Prelims Level
Mains Level

2.1 ECONOMIC GROWTH

  • Economic growth is an increased economic capacity to produce goods and services, compared from one period of time to another which is conventionally measured by increase in a country’s GDP (Gross Domestic Product) or GNP (Gross National Product) or per-capita Net Domestic Product (NDP). Per-capita NDP is the most appropriate measure of economic growth.

Economic growth comes in two forms

− An economy can either grow extensively by using more resources (i.e., physical, human or natural capital).

− Intensively by using the same amount of resources more efficiently (productively).

2.2 ECONOMIC DEVELOPMENT
According to Michael Todaro “Economic development is an increase in living standards improvement in self-esteem needs and freedom from oppression as well as a greater choice.”

  • It is referred to as the quantitative and qualitative changes in economy such as development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy etc.
  •  Human Development Index is the most appropriate measure of economic development.
  •  Economic development in all societies must have at least the following objectives
  • − To increase the availability and widen the distribution of basic life sustaining goods.
  • − To raise levels of living by ensuring higher incomes, more jobs and greater attention to culture.
  • − To expand the range of economic and social choices available to both individuals and nations.

2.3 GROWTH AND DEVELOPMENT
While the term economic growth refers to increase over time in a country’s real output of goods and services i.e. product per capita, the term economic development, in contrast, is more comprehensive. It implies progressive changes in the socio-economic structure.

2.3 GROWTH AND DEVELOPMENT 
While the term economic growth refers to increase over time in a country's real output of goods and services i.e. product per capita, the term economic development, in contrast, is more comprehensive. It implies progressive changes in the socio-economic structure.
Difference Between Economic Growth and Economic Development
Economic GrowthEconomic Development
1. It indicates quantitative improvement in the economic progress of a country1. It indicates qualitative improvement in the economic progress of a country
2. It shows growth in national income and per capita income over time2. It shows not only a sustained increase in national and per capita income but also qualitative changes which leads to higher standard of living.
3. A country may grow but it may not develop3. Economic development includes the notion of economic growth.
4. Economic Growth = Size of output (A Quantitative concept)4. Economic Development = Size of output + Welfare (A Qualitative concept)
5. Growth is concerned with increase in the economy’s output5. Concerned with structural changes in the economy
6. Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports 6. Development relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population’s quality of life
7. It refers to an increase in the real output of goods and services in the country like increase the income in savings, in investment etc. 7. It implies changes in income, saving and investment along with progressive changes in socio-economic structure of country (institutional and technological changes)
8. Quantitative. Increase in real GDP.8. Qualitative, HDI (Human Development Index), gender-related index (GDI), Human Poverty index (HPI), infant mortality, literacy rate etc.
9. Brings quantitative changes in the economy9. Brings qualitative and quantitative changes in the economy
10. Narrower concept than economic development10. Normative concept
11. Economic growth is a more relevant measure for progress in developed countries. But it is widely used in all countries because growth is a necessary condition for development.11. Economic development is more relevant to measure progress and quality of life in developing nations.

Measurement of Economic Development

  • To measure economic development is a complex process and economists have used various yardstick for measuring economic development.

National Income and Per-Capita Income

  • This is the traditional approach to measure economic development. World Bank uses the concept of per-capita Gross National Income (GNI) as a measure for comparing and classifying countries based on their stage of economic development.
  • World Development Report (WDR), 2012 (Subtitled Gender Equality and Development) classifies countries into following categories based on per-capita

Categories Based on Per-Capita Income

  • Low Income Countries: US $ 1045 and less
  • Middle Income Countries: US $ 1046 – $ 12745
  • High Income Countries: US $ 12746 and above

 

  • According to this classification, India with a per-capita GNI of US $ 1570 (2013 figures) falls in the category of Middle Income countries.
  • Since official exchange rate is used in the international comparison of GNI, therefore, they do not give a correct picture for two reasons.

–   Purchasing power capacity of a country ignored and

–  official exchange rate does not reflect the value of non-traded goods.

  • In order to overcome this problem, following the work of IB Kravis and others “International comparisons of real product and purchasing power”, (1978), the UN International Comparison Programme gave the Purchasing Power parity (PPP) method.
  • Based on PPP method according to World Bank, the GNI Per-capita of India is calculated to be US $ 3640 (2011).

Purchasing Power Parity (PPP)

  • PPP approach was given by economist Gustav Casell in 1918. The concept is based on the law of one price, wherein the absence of trade and non-trade barriers, identical goods will have same price in different countries, when the prices are expressed in the same currency.
  • The PPP is defined as the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market as one dollar would buy in the United States. e.g., if we have to spend ` 30 for purchasing the same amount of goods and services as are purchased in spending one dollar in USA, then the exchange rate in PPP approach is $1 = `30

Physical Quality of Life Index (PQLI)

  • PQLI was the first attempt towards providing comprehensive measure of economic development. It was developed by Morris David Morris in the mid-1970
  • PQLI is the average of three values, viz life expectancy, basic literacy rate and infant mortality rate. Each value was scaled on 1 to 100, where 1 represents the worst and 100 represents the best.
  • Essential components of human development are: equity, sustainability, productivity and empowerment.
  •  HDI measures the average achievements in a country in three basic dimensions of the human development: a long and healthy life, access to knowledge and a decent standard of living.
  •  HDR 2010 had adopted a new approach, and defined HDI as the geometric mean of normalised indices measuring achievements in each dimension.

2.4 HUMAN DEVELOPMENT

INDEX (HDI)

  •  The United Nations Development Programme (UNDP) introduced the HDI in its first Human Development Report (HDR) prepared under the stewardship of Mahbub-ul-Haq in 1990.
  •  HDR, 1990 has defined human development as the process of widening people’s choices as well as raising the level of well-being achieved.
  • Essential components of human development are: equity, sustainability, productivity and empowerment
  • HDI measures the average achievements in a country in three basic dimensions of the human development: a long and healthy life, access to knowledge and a decent standard of living.
  • HDR 2010 had adopted a new approach, and defined HDI as the geometric mean of normalised indices measuring achievements in each dimension.

Human Development Report (HDR), 2014

The 2014 edition of Human Development Report; entitled: Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience, was released by the United Nations Development Programme, at Tokyo, on 24th July, 2014.

This report shows that overall global trends are positive and that

GROWTH AND DEVELOPMENT

progress is continuing. yet, lives are being lost and livelihoods and development undermined, by natural or human induced disasters and crisis. This report, for the first time in a global HDR, considers vulnerability and resilience through a human development lens.

Inequality-Adjusted Human Development Index (IHDI)

  •  IHDI adjusts the Human Development Index (HDI) for inequality in distribution of each dimension across the population. The IHDI accounts for inequalities in HDI dimensions by ‘discounting’ each dimension’s average value according to its level of inequality
  •  The IHDI equals the HDI, when there is no inequality across people, but is less than the HDI as inequality rises. In this sense, the IHDI is the actual level of human development (accounting for this inequality), while the HDI can be viewed as an index of potential
  • human development (or the maximum level of HDI) that could be achieved, if there was no inequality.
  • The loss in potential human development due to inequality is given by the difference between the HDI and the IHDI and can be expressed as a percentage.

Gender Inequality Index (GII)

  • GII reflects women’s disadvantage in three dimensions reproductive health, empowerment and the labour market for as many countries as data of reasonable quality allow.
  • The index shows the loss in human development due to inequality between female and male achievements in these dimensions. it ranges from O, which indicates that women fare as poorly as possible in all measured dimension.

HUMAN DEVELOPMENT REPORT – 2014
Top and Lowest 5 countries and position of India

INDEXTOP 5 COUNTRIES LOWEST 5 COUNTRIES INDIA
HDI (Human Development Index)Norway, Australia, Switzerland, Netherlands, United States Niger, Congo, Central African Republic, Chad, Sierra Leone With a score of 0.586 (India ranked 135 out of 187 countries)
IHDI (Inequality adjusted HDI)Norway, Australia, Netherlands, Switzerland, Germany Central African Republic, Sierra Leone, Congo, Niger, Chad With a score of 0.418, (India is ranked 100 out of 144 countries)
GII (Gender Inequality Index) (2013)Slovenia, Switzerland, Germany, Sweden, Denmark With a score of 0.563, (India is ranked 127 out of 187 countries)

Gross National Happiness (GNH)

  • The term ‘Gross National Happiness’ was coined in 1972, by Bhutan’s then King Jigme Singye Wangchuck.
  •  GNH was designed in an attempt to define an indicator that measures quality of life or social progress in a more holistic and psychological terms than the economic indicator of GDP. It is not measured directly, but only by the factors, which are believed to lead to it.
  • A second-generation GNH concept, treating happiness as a socio-economic development metric, was proposed in 2006, by Med Jones.

 

  • GNH value is proposed to be an index function of the total average per-capita of the following measures
    • Economic Wellness – Environmental Wellness
    • Physical Wellness – Mental
  • Workplace Wellness – Social Wellness
    • Political Wellness

Multidimensional Poverty Index (MPI)

  • MPI was developed in 2010, by Oxford Poverty and Human Development Initiative and UNDP and different factors to determine poverty beyond income based list were used.
  •  The MPI is an index of acute multidimensional poverty. It shows the number of the people, who are multi dimensionally poor (suffering deprivation in 33% of weighted indicators) and the number of deprivation with which poor households typically contend
  •  It reflects deprivation in very rudimentary services and core human functioning for people across 104 countries. The index uses same three dimensions as the Human Development Index such as health, education and standard of living. These are measured using 10 indicators.
DimensionsIndicators
1. Health1.Child morality
2. Nutrition
2. Education3.Years of schooling
4. Children enrolled
3. Living Standards5. Cooking fuel
6. Toilet
7. Water
8. Electricity
9. Floor
10. Assets
  • Each dimension and each indicator within a dimension is equally weighted.
  • The lower the index value the lesser the multidimensional poverty.

MPI in Some Asian Countries

MPI in Some Asian Countries CountryMPI Value
Bangladesh0.292
Bhutan0.119
China0.056
India0.283
Nepal0.35
Pakistan0.264
Sri Lanka0.021

Green Gross Domestic Product (Green GDP)

  • Green GDP is an index of economic growth with the environmental consequences of that growth factored in.
  •  Green GDP monetises the loss of biodiversity and accounts for costs caused by climate change. Some environmental experts prefer physical indicators (such as waste per-capita or carbon dioxide emissions per year) which may be aggregated to indices such as the Sustainable Development Index.
  • The challenges of sustainable development are population, poverty, inequality, the shortage of drinking water, human health, consumption of energy, deforestation and petrol consumption

Millennium Development Goals (MDGs)

  • MDGs were eventuated at the UNs Millennium Summit 2000, where the world leaders agreed on a set of quantifiable and monitorable goals for development and poverty eradication to be achieved by 2015. These MDGs were based on the assumption that “progress that world has made over the past 20 years shows that these goals are attainable.”

2.5 SUSTAINABLE
DEVELOPMENT

  •  The sustainable development is defined as the development to achieve the needs of present generation, without compromising future generations need.
  •  Sustainable development ensures the well-being of individual by integrating social development, economic development and environmental conservation and protection.

Following are the eight MDGs

  •  Eradicate Extreme Poverty and Hunger
  •  Achieve Universal Primary Education
  •  Promote Gender Equality and Empower Women
  •  Reduce Child Mortality
  •  Improve Maternal Health
  • Combat HIV/AIDS, Malaria and other Diseases
  •  Ensure Environmental sustainability
  •  Develop a Global Partnership for Development

Many of the countries like India and China, earlier considered to be emerging are now said to have emerged and the term is considered to be outdated by many.

Different Levels of Economic Development
Developing Country

  • A developing country is a country, that has not reached the Western style standard of democratic government, free market economy, industrialisation, social programmes and human rights guarantees for their citizens.

Newly Industrialised Countries (NIC)

The word NIC is used for those countries, which are more advanced economy than other developing nations, but which have not yet fully demonstrated the signs of a developed country.

Emerging Markets

  • These are countries with social or business activity in the process of rapid growth and industrialisation.
    Many of the countries like India and China, earlier considered to be emerging are now said to have emerged and the term is considered to be outdated by many.

    UPSC Previous Year Question:

    1. Economic growth in country X will necessarily have to occur if? (CSE 2013)
    a) There is technical progress in the world economy
    b) There is population growth in X
    c) There is capital formation in X
    d) The volume of trade grows in the world economy
    Ans: (c

 

 

 

 

Share Socially