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m is a branch of economics that deals with the
study of macroeconomic causes of long term
economic growth, and microeconomics; the
incentive issues of individual households and
firms, especially in developing countries.
m   is the study of the production,
distribution, and consumption of goods and
services Ͷ the economy. Economists attempt
to understand the economy and the way it
responds to various influences, such as
changes in federal interest rates. Economics is
considered a social science.
 is a phenomenon which occurs
over a long period of time but economic
growth is increase in GNP which can occur
when we are able to achieve increase in
number of resources or increase in technology
or by the combination of both.
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m Úpart from measuring income with the help of


per capita GNP we have one more method to
calculate Economic development, It is HDI
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m Ú measure of human development using
three equally weighted dimensions of
human development - life expectancy at
birth, adult literacy and mean years of
schooling and income (purchasing power
per capita in dollars)
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m Given, that the concept of development is related to
personal and community welfare, agreement on the
various dimensions of welfare is necessary so as to
make measurement possible.
m Some of the indicators of welfares include:
consumption levels, equity in distribution of income
and wealth, literacy rate, health and employment.
Since there are both economic and non-economic
aspects of development, attempts are made to
generate single indices of development, combining
social, political and economic indicators.
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x ross National product (GNP) per capita: This refers to the
income of a country divided by the population. This
measure ahs the advantage of ease of calculation and ease
of comparison. Most countries compile statistics on gross
domestic product on an annual basis and data on
population every ten years, making it easily to compute.
However the measure has a number problems which make
it rather abstract when comparing development levels
between countries. One of the problems is it does not
consider the distribution of income in the country. The
figures are merely generalisations rather than a concise
indication of the economic/social status of each individual
in the country.
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m Secondly, the GNP per capita only considers
market values.
m In addition, this measure does not reflect the cost
of environmental degradation, and indeed it does
not reveal the degree of industrialisation and
urbanisation, plus their associated costs
m Finally the GNP per capita does not adequately
consider the purchasing proven of the people in
the country. For instance a dollar spent in Uganda
may give a higher utility than a dollar spent in the
U.S.Ú.
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m uecause of the limitations of the GNP per
capita as a measure of economic
development, other more elaborate measures
have been suggested. These include the share
of industry in total output, per capita
expenditure and the share of food
expenditure in total expenditure.
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m Traditionally economists have made little


if any distinction between economic
growth and economic development using
the terms almost synonymously.

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m Ús a concept, m  can be
seen as a complex multi-dimensional concept
involving improvements in human well-being,
however defined ritics point out that GDP is a
narrow measure of economic welfare that does
not take account of important non-economic
aspects (eg. more leisure time, access to health &
education, environment, freedom or social
justice). m  &"#h is a necessary but
insufficient condition for economic development.
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å " &" &necessities such as food shelter
& health care and broadening their distribution
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m The three building blocks of most growth
models are:
å (1) the production function,
å (2) the saving function, and
å (3) the labor supply function (related to
population growth).
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åIt delineates a functional


economic relationship in which
the growth rate of gross domestic
product (g) depends directly on
the national saving ratio (s) and
inversely on the national
capital/output ratio (k) so that it is
written a g = s / k.
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åThe equation takes its name from a
synthesis of analyses of growth
process by two economists (Sir Roy
Harrod of uritain and E.V. Domar of
the USÚ). The Harrod-Domar model in
the early postwar times was
commonly used by developing
countries in economic planning.
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m £ith a target growth rate, the required saving rate is
known. If the country is not capable of generating
that level of saving, a justification or an excuse for
borrowing from international agencies can be
established. Ún example in the Úsian context is to
ascertain the relationship between high growth rates
and high saving rates in the cases of Japan and hina.
It is more difficult to introduce the third building
block of a growth model, the labor and population
element. In the long run, growth rate is constrained
by population growth and also by the rate of
technological change.
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by Robert Solow and others places emphasis


on the role of technological change.
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m Unlike the Harrod-Domar model, the saving
rate will only determine the level of income
but not the rate of growth. The sources-of-
growth measurement obtained from this
model highlights the relative importance of
capital accumulation (as in the Harrod-Domar
model) and technological change (as in the
Neoclassical model) in economic growth.
m&-"#!!"'¦"
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m The original Solow (1957) study showed that
technological change accounted for almost 90
percent of U.S. economic growth in the late
19th and early 20th centuries. Empirical
studies on developing countries have shown
different results.
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m Even so, in our postindustrial economy,
economic development, including in emerging
countries is now more and more based on
innovation and knowledge. reating Porter's
clusters is one of the strategies used. One well
known example is uangalore in India.
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m The Lewis-Ranis-Fei (LRF) theory of Surplus
Labor is an   
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m Economic models such as uig Push, Unbalanced
Growth, Take-off, and so forth, are only partial
theories of economic growth that address specific
issues. It is a model taking the peculiar economic
situation in developing countries into account:
unemployment and underemployment of
resources (especially labor) and the dualistic
economic structure (modern vs. traditional
sectors). This model is a classical model because
it uses the classical assumption of subsistence
wage.
"
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m Here it is understood that the development
process is triggered by the transfer of surplus
labor in the traditional sector to the modern
sector in which some significant economic
activities have already begun. The modern
sector entrepreneurs can continue to pay the
transferred workers a subsistence wage
because of the unlimited supply of labor from
the traditional sector.
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m The profits and hence investment in the
modern sector will continue to rise and fuel
further economic growth in the modern
sector. This process will continue until the
surplus labor in the traditional sector is used
up, a situation in which the workers in the
traditional sector would also be paid in
accordance with their marginal product rather
than subsistence wage.
"
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m The existence of surplus labor gives rise to continuous
capital accumulation in the modern sector because
m (a) investment would not be eroded by rising wages as
workers are continued to be paid subsistence wage.
m (b) the average agricultural surplus (ÚÚS) in the
traditional sector will be channeled to the modern
sector for even more supply of capital (e.g., new taxes
imposed by the government or savings placed in banks
by people in the traditional sector). In the LRF model,
saving and investment are driving forces of economic
development.
"
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m This is in line with the Harrod-Domar model
but in the context of less-developed countries.
The importance of technological change
would be reduced to enhancing productivity
in the modern sector for even greater
profitability and to promote productivity in
the traditional sector so that more labor
would be available for transfer.
"", "
m The Harris-Todaro (H-T) theory of rural-urban
migration is usually studied in the context of
employment and unemployment in
developing countries. In the H-T model, the
purpose is to explain the serious urban
unemployment problem in developing
countries. The applicability of this model
depends on the development stage and
economic success in the developing country.
"", "
m The distinctive concept in the H-T model is that the
rate of migration flow is determined by the difference
between expected urban wages (not actual) and rural
wages. The H-T model is applicable to less successful
developing countries or to countries at the earlier
stages of development. The policy implications are
different from those of the LRF model. One implication
in the H-T model is that job creation in the urban
sector worsens the situation because more rural
migration would thus be induced. In this context,
hina's policy of rural development and rural
industrialization to deal with urban unemployment
provides an example.