Chapter 1 economic development (1)


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Chapter 1 economic development (1)

  2. 2. What is Economy?• Economics is the study of the production and consumption of goods and the transfer of wealth to produce and obtain those goods.• Economics explains how people interact within markets to get what they want or accomplish certain goals.• Since economics is a driving force of human interaction, studying it often reveals why people and governments behave in particular ways. Ajay Kumar 2
  3. 3. What is Economic Development?• Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area.• Such actions can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives.• Economic development differs from economic growth.• Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP.• Consequently, as economist Amartya Sen points out: “economic growth is one aspect of the process of economic development.” Ajay Kumar 3
  4. 4. Traditional View of economic development• It is concerned primarily with the efficient, least- cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever expanding range of goods and services. Ajay Kumar 4
  5. 5. New economic view of development.• "Economic development is generally defined: – To include improvements in material welfare, especially for persons with the lowest incomes, – The eradication of mass poverty with its correlates of illiteracy, Diseases and early death, – Changes in the composition of inputs and outputs that generally include shifts in the underlying structure of production away from agricultural growth towards industrial activities, – The organization of the economy in such a way that productive employment is general among the working age population rather than the situation of a privileged minority and the correspondingly greater participation of broadly based groups in making decisions about the directions, – Economic and otherwise, in which they should move to improve their welfare Ajay Kumar 5
  6. 6. Growth versus Development• Economic growth may be one aspect of economic development but is not the same• Economic growth: – A measure of the value of output of goods and services within a time period• Economic Development: – A measure of the welfare of humans in a society Ajay Kumar 6
  7. 7. Economic Growth • Using measures of economic growth can give distorted pictures of the level of income in a country – the income distribution is not taken into account. • A small proportion of the population can own a large amount of the wealth in a country. The level of human welfare for the majority couldThis might be a common But this could be just around the therefore be verypicture…… corner! limited. Ajay Kumar 7
  8. 8. Myths About Economic Growth• It is indicator of wealth, which reflect the quantity of resources available to a society .• Does not tells about people’s quality of life: access to education and health care, employment opportunities, availability of clean air and safe drinking water, the threat of crime, and so on.• Economic growth, by increasing a nation’s total wealth, also enhances its potential for reducing Poverty and solving other social problems. Ajay Kumar 8
  9. 9. Cont.Ajay Kumar 9
  10. 10. Indicators of Economic Development Ajay Kumar 10
  11. 11. Growth Ajay Kumar 11
  12. 12. Economic Growth• Using measures of economic performance in terms of the value of income, expenditure and output• GDP – Gross Domestic Product – The value of output produced within a country during a time period• GNP – Gross National Product – The value of output produced within a country plus net property income from abroad• GDP/GNP per head/per capita – Takes account of the size of the population• Real GDP/GNP – Accounts for differences in price levels in different countries Ajay Kumar 12
  13. 13. Economic Growth Shopping Mall in Saudi Arabia Dubai Skyline• High economic growth fuelled through capital spending can hide a number of underlying economic problems – how is the income and wealth distributed? Who is doing the spending and will it ‘trickle down’ to the poor? Ajay Kumar 13
  14. 14. National Income – Problems with using GDP/GNP• Reliability of data? – How accurate is the data that is collected?• Distribution of income? – How is the income distributed – does a small proportion of the population earn a high percentage of the income or is income more evenly spread? Ajay Kumar 14
  15. 15. National Income – Problems with using GDP/GNP• Quality of life? – Can changes in economic growth measure changes in the quality of life? – Does additional earnings power bring with it additional stress, increases in working hours, increased health and family problems?• Impact of exchange rate? – Difference in exchange rates can distort the comparisons – need to express in one currency, but which one and at what value? Ajay Kumar 15
  16. 16. National Income – Problems with using GDP/GNP • Black/informal economy? • Some economic activity not recorded – subsistence farming and barter activity, for example • Some economic activity is carried out illegally – building work ‘cash in hand’, drug dealing, etc. • Work of the non-paid may notIt might not be pleasant, but what he finds among be considered but maythe refuse could be all he has. contribute to welfare – charityTitle: Sierra Leone Liberia. Copyright: Photolibrary Group work, housework, etc. Ajay Kumar 16
  17. 17. Development Ajay Kumar 17
  18. 18. Development• Development incorporates the notion of a measure/measures of human welfare• As such it is a normative concept – open to interpretation and subjectivity• What should it include? Ajay Kumar 18
  19. 19. Development• Levels of poverty – Absolute poverty – Relative poverty• Inequality• Progress – what constitutes progress? Our definitions of progress may be highly subjective. What has progress brought to native tribes people across the globe? Title: Navajos refuse casino riches. Copyright: Stock.Xchng Ajay Kumar 19
  20. 20. Development• Other considerations of human welfare:• Political freedoms?• Sustenance?• Self esteem?• Proportion of activity in different sectors of the economy: – Primary – Secondary – Tertiary SUSTAINABLE DEVELOMENT Ajay Kumar 20
  21. 21. Development• Development is sustainable if it “meets the needs of the present without compromising the ability of future generations to meet their own needs.” Ajay Kumar 21
  22. 22. Development Copyright: Photolibrary Group• Iraqis have supposedly been given their freedom following the American led ‘Operation freedom’ but has it improved welfare? Ajay Kumar 22
  23. 23. Human Development Index Ajay Kumar 23
  24. 24. Human Development Index (HDI)• HDI – A socio-economic measure• Focus on three dimensions of human welfare:• Longevity – Life expectancy• Knowledge – Access to education, literacy rates• Standard of living – GDP per capita: Purchasing Power Parity (PPP) Ajay Kumar 24
  25. 25. OTHER MEASURES Ajay Kumar 25