Economic Growth & Economic Development

Economic growth

• Traditionally aggregate economic growth is measured as the percentage increase in Gross National Product (GNP) or Gross Domestic Product (GDP) or per capita Net Domestic Product (NDP). Per capita, NDP is the most appropriate measure of economic growth.
• Economic growth can be achieved in different ways. Economy can either:
1. Growth can be achieved by using more resources (such as physical, human or natural capital) for production.
2. Grow intensively by using the same amount of resources more efficiently
3. Grow by discovery of new or better economic resources
4. Grow by creating superior technology and skilling the workers to work with those superior technologies
5. Saving resources, continous investment and specialization are some of the easily controlled methods.

Economic development

• Earlier economic development and economic growth are often used as synonyms of each other. Now day’s economists differ this word by measuring change or growth in quantitative or qualitative terms.
• A economic growth is a change in quantitative term while economic development is a change in qualitative term.
• Economic development and growth both goes hand in hand.
• Some of the qualitative changes are improvement in the health and education, reduction in inequality, positive changes in attitude, improvements in the environment, and so on.
• Objectives of economic development are to increase the availability and efficient distribution of essential life-sustaining goods. Provides more choices to both individuals and Nations.
• To improve literacy rates, life expectancy, creating more job opportunities and greater attention to culture.

Measuring economic development

• There is no commonly accepted yardstick of economic development. Some of the most commonly used measures of economic development are:
1. Gross National Income (GNI)
2. Physical Quality of Life Index(PQLI)
3. Human Development Index (HDI)
4. Inequality Adjusted Human Development Index (IHDI)
5. Gender Inequality Index (GII)

Gross National Income

• It was previously known as Gross National Product. 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.
• According to this classification, India is a low middle-income country.
• Since the 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.
• 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 Comparison of Real Product and Purchasing Power,” The UN International comparison program gave the purchasing power parity (PPP) method.

The physical quality of life index (PQLI)

• The physical quality of life index was developed by Morris David Morris and it is the first attempt to measure the quality of life or well being of a country.
• It is measured after averaging three statistics: basic literacy rate, infant mortality and life expectancy. All equally weighted on a 1 to 100 scale. Where 1 represents worst and 100 represents the best.

Human Development Index (HDI)

• HDI is introduced by the United Nations development programme in its first human development report (1990). First HDI was written by a team of experts led by the late Pakistani economist Mahbub Ul Haq, who argued that health and education should also be given equal importance with income in measuring country's development, and that the ultimate goal of development is the expansion of people’s choices and freedoms.
• Elements in the HDI measurement are:
• A long and healthy life.
• Access to knowledge.
• living a standard life.
• The 2010 Human Development Report(HDR) continued the measurement innovation started by first HDR by introducing new indices that address crucial development factors not directly reflected in HDI:
• The inequality adjusted Human Development Index.
• The Gender Inequality Index.
• The Multidimensional Poverty Index.

The Inequality Adjusted Human Development Index (IHDI)

• The IHDI measures in a country how human development factors are distributed among country’s population
• If there is equality among both, IHDI is equal to the HDI, however with rising inequality IHDI falls below the HDI.

The Gender Inequality Index (GII)

• The GII is an inequality index. It measures gender inequalities through three important aspects:-
1. Reproductive health:- Reproductive health of a women is measured through maternal mortality ratio and adolescent birth rates.
2. Empowerment: - Empowerment of women is measured by percentage of parliamentary seats occupied by women and percentage of adult females aged 25 years and older with at least some secondary education.
3. Economic status: - It is measured by calculating labour market participation rate of female and male population aged 15 years and older.

• The GII is a framework to measure the differences of development between women and men.

Multidimensional Poverty Index (MPI)

• Multidimensional poverty index complements traditional measurement of poverty. It measures poverty through factors of health, education and standard of living.
• The MPI is developed by Oxford poverty and Human Development Initiative (OPHI) and UNDP in 2010.

Gross National happiness (GNH)

• The fourth king of Bhutan, King Jigme Singye Wangchuck, in 1972 declared that, “Gross National Happiness is more important than Gross Domestic Product” and hence popularises the world Gross National Happiness
• GNH measures the collective happiness in a nation. It measures the sustainable economic and social development.
• GNH is having four pillars and nine dimensions.
• The four pillars of GNH are:-
1. Promotion of sustainable development
2. Preservation and promotion of cultural values
3. Conservation of the natural environment
4. Establishment of good governance

• The nine dimensions are:
  1. Education
  2. Psychological well being
  3. Health
  4. Time-use
  5. Cultural diversity and resilience
  6. Good Governance
  7. Community Vitality
  8. Ecological diversity and resilience
  9. Living standard.

Genuine Progress Indicator (GPI)

• GPI is a method developed in the mid nineties for measuring improvement in the welfare of the peoples.
• It measures the progress by taking into account social and environmental factors which are neglected by GDP.
• It measures whether the economic progress is actually improving well being and happiness or not.

Green GDP

• Green GDP is an index of economic growth in which environmental degradation is kept into account in measuring conventional GDP.

Human Sustainable Development Index (HSDI)

• Human sustainable development index was founded in 2009 to improve the components and the quality of the Human Development Index, established in 1990 by the UNDP. HSDI attempts to measure the overall quality of life by factoring in a fourth parameter ‘per capita carbon emission’ to the existing HDI.

Global Hunger Index

• The Global Hunger Index (GHI) describes countries hunger situation. It is updated yearly.
• The Index was developed and adopted by the International Food Policy Research Institute. It was first published in 2006.
• The index ranks countries on the 100 point scale, with zero being the best score (no hunger) and 100 being the worst.
• The GHI combines 4 component indicators:-
1. The percentage of the undernourished of the population.
2. The proportion of children under the age of 5 suffering from wasting.
3. The proportion of children under the age of 5 suffering from stunting.
4. The child mortality rate under the age of 5.

Indian economy as an underdeveloped economy

• Following characteristics of the Indian economy exhibit the developing nature of the economy.
1. Low per capita income: Low per capita real income is the main feature of an underdeveloped economy. Comparatively per capita income of India is very low with that of the USA, the UK, Canada, Australia and Japan.
2. Low standard of living: The low per capita income is reflected in the low standards of living of the people. The average calorie intake per person per day was far below when compared with advanced country.
3. Inequality in the distribution of wealth and income: It has been found that underdeveloped economy has a huge inequality in the distribution of income and wealth and similar situation also exists in India. The gap between the haves and the have-nots over the year has actually widened and there has been concentration of wealth and economic power in the hands of a few to the detriment of the common people. This concentration of wealth and capital among few peoples are the actual reason of income inequalities.
4. Predominance of agriculture in GDP: It has been seen that in an underdeveloped economy a large mass of the population lives in rural area and depends on agriculture for their livelihood similar situation also exists in India. A large part of Indian population depends on agriculture. However a developed economy is generally a highly industrialized country where agriculture occupies a comparatively less important place. Historically, it is proved that as a country develops economically, the percentage of its population depending on agriculture goes on diminishing.
5. High population growth rate: It has been seen that underdeveloped countries are having high population growth rate and India is having similar condition of high population growth rate.
6. Technological backwardness: Use of backward technology is common in the underdeveloped countries. In India technological advancement is also backward if compared with advanced country.

 

Comparing Economic Growth with Economic Development

Economic Growth	Economic Development
It is a measure of quantitative increase in real GDP.	It is a measure of qualitative change of life.
It is concerned with increase in the real output of goods and services in the country like increase in Income, in savings, in investment etc.	It implies progressive changes in socio-economic structure of the country like literacy rate, life expectancy etc.
It is a single dimension concept.	It is a multidimensional concept.
Ignores reduction of inequality (Income distribution). Hence number of poor people increases in spite of increasing National income.	Reduction of inequality (Economic distribution) is one of the key component of this concept.
Brings quantitative changes in the economy.	Brings qualitative as well as quantitative changes in the economy.
Narrower concept than economic development.	Broader and normative concept.
It is the essential element of progress of developed countries.	It is the essential element of the progress of underdeveloped countries.
It is a short term process.	It's a long term process.