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Economic development


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Economic development

  2. 2. ECONOMIC DEVELOPMENT Economic Development of a country is influenced by• Economic factors• Non-economic factors
  3. 3. ECONOMIC FACTORS IN ECONOMIC DEVELOPMENT• Economic system• Capital formation• Marketable surplus of agriculture• Foreign trade situations
  4. 4. ECONOMIC SYSTEM• An organized way in which a state or nation allocates its resources and apportions goods and services in the national community• The economic system a country is based on what is best for the country. Determining how an economy works can help you make better decisions as an individual and participate more in issues involving the economy as a whole.
  5. 5. FOUR MAIN ECONOMIC SYSTEMS• Traditional economy• Market economy• Command economy• Mixed economy
  6. 6. TRADITIONAL ECONOMY• A traditional economy is an economy that answers the three questions based on their social customs and how the society has dealt with these questions in the past.• A countrys customs can differ greatly to that of a neighboring country so traditional economies vary from one another.
  7. 7. MARKET ECONOMY• Market forces of demand and supply determines what is needed• Example: USA, JAPAN, etc.• A market economy is great for motivating workers to work harder because they are paid based on what they do.
  8. 8. COMMAND ECONOMY• Centrally controlled economy where the Government makes all decisions• Everyone is given the same amount of goods and the same standard of living and does not motivate• Example: China, Cuba, any communist country or dictatorship
  9. 9. MIXED ECONOMY• An economic system in which both the private enterprise and a degree of state monopoly (usually in public services, defence, infrastructure, and basic industries) coexist.• All modern economies are mixed where the means of production are shared between the private and public sectors
  10. 10. CAPITAL FORMATION• Capital plays a vital role in increasing the level of production• Capital accelerates the pace of growth of a country• Increased savings is necessary for increased level of investment and helps reduce reliance on foreign aid/capital which can be risky
  11. 11. MARKETABLE SURPLUS OF AGRICULTURE• Excess of agricultural output over what is needed for subsistence of rural population is known as marketable surplus• Enhanced productivity and production in agriculture is vital for development• Rise in urban population leads to an increase in demand for agricultural products• Food shortage would force a country to import food grains which in turn would affect the balance of payments position• Indian government was compelled to import huge quantities of food grains till 1976-77
  12. 12. FOREIGN TRADE SITUATIONS• International trade (particularly free trade) benefits all the trading partners• Each country can concentrate on production of items which they can competitively market• Unrestricted trade may result in deficit in balance of payments in developing countries
  13. 13. HUMAN RESOURCES• Population – boon or bane• A country which is endowed with efficient and skilled labor would have high productivity that would contribute to growth• A country with illiterate, unskilled, unhealthy and superstitious people would generally experience low growth• If human resources remain unutilized or underutilized due to inefficient manpower management, the people would become a burden to the economy
  14. 14. SOCIAL ORGANISATION• People’s participation and co-operation in the development process of a country is a pre-condition for accelerating the growth of an economy• People’s participation and co-operation would be forthcoming only when they are assured that benefits of growth would be distributed on a just and fair basis• In reality, some groups of the society is benefited more than the general mass resulting in dissatisfaction towards developmental programs of the government
  15. 15. SOCIAL ORGANISATION Contd…• Indian development experience - Growth of f monopolies in industries - Concentration of economic power in the hands of a few• Agricultural policy also is favorable to the rich peasantry class resulting widespread disparities in rural sector• Government policies resulted in development which is far from being fair and just• Hence, widespread apathy towards development planning in the country
  16. 16. GENERAL EDUCATION AND TECHNICAL KNOW-HOW• Education contributes to increasing the output per man hour• Development of human capabilities through human capital investments is necessary• Advancement in scientific and technological knowledge help man to discover more sophisticated techniques of production that would contribute to enhanced levels of productivity
  17. 17. GENERAL EDUCATION AND TECHNICAL KNOW-HOW Contd…• Most of the capitalist development is attributed to the role played by entrepreneurial class contributing to technological innovations• Lack of increased investments on Research and Development will lead to low productivity and poor competitiveness
  18. 18. POLITICAL FREEDOM• British colonies suffered while Briton’s economy flourished• USA’s development is linked with the underdevelopment of Latin American countries• Netherland’s development is linked to with the underdevelopment of Indonesia• France’s development is linked to with the underdevelopment of Algeria and Indo-China
  19. 19. CORRUPTION• Corruption rampant in most of the developing countries• It slows the pace of development• Scarce resources meant for development tend to be misappropriated
  20. 20. CORRUPTION Contd…• Vested interest groups like capitalists, traders and other powerful economic classes would continue to exploit the nation’s resources their personal gains• Regulatory system misused to get licences• Tax evasion is rampant
  21. 21. DESIRE OF THE PEOPLE TO DEVELOP• Pace of economic growth is to a large extent governed by the desire of its people to develop• People of a country who consider poverty as their fate and resign to it can never be helpe
  22. 22. TECHNOLOGICAL PROGRESS AND DEVELOPMENT• Technology refers to the knowledge about production processes and machines• Technological progress is the change in the technology taking place over time in terms of process or product innovations which renders some earlier technologies obsolete• Process innovation results in change in the production technique while product innovation refers to change in the packaging, color, fragrance or size of the productions• Technology plays a crucial role in the economical development• Sophisticated technology responsible for the development of most the developed countries
  23. 23. TECHNOLOGICAL PROGRESS AND DEVELOPMENT Contd …• Developing countries face difficulties in adopting the borrowed capital intensive technical know - how from developed countries• Farmers in developing country vs developed countries• Large industries like iron and steel, oil refineries, heavy engineering, chemicals and machine tools use most sophisticated techniques• Small scale and cottage industrial sector largely remain labor-intensive
  24. 24. CHOICE OF TECHINIQUES• Choice of appropriate technology is a crucial fact for any underdeveloped country• One technology suitable to ne country may not be equally suitable for all others• Huge population – Labor intensive technology
  25. 25. QUALITY OF LABOUR SUPPLY• In the absence of abundant capital supply, a country would adopt labor intensive technology rather than a capital intensive technology
  26. 26. LABOUR IN COMBINATION WITH CAPITAL INTENSIVE TECHNOLOGY• Labor utilization in developing countries may also create situations and conditions that encourage the adoption of capital intensive technology• Certain situations• Both price and efficiency of labor may be low in developing countries due to low skill and training, malnutrition, knowledge, poor adherence to factory discipline or high rate of absenteeism• Labor in some developing countries tends to be high priced
  27. 27. LABOUR IN COMBINATION WITH CAPITAL INTENSIVE TECHNOLOGY Contd…• Collective bargaining leads to higher wages• Government also tend to artificially raise up labor cost for economic or political reasons• Lack of adequate skilled labor and managerial expertise calls for an optimum combination of labor with capital• Less dependable labor leading to production interruptions and quality maintenance problems encourages the use of more capital intensive technologies to reduce labor usage
  28. 28. IMPORTED CAPITAL-INTENSIVE TECHNOLOGY• When capital is cheap and labor is relatively scarce and expensive in a developing country, import of capital intensive technology happens
  29. 29. LABOUR INTESIVE TECHNOLOGY• Developing country which lacks foreign exchange resources should choose labor intensive technologies• Generates increased employment and output• Import of technology is time consuming and gestation period in the case of usage of labor intensive technology is short• Increasing production in short term is possible using labor rather than using capital intensive technology• Labor does not involve any foreign exchange requirement
  30. 30. APPROPRIATE TECHNOLOGY• Huge import of capital-intensive technology have failed many a time to yield the desired growth and development in developing countries• Such imports have largely resulted in the development of major cities and towns leaving the small towns and rural areas lagging behind and the people continue to remain poof, unemployed and under-employed• Cost of every additional employment created through import of capital intensive technology is high• Use of appropriate technology after weighing various implications is necessary by individual country
  31. 31. INTERMEDIATE TECHNOLOGY• The gap between the technologies of developed and underdeveloped countries is so wide and the later can achieve little success by adopting the advanced technologies due to the following two major reasons:• Technology of developed countries is too expensive for the underdeveloped countries which lack the required resources• Adoption of such advanced technologies would only aggravate the already existing problems of poverty and unemployment in these countries
  32. 32. INTERMEDIATE TECHNOLOGY Contd…• There is surplus labor supply in the underdeveloped countries while capital stock is limited• It will be a serious error to assume that whatever technology is appropriate to developed countries of the West is equally appropriate to developing countries• Intermediate technology is superior to the traditional technologies of the less developed countries which were simple and less expensive compared to those of the developing countries
  33. 33. BUSINESS AND GOVERNMENT• Government Enterprises• Sometimes, government may directly involve in the production of private or marketable commodities or services, because the private sector does not supply them in optimum quantity• Government may also decide to set up its own public enterprise to produce and sell output of natural monopoly industries
  34. 34. Price fixation• The State or Central Government can fix the price of products produced by private or public sector enterprises• Government may enforce price regulation for the welfare and protection of the consumers or revenue generation• The prices announced by the government are known as administered prices
  35. 35. Price fixation Contd…• Examples of administered prices are power tariff, air fare, rail fare, postal rates, prices of petroleum products like LPG, diesel and petrol and prices of rice, wheat, sugar and urea sold through Fair Price Shops• Government may also regulate monopoly price• Government may announce support prices for primary agricultural products in the interest of farmers
  36. 36. Direct intervention• Tax is one of the ways in which government makes direct intervention which directly increases the price of a product• Govt. may impose tax to reduce production or reduce tax or provide tax subsidy to encourage• Tax relief may be given to encourage production in strategic industries• Higher taxes may be imposed to discourage production of commodities which are injurious to health
  37. 37. Indirect intervention• Government intervenes by allocating quotas• Producers are restricted from producing output beyond a prescribed limit by the government• If the government directive is not followed, they would be debarred from any government benefits• Government controls inflation through the price regulation mechanisms• Government intervenes by allocating quotas• Producers are restricted from producing output beyond a prescribed limit by the government• If the government directive is not followed, they would be debarred from any government benefits• Government controls inflation through the price regulation mechanisms
  38. 38. Control of Monopolies• Monopoly enterprises are harmful to the welfare of consumers• Monopolist has a tendency to exploit consumers by charging high prices• Prices may be artificially raised through under production• Monopolies result in concentration of economic power in the hands of a few which interferes with the objective of just and equitable distribution of income and wealth• To avoid such consequences, most governments have passed legislative acts to control their activities• Indian government passed the Monopoly and Restrictive Trade Practice Act 1976