UDERSTANDING ECONOMIC DEVELOPMENT

Syllabus Outcomes:

1. Distinguish between economic growth and economic development

2. Explain the multidimensional nature of economic development in terms of reducing poverty, increasing standard of living and reduce inequality

3. Explain the most important source of economic growth in less developed countries

ECONOMIC DEVELOPMENT VS GROWTH

Economic Growth Economic Development

• Increase in output and income overtime

• Measured by positive levels of GNP/GDP/GDP per capita

• It does not consider impact on people’s standards of living or state of wellbeing /welfare

• Increases in real per capita output and incomes

• Focuses on improvements in standards of living of the population resulting from economic growth.

• Measured by HDI – Human Development Index

WHAT IS ECONOMIC DEVELOPMENT?

•Definition •Economic Growth Vs Economic

Development•Characteristics•Measurement•Difference between developed, developing

and developed•Features of developed, undeveloped and

developing

WHAT IS ECONOMIC DEVELOPMENT?

Economic development is the process where

increases in real per capita output and incomes

are accompanied by improvements in standards

of living of the population.

•Reduction in poverty•Increased access to G+S•Provision of basic needs – food

/shelter/health care/sanitation•Increased employment opportunity•Reduction of unemployment •Reduced inequality of income and wealth

Economic Growth

•Economic growth – process of increased output and income, measured by GDP/ GDP per capita/ GNP or NNP

ECONOMIC ARGUMENT

•Economist disagree on whether the focus of an economy should be on

Growth OR Development

Should growth be a priority? = assuming development follows

OR Should development be a priority?

Relationship between economic Growth and Development•Economic growth is a fundamental

requirement of economic development. WHY?? Economic Growth output

incomes Standards of living Economic Development

Historical Perspective

•Focus on economic development only new phenomena and changed overtime

•In 1950/60’s – growth + develp are same•In 1960’s /70’s – many less devp countries

were not performing as expected – Gap between rich /poor doubled -1975

•No of people living in poverty (< $1 a day) increased

Historical Perspective Cont’d•Benefits of eco growth NOT achieved by

poor countries.WHY??

Eco growth occurred but did not work to eliminate poverty + improve living standards.

SOLUTION New approach needed to deal with problems

of less devp countries esp poverty/ income distrb and access to services.

What is Human Development?

Process of expanding human freedom to: •Satisfy hunger/ receive adequate food•Be free from preventable illness•Have adequate clothing + shelter•Have access to clean water + sanitation•Have access to education /training•Able to work

What is Human Development?

•Enjoy freedom and legal protection •Participate in social and political lif•Freedom to develop and achieve potential

in life

Human Vs Income PovertyHuman Poverty Income Poverty

• Deprivation/ lack of opportunity that prevent people from leading decent standard of living (SOL)

• Income that is below the poverty line for that country.

SOURCES OF ECONOMIC GROWTH FOR LESS DEVELOPED COUNTRIES

1. Increased Q of physical capital 2. Increased Q of human capital 3. Increased q of land capital 4. Development and use of adequate

technology for that country 5. Institutional changes

Define the following

Physical Capital – factors of production used in the production process ( investment in machinery, factories, equipment, tools)

Human Capital – skills, abilities and knowledge acquired by people as well as achievement of good health

Natural capital – everything that is included in land resources ( minerals, oils, gas)

Institutional Changes: availability of government authorities and services that support people in a country such a:

Law enforcement agencies – policeTax systemsbanks/ credit unions Anti corruption institutions

Relating Eco Growth to Eco Development•Economic Development cannot happen

without economic growth

BUT•Economic Growth can occur without eco

devp

HOW??

Ind

ust

rial

good

s

Merit goods

C

B

D

E

A to B = No eco growth with some eco devp B to C = eco growth with no eco devpC- D = eco growth with eco devp