C3%A2%E2%82%AChttp://en.wikipedia.org/w/index.php?title=Ayres_and_Warr,_2009&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Ayres_and_Warr,_2009&action=edit&redlink=1http://en.wikipedia.org/wiki/Space_colonizationhttp://en.wikipedia.org/wiki/Solar_power_satellitehttp://en.wikipedia.org/wiki/Asteroid_mininghttp://en.wikipedia.org/wiki/Dyson_spherehttp://en.wikipedia.org/wiki/Mining_the_Sky:_Untold_Riches_from_the_Asteroids,_Comets,_and_Planetshttp://en.wikipedia.org/wiki/Peak_Oilhttp://en.wikipedia.org/wiki/Consumerism


11/26

The 2007 United Nations GEO-4 report states that humans are living beyond their means. Humanitenvironmental demand is purported to be 21.9 hectares per person while the Earths biological capacitypurported to be 15.7 ha/person. This report reinstates the basic arguments and observations made Thomas Malthus in the early 19th century. Economic inequality has increased; the gap between poorest and richest countries in the world has been growing.

Some critics argue that a narrow view of economic growth, combined with globalization, is creatingscenario where we could see a systemic collapse of our planet's natural resources. Other critics draw archaeology to cite examples of cultures they claim have disappeared because they grew beyond tability of their ecosystems to support them.[34] Concerns about possible negative effects of growth on environment and society led some to advocate lower levels of growth, from which comes the ideasuneconomic growth and de-growth, and Green parties which argue that economies are part of a glosociety and a global ecology and cannot outstrip their natural growth without damaging them.

Canadian scientist, David Suzuki stated in the 1990s that ecologies can only sustain typically about 1.5-3new growth per year, and thus any requirement for greater returns from agriculture or forestrynecessarily cannibalize the natural capital ofsoilorforest. Some think this argument can be applied evto more developed economies.

Equitable growth

While acknowledging the central role economic growth can potentially play in human development, povereduction and the achievement of the Millennium Development Goals, it is becoming widely understoamongst the development community that special efforts must be made to ensure poorer sectionssociety are able to participate in economic growth. For instance, with low inequality a country with a growrate of 2% per head and 40% of its population living in poverty, can halve poverty in ten years, bucountry with high inequality would take nearly 60 years to achieve the same reduction. [36] In the wordstheSecretary General of the United Nations Ban Ki-Moon:

"While economic growth is necessary, it is not sufficient for progress on reducing poverty."

Researchers at the Overseas Development Institute compares situations such as in Uganda, where dura period of annual growth of 2.5% between 2000 and 2003, the percentage of people living in poveactually increased by 3.8%. The ODI thus emphasizes the need to ensure social protection is extendedallow universal access and that policies are introduced to encourage the private sector to create new joas the economy grows (as opposed to jobless growth) and seek to employ people from disadvantaggroups.

Implications of global warming

Up to the present there are close correlations of economic growth with carbon dioxide emissions acronations, although there is also a considerable divergence in carbon intensity (carbon emissions per GDThe Stern Review notes that the prediction that "under business as usual, global emissions will sufficient to propel greenhouse-gas concentrations to over 550ppm CO2e by 2050 and over 650-700pby the end of this century is robust to a wide range of changes in model assumptions". The scientconsensus is that planetary ecosystem functioning without incurring dangerous risks requires stabilizatat 450-550ppm.

As a consequence, growth oriented environmental economists propose massive government interventinto switching sources of energy production, favouring wind, solar, hydroelectric and nuclear. This wolargely confine use of fossil fuels to either domestic cooking needs (such as for kerosene burners) or wh
http://en.wikipedia.org/wiki/Thomas_Malthushttp://en.wikipedia.org/wiki/Economic_inequalityhttp://en.wikipedia.org/wiki/Archaeologyhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-33http://en.wikipedia.org/wiki/Uneconomic_growthhttp://en.wikipedia.org/wiki/De-growthhttp://en.wikipedia.org/wiki/Green_partieshttp://en.wikipedia.org/wiki/David_Suzukihttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Forestryhttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Soilhttp://en.wikipedia.org/wiki/Soilhttp://en.wikipedia.org/wiki/Foresthttp://en.wikipedia.org/wiki/Human_development_(humanity)http://en.wikipedia.org/wiki/Millennium_Development_Goalshttp://en.wikipedia.org/wiki/Economic_growth#cite_note-35http://en.wikipedia.org/wiki/Secretary-General_of_the_United_Nationshttp://en.wikipedia.org/wiki/Secretary-General_of_the_United_Nationshttp://en.wikipedia.org/wiki/Ban_Ki-Moonhttp://en.wikipedia.org/wiki/Ban_Ki-Moonhttp://en.wikipedia.org/wiki/Overseas_Development_Institutehttp://en.wikipedia.org/wiki/Jobless_growthhttp://en.wikipedia.org/wiki/Stern_Reviewhttp://en.wikipedia.org/wiki/Thomas_Malthushttp://en.wikipedia.org/wiki/Economic_inequalityhttp://en.wikipedia.org/wiki/Archaeologyhttp://en.wikipedia.org/wiki/Economic_growth#cite_note-33http://en.wikipedia.org/wiki/Uneconomic_growthhttp://en.wikipedia.org/wiki/De-growthhttp://en.wikipedia.org/wiki/Green_partieshttp://en.wikipedia.org/wiki/David_Suzukihttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Forestryhttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Soilhttp://en.wikipedia.org/wiki/Foresthttp://en.wikipedia.org/wiki/Human_development_(humanity)http://en.wikipedia.org/wiki/Millennium_Development_Goalshttp://en.wikipedia.org/wiki/Economic_growth#cite_note-35http://en.wikipedia.org/wiki/Secretary-General_of_the_United_Nationshttp://en.wikipedia.org/wiki/Ban_Ki-Moonhttp://en.wikipedia.org/wiki/Overseas_Development_Institutehttp://en.wikipedia.org/wiki/Jobless_growthhttp://en.wikipedia.org/wiki/Stern_Review


12/26

carbon capture and storage technology can be cost-effective and reliable. The Stern Review, publishedthe United Kingdom Government in 2006, concluded that an investment of 1% of GDP per annum wobe sufficient to avoid the worst effects of climate change, and that failure to do so could risk global GDbeing 20% lower than it otherwise might be. Because carbon capture and storage is as yet widunproven, and its long term effectiveness (such as in containing carbon dioxide 'leaks') unknown, abecause of current costs of alternative fuels these policy responses largely rest on faith on technologichange.

On the other hand, Nigel Lawson claimed that people in a hundred years' time would be "seven timeswell off as we are today", therefore it is not reasonable to impose sacrifices on the "much poorer presegeneration".

Indian Economy:

The economy of India is the eleventh largest economy in the world by nominal GDP and the fourth largby purchasing power parity (PPP). Following strong economic reforms from the socialist inspired econoof a post-independence Indian nation, the country began to develop a fast-paced economic growth, as fmarket principles were initiated in 1990 for international competition and foreign investment. India is emerging economic power with a very large pool of human and natural resources, and a growing large pof skilled professionals. According to the book 'Contours of the World Economy, 1-2030AD' by AngMaddison, India was the largest economy from the year 1 AD until the colonial period whereupon it wtaken over by other countries such as China and the U.K. Economists predict that by 2020, India will among the leading economies of the world. According to the BRIC report, published by Goldman SacIndia will be the second largest economy after China by 2043.

India was undersocial democratic-based policies from 1947 to 1991. The economy was characterisedextensive regulation, protectionism, public ownership, pervasive corruption and slow growth. Since 19continuing economic liberalisation has moved the country toward a market-based economy. A revivaeconomic reforms and better economic policy in first decade of the 21st century accelerated Indieconomic growth rate. In recent years, Indian cities have continued to liberalize business regulations. 2008, India had established itself as the world's second-fastest growing major economy. However, the y2009 saw a significant slowdown in India's GDP growth rate to 6.8% as well as the return of a larprojected fiscal deficit of 6.8% of GDP which would be among the highest in the world.

India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP) while tindustrial and agricultural sector contribute 28% and 17% respectively. Agriculture is the predominoccupation in India, accounting for about 52% of employment. The service sector makes up a further 34and industrial sectoraround 14%. The labour force totals half a billion workers. Major agricultural produinclude rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goapoultry and fish. Major industries include telecommunications, textiles, chemicals, food processing, stetransportation equipment, cement, mining, petroleum, machinery,information technology enabled servicand pharmaceuticals.

India's per capita income (nominal) is $1,030, ranked 139th in the world, while its per capita (PPP)US$2,940 is ranked 128th. Previously a closed economy, India's trade has grown fast. India currenaccounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistof the WTO in 2006, India's total merchandise trade (counting exports and imports) was valued at $2billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, Indiglobal economic engagement in 2006 covering both merchandise and services trade was of the order$437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a srelatively moderate share 24% of GDP in 2006, up from 6% in 1985.
http://en.wikipedia.org/wiki/Stern_Reviewhttp://en.wikipedia.org/wiki/Nigel_Lawsonhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/BRIChttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Social_democratichttp://en.wikipedia.org/wiki/License_Rajhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Public_ownershiphttp://en.wikipedia.org/wiki/Corruption_in_Indiahttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Economic_development_in_Indiahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real)_growth_ratehttp://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Industrial_sectorhttp://en.wikipedia.org/wiki/Labour_in_Indiahttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Ricehttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Oilseedhttp://en.wikipedia.org/wiki/Cottonhttp://en.wikipedia.org/wiki/Jutehttp://en.wikipedia.org/wiki/Teahttp://en.wikipedia.org/wiki/Sugarcanehttp://en.wikipedia.org/wiki/Potatohttp://en.wikipedia.org/wiki/Cattlehttp://en.wikipedia.org/wiki/Water_buffalohttp://en.wikipedia.org/wiki/Sheephttp://en.wikipedia.org/wiki/Goatshttp://en.wikipedia.org/wiki/Poultryhttp://en.wikipedia.org/wiki/Fishhttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Textileshttp://en.wikipedia.org/wiki/Chemicalshttp://en.wikipedia.org/wiki/Food_processinghttp://en.wikipedia.org/wiki/Steelhttp://en.wikipedia.org/wiki/Vehiclehttp://en.wikipedia.org/wiki/Cementhttp://en.wikipedia.org/wiki/Mininghttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Machineryhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Pharmaceuticalhttp://en.wikipedia.org/wiki/Per_capita_incomehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/Stern_Reviewhttp://en.wikipedia.org/wiki/Nigel_Lawsonhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/BRIChttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Social_democratichttp://en.wikipedia.org/wiki/License_Rajhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Public_ownershiphttp://en.wikipedia.org/wiki/Corruption_in_Indiahttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Economic_development_in_Indiahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real)_growth_ratehttp://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Industrial_sectorhttp://en.wikipedia.org/wiki/Labour_in_Indiahttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Ricehttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Oilseedhttp://en.wikipedia.org/wiki/Cottonhttp://en.wikipedia.org/wiki/Jutehttp://en.wikipedia.org/wiki/Teahttp://en.wikipedia.org/wiki/Sugarcanehttp://en.wikipedia.org/wiki/Potatohttp://en.wikipedia.org/wiki/Cattlehttp://en.wikipedia.org/wiki/Water_buffalohttp://en.wikipedia.org/wiki/Sheephttp://en.wikipedia.org/wiki/Goatshttp://en.wikipedia.org/wiki/Poultryhttp://en.wikipedia.org/wiki/Fishhttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Textileshttp://en.wikipedia.org/wiki/Chemicalshttp://en.wikipedia.org/wiki/Food_processinghttp://en.wikipedia.org/wiki/Steelhttp://en.wikipedia.org/wiki/Vehiclehttp://en.wikipedia.org/wiki/Cementhttp://en.wikipedia.org/wiki/Mininghttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Machineryhttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Pharmaceuticalhttp://en.wikipedia.org/wiki/Per_capita_incomehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita


13/26

India's economic history can be broadly divided into three eras, beginning with the pre-colonial perlasting up to the 18th century. The advent of British colonisation started the colonial period in the early 1century, which ended with independence in 1947. The third period stretches from independence in 19until now.

Pre-colonial

The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC a1800 BC, practiced agriculture, domesticated animals, used uniform weights and measures, made toand weapons, and traded with other cities. Evidence of well planned streets, a drainage system and wasupply reveals their knowledge ofurban planning, which included the world's first urban sanitation systeand the existence of a form ofmunicipal government.

The 1872 census revealed that 99.3% of the population of the region constituting present-day Indresided in villages, whose economies were largely isolated and self-sustaining, with agriculture predominant occupation. This satisfied the food requirements of the village and provided raw materials hand-based industries, such as textiles, food processing and crafts. Although many kingdoms and rulissued coins, barterwas prevalent. Villages paid a portion of their agricultural produce as revenue to trulers, while its craftsmen received a part of the crops at harvest time for their services.

Religion, especially Hinduism, and the caste and the joint family systems, played an influential roleshaping economic activities.[33]The caste system functioned much like medieval European guilds, ensurthe division of labour, providing for the training of apprentices and, in some cases, allowing manufacturto achieve narrow specialization. For instance, in certain regions, producing each variety of cloth was specialty of a particular sub-caste.

Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper, cinnamon, opium aindigo were exported to Europe, the Middle East and South East Asia in return forgold and silver.

Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitatinformation. One estimate puts the revenue ofAkbar's Mughal Empire in 1600 at 17.5 million, in contrwith the total revenue of Great Britain in 1800, which totalled 16 million. India, by the time of the arrivathe British, was a largely traditional agrarian economy with a dominant subsistence sector dependent primitive technology. It existed alongside a competitively developed network of commerce, manufacturand credit. After the decline of the Mughals, western, central and parts of south and north India weintegrated and administered by the Maratha Empire. The Maratha Empire's budget in 1740s, at its pewas 100 million. After the loss at Panipat, the Maratha Empire disintegrated into confederate statesGwalior, Baroda, Indore, Jhansi, Nagpur, Pune and Kolhapur. Gwalior state had a budget of 30 milliHowever, at this time, British East India company entered the Indian political theatre. Until 1857, whIndia was firmly under the British crown, the country remained in a state of political instability dueinternecine wars and conflicts

Colonial

An aerial view ofCalcutta Port taken in 1945.Calcutta, which was the economic hub ofBritish India, sincreased industrial activity during World War II.

Company rule in India brought a major change in the taxation environment from revenue taxes to propetaxes, resulting in mass impoverishment and destitution of majority of farmers and led to numerofamines. The economic policies of the British Raj effectively bankrupted India's large handicrafts indusand caused a massive drain of India's resources. Indian Nationalists employed the successful Swade
http://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Indus_Valley_civilisationhttp://en.wikipedia.org/wiki/Drainage_systemhttp://en.wikipedia.org/wiki/Water_supplyhttp://en.wikipedia.org/wiki/Water_supplyhttp://en.wikipedia.org/wiki/Urban_planninghttp://en.wikipedia.org/wiki/Sanitationhttp://en.wikipedia.org/wiki/Municipal_governmenthttp://en.wikipedia.org/wiki/Textilehttp://en.wikipedia.org/wiki/Food_processinghttp://en.wikipedia.org/wiki/Craftshttp://en.wikipedia.org/wiki/Barterhttp://en.wikipedia.org/wiki/Hinduismhttp://en.wikipedia.org/wiki/Castehttp://en.wikipedia.org/wiki/Joint_familyhttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-sankaran-1-32http://en.wikipedia.org/wiki/Economy_of_India#cite_note-sankaran-1-32http://en.wikipedia.org/wiki/Guildshttp://en.wikipedia.org/wiki/Division_of_labourhttp://en.wikipedia.org/wiki/Muslinhttp://en.wikipedia.org/wiki/Calico_(textile)http://en.wikipedia.org/wiki/Shawlhttp://en.wikipedia.org/wiki/Black_pepperhttp://en.wikipedia.org/wiki/Cinnamonhttp://en.wikipedia.org/wiki/Opiumhttp://en.wikipedia.org/wiki/Indigohttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/South_East_Asiahttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Silverhttp://en.wikipedia.org/wiki/Akbarhttp://en.wikipedia.org/wiki/Mughal_Empirehttp://en.wikipedia.org/wiki/Pounds_sterlinghttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Mughalshttp://en.wikipedia.org/wiki/Maratha_Empirehttp://en.wikipedia.org/wiki/Maratha_Empirehttp://en.wikipedia.org/wiki/Gwaliorhttp://en.wikipedia.org/wiki/Barodahttp://en.wikipedia.org/wiki/Indorehttp://en.wikipedia.org/wiki/Jhansihttp://en.wikipedia.org/wiki/Nagpurhttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Kolhapurhttp://en.wikipedia.org/wiki/Gwalior_statehttp://en.wikipedia.org/w/index.php?title=British_East_India_company&action=edit&redlink=1http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/British_crownhttp://en.wikipedia.org/w/index.php?title=Calcutta_Port&action=edit&redlink=1http://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/World_War_IIhttp://en.wikipedia.org/wiki/Company_rule_in_Indiahttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Indus_Valley_civilisationhttp://en.wikipedia.org/wiki/Drainage_systemhttp://en.wikipedia.org/wiki/Water_supplyhttp://en.wikipedia.org/wiki/Water_supplyhttp://en.wikipedia.org/wiki/Urban_planninghttp://en.wikipedia.org/wiki/Sanitationhttp://en.wikipedia.org/wiki/Municipal_governmenthttp://en.wikipedia.org/wiki/Textilehttp://en.wikipedia.org/wiki/Food_processinghttp://en.wikipedia.org/wiki/Craftshttp://en.wikipedia.org/wiki/Barterhttp://en.wikipedia.org/wiki/Hinduismhttp://en.wikipedia.org/wiki/Castehttp://en.wikipedia.org/wiki/Joint_familyhttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-sankaran-1-32http://en.wikipedia.org/wiki/Guildshttp://en.wikipedia.org/wiki/Division_of_labourhttp://en.wikipedia.org/wiki/Muslinhttp://en.wikipedia.org/wiki/Calico_(textile)http://en.wikipedia.org/wiki/Shawlhttp://en.wikipedia.org/wiki/Black_pepperhttp://en.wikipedia.org/wiki/Cinnamonhttp://en.wikipedia.org/wiki/Opiumhttp://en.wikipedia.org/wiki/Indigohttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/South_East_Asiahttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Silverhttp://en.wikipedia.org/wiki/Akbarhttp://en.wikipedia.org/wiki/Mughal_Empirehttp://en.wikipedia.org/wiki/Pounds_sterlinghttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Mughalshttp://en.wikipedia.org/wiki/Maratha_Empirehttp://en.wikipedia.org/wiki/Maratha_Empirehttp://en.wikipedia.org/wiki/Gwaliorhttp://en.wikipedia.org/wiki/Barodahttp://en.wikipedia.org/wiki/Indorehttp://en.wikipedia.org/wiki/Jhansihttp://en.wikipedia.org/wiki/Nagpurhttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Kolhapurhttp://en.wikipedia.org/wiki/Gwalior_statehttp://en.wikipedia.org/w/index.php?title=British_East_India_company&action=edit&redlink=1http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/British_crownhttp://en.wikipedia.org/w/index.php?title=Calcutta_Port&action=edit&redlink=1http://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/World_War_IIhttp://en.wikipedia.org/wiki/Company_rule_in_Indiahttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Swadeshi_movement


14/26

movement, as strategy to diminish British economic superiority by boycotting British products and treviving the market for domestic-made products and production techniques. India had become a stromarket for superior finished European goods. This was because of vast gains made by the Industrevolution in Europe, the effects of which was deprived to Colonial India.

The Nationalists had hoped to revive the domestic industries that were badly effected by policimplemented by British Raj which had made them uncompetitive to British made goods.

An estimate by Cambridge University historian Angus Maddison reveals that "India's share of the woincome fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952". It acreated an institutional environment that, on paper, guaranteed property rights among the colonizeencouraged free trade, and created a single currency with fixed exchange rates, standardized weights ameasures, capital markets. It also established a well developed system ofrailways and telegraphs, a cservice that aimed to be free from political interference, a common-law and an adversarial legal systeIndia's colonisation by the British coincided with major changes in the world economyindustrialisatiand significant growth in production and trade. However, at the end of colonial rule, India inherited economy that was one of the poorest in the developing world, with industrial development stallagriculture unable to feed a rapidly growing population, India had one of the world's lowestexpectancies, and low rates forliteracy.

The impact of the British rule on India's economy is a controversial topic. Leaders of the Indindependence movement, and left-nationalist economic historianshave blamed colonial rule for the dismstate of India's economy in its aftermath and that financial strength required for Industrial developmenEurope was derived from the wealth taken from Colonies in Asia and Africa. At the same time right-whistorians have countered that India's low economic performance was due to various sectors being instate of growth and decline due to changes brought in by colonialism and a world that was moving towaindustrialization and economic integration.

Independence to 1947

Compare India (orange) with South Korea (yellow). Both started from about the same income level in 19The graph shows GDP per capita of South Asian economies and South Korea as a percent of tAmerican GDP per capita.

Indian economic policy afterindependence was influenced by the colonial experience (which was seenIndian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. Policy tendtowards protectionism, with a strong emphasis on import substitution,industrialization, state interventionlabour and financial markets, a large public sector, business regulation, and central planning. Five-YPlans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, watelecommunications, insurance, and electrical plants, among other industries, were effectively nationalizin the mid-1950s. Capitalism and Private enterprise did not exist before 1991. Elaborate licencregulations and the accompanying red tape, commonly referred to as Licence Raj, were required to set business in India between 1947 and 1990.

Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta Chandra Mahalanobcarried on by Indira Gandhi formulated and oversaw economic policy. They expected favorable outcomfrom this strategy, because it involved both public and private sectors and was based on direct and indirstate intervention, rather than the more extreme Soviet-style central command system. The policyconcentrating simultaneously on capital- and technology-intensive heavy industry and subsidizing manulow-skill cottage industries was criticized by economist Milton Friedman, who thought it would waste capand labour, and retard the development of small manufacturers. The rate from 194780 was derisiv
http://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Industrial_revolutionhttp://en.wikipedia.org/wiki/Industrial_revolutionhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Cambridge_Universityhttp://en.wikipedia.org/wiki/Historianhttp://en.wikipedia.org/wiki/Angus_Maddisonhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Property_rightshttp://en.wikipedia.org/wiki/Property_rightshttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Fixed_exchange_rateshttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Rail_transport_in_Indiahttp://en.wikipedia.org/wiki/Telegraphhttp://en.wikipedia.org/wiki/Colonisationhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Life_expectancyhttp://en.wikipedia.org/wiki/Illiteratehttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Economic_historyhttp://en.wikipedia.org/wiki/Economic_historyhttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Economic_integrationhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Asiahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Economic_policyhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Protectionisthttp://en.wikipedia.org/wiki/Import_substitutionhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/State_interventionhttp://en.wikipedia.org/wiki/Financial_marketshttp://en.wikipedia.org/wiki/Public_sectorhttp://en.wikipedia.org/w/index.php?title=Business_regulation&action=edit&redlink=1http://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Private_enterprisehttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Cottage_industrieshttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Industrial_revolutionhttp://en.wikipedia.org/wiki/Industrial_revolutionhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Cambridge_Universityhttp://en.wikipedia.org/wiki/Historianhttp://en.wikipedia.org/wiki/Angus_Maddisonhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Property_rightshttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Fixed_exchange_rateshttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Rail_transport_in_Indiahttp://en.wikipedia.org/wiki/Telegraphhttp://en.wikipedia.org/wiki/Colonisationhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Life_expectancyhttp://en.wikipedia.org/wiki/Illiteratehttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Economic_historyhttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Africahttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Economic_integrationhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Asiahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Economic_policyhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Protectionisthttp://en.wikipedia.org/wiki/Import_substitutionhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/State_interventionhttp://en.wikipedia.org/wiki/Financial_marketshttp://en.wikipedia.org/wiki/Public_sectorhttp://en.wikipedia.org/w/index.php?title=Business_regulation&action=edit&redlink=1http://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Private_enterprisehttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Cottage_industrieshttp://en.wikipedia.org/wiki/Milton_Friedman


15/26

referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in othAsian countries, especially the "East Asian Tigers".

The Rockefeller Foundation's research in high-yielding varieties of seeds, their introduction after 1965 athe increased use offertilizers and irrigation are known collectively as the Green Revolution in India, whprovided the increase in production needed to make India self-sufficient in food grains, thus improvagriculture in India. Famine in India, once accepted as inevitable, has not returned since independence.

Since 1991

In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growit also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, whwas India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a mabalance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. Inasked for a $1.8 billion bailout loan from IMF, which in return demanded reforms.

An industrial zone nearMumbai, India.

In response, Prime MinisterNarasimha Rao along with his finance minister and current Prime MinisteIndia Dr. Manmohan Singh initiated the economic liberalization of 1991. The reforms did away with Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowautomatic approval of foreign direct investment in many sectors. Since then, the overall directionliberalisation has remained the same, irrespective of the ruling party, although no party has tried to take powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labolaws and reducing agricultural subsidies. Since 1990 India has a free-market economy and emergedone of the fastest-growing economies in the developing world; during this period, the economy has groconstantly, but with a few major setbacks. This has been accompanied by increases in life expectanliteracy rates and food security.

While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices wovertake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it wprojected to be the third largest economy of the world, behind US and China. India is often seen by meconomists as a rising economic superpower and is believed to play a major role in the global economythe 21st century. In 2009 India purchased 200 Tons of Gold for $6.7 billion from IMF as a total role reverfrom 1991.

Sectors

Industry and services

India has one of the world's fastest growing automobile industries. Shown here is the Tata Motors' Nathe world's cheapest car.

Industry accounts for 28% of the GDP and employ 14% of the total workforce. However, about one-thirdthe industrial labour force is engaged in simple household manufacturing only. In absolute terms, India16th in the world in terms of nominal factory output.

Economic reforms brought foreign competition, led to privatisation of certain public sector industriopened up sectors hitherto reserved for the public sector and led to an expansion in the production of fa
http://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Four_Asian_Tigershttp://en.wikipedia.org/wiki/Rockefeller_Foundationhttp://en.wikipedia.org/wiki/Hybrid_seedhttp://en.wikipedia.org/wiki/Fertilizershttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://en.wikipedia.org/wiki/Famine_in_Indiahttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Gulf_Warhttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Dr._Manmohan_Singhhttp://en.wikipedia.org/wiki/Economic_reforms_in_Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Trade_unionshttp://en.wikipedia.org/wiki/Automobile_industryhttp://en.wikipedia.org/wiki/Tata_Motorshttp://en.wikipedia.org/wiki/Tata_Nanohttp://en.wikipedia.org/wiki/Cottage_industryhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Four_Asian_Tigershttp://en.wikipedia.org/wiki/Rockefeller_Foundationhttp://en.wikipedia.org/wiki/Hybrid_seedhttp://en.wikipedia.org/wiki/Fertilizershttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://en.wikipedia.org/wiki/Famine_in_Indiahttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Gulf_Warhttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Dr._Manmohan_Singhhttp://en.wikipedia.org/wiki/Economic_reforms_in_Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Trade_unionshttp://en.wikipedia.org/wiki/Automobile_industryhttp://en.wikipedia.org/wiki/Tata_Motorshttp://en.wikipedia.org/wiki/Tata_Nanohttp://en.wikipedia.org/wiki/Cottage_industryhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition


16/26

moving consumer goods. Post-liberalisation, the Indian private sector, which was usually run by oligopolof old family firms and required political connections to prosper was faced with foreign competitioincluding the threat of cheaper Chinese imports. It has since handled the change by squeezing cosrevamping management, focusing on designing new products and relying on low labour costs atechnology.

Textile manufacturing is the second largest source for employment after agriculture and accounts for 26of manufacturing output. Ludhiana produces 90% of woolens in India and is also known as the Manchesof India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garmencasual wear and sportswear. Dharavi slum in Mumbai has gained fame for leather products. Tata MotoNano attempts to be the world's cheapest car.

Indiais fifteenth in services output. It provides employment to 23% of work force, and it is growing fagrowth rate 7.5% in 19912000 up from 4.5% in 195180. It has the largest share in the GDP, accountfor 55% in 2007 up from 15% in 1950.

Business services (information technology, information technology enabled services, business proceoutsourcing) are among the fastest growing sectors contributing to one third of the total output of servicin 2000. The growth in the IT sector is attributed to increased specialization, and an availability of a larpool of low cost, but highly skilled, educated and fluent English-speaking workers, on the supply simatched on the demand side by an increased demand from foreign consumers interested in India's servexports, or those looking to outsource their operations. The share of India's IT industry to the countrGDP increased from 4.8 % in 2005-06 to 7% in 2008. In 2009, seven Indian firms were listed among ttop 15 technology outsourcing companies in the world. In March 2009, annual revenues from outsourcoperations in India amounted to US$60 billion and this is expected to increase to US$225 billion by 2020

Organized retail such supermarkets accounts for 24% of the market as of 2008. Regulations prevent moforeign investment in retailing. Moreover, over thirty regulations such as "signboard licences" and "ahoarding measures" may have to be complied before a store can open doors. There are taxes for movgoods to states, from states, and even within states. Tourism in India is relatively undeveloped, but growat double digits. Some hospitals woo medical tourism.

Agriculture

Farmers work inside a rice field in Andhra Pradesh. India is the second largest producer of rice in the woafter China and Andhra Pradesh is the 2nd largest rice producing state in India with West Bengal being larg

3.urban labor markets

Documents