economic development

1. 1

2. PRO. SULTAN MANZOOR
(Superior Group Of College)
2

3. Introduction
Economic development is a great significance for
every country. If a country is economically
developed, it can enjoys great influence in this
world. If a country is economically backward, it is
not able to enjoy good relationship with the world
and its citizens are bound to live in poverty without
sufficient facilities.
3

4. “Economic development is a process whereby
an economy's real national income increase
over a long period of time and if the rate of
development is greater than the rate of growth
of population, then the per capita income will
increase.” (Meier and Baldwin)
or
“ Economic development is a process in which
output of a country increases over a long
period of time.”
4

5. Developing Countries
“Developing countries have populations with
poor health, low level of literacy, inadequate
dwellings and meager diets.”
Undeveloped Countries
Undeveloped countries are those whose per
capita incomes are less than that one quarter
of the United state.
5

6.  Vicious circle of poverty
vicious circle of poverty is an unending process of poverty. Saving
rate in developing countries is low. Saving depends on will to save
and power to save. In under develop countries the level of people's
income is very low. They are in circle of poverty due to low saving
and investment
 Low per capita income
Another other characteristic of developing countries is that per
capita income is low because national income is low and population
growth rate is very high.
 Shortage of capital
Another common characteristic of developing countries is that
there is a shortage of capital because of low level of income, low rate
of saving , low rate of investment, and unfair distribution of wealth.
6

7.  Backward industrial sector
These countries have backward industrial set up. The
main cause is low saving and its improper utilization.
 Under utilization of natural resources
There is a shortage of natural resources in the
developing countries and those are under utilized
due to shortage of capital, skill, knowledge,
technology.
 Hoarding
In developing countries like Pakistan, people have
the habit of hoarding precious metals , stones, and
currency. Gold and silver are used as ornaments
instead of productive purposes.
7

8.  Unfair economic and political power
For many less developed countries, an important factor which
is responsible for low level of economic growth and
development is unfair distribution of economic and political
power between rich and poor.
 Export of raw material
Developing countries mostly export raw material and primary
products. Almost 50 to 60% of export contain raw material and
primary products. Which is making their balance of payments
adverse.
 Heavy imports
To meet the desires and particularly for industrialization ,
developing countries have to import machinery, chemicals
technology etc which has bad effects on balance of payment.
 Unemployment
It is due to high G.D.P and lack of opportunities. In
agriculture these countries have disguised unemployment and
outside the UDCs, have open unemployment.
8

9.  High population growth rate
A major common problem in developing economies is high
population growth rate. But quality population is not improving
with the same rate. 40 to 50 % of population is the part of
effective population while it should 60 to 70%.
 Weak infrastructure
Underdeveloped countries have inadequate communication
and transportation. State of technology is poor in these
countries. Commonly people in U.D.Cs have inadequate training
and occupational skills. Illiteracy is also a hurdle in their
development path.
 Political instability
Rapid change in governments and policies is also a major
cause of underdevelopment of these countries. Frequent
change in government policies affect the level of investment in
country .
9

10.  High illiteracy
It is a common feature of UDCs. The literacy rate of
developing countries is very lower compared to advance
countries.
 Poor health
Many people in developing countries fight a constant battle
against disease and ill health.
 Burden of international debts
Most of the developing countries are depending on foreign
economic loans to meet the short fall in domestic savings and
for quickening the pace of economic development. In Pakistan
the external debt has increases at a rapid pace.
10

11.  Limited use of technology
In developing countries people cannot use modern technology
due to shortage of capital. Labour is unskilled , untrained and
uneducated. Modern means of production are not used to which
industrial and agricultural sector are under developed.
 Poor administration
There is a lack of entrepreneurial abilities. Generally primary
occupational and dominate in these countries. Therefore lack of
training and illiteracy are also among its causes.
 Foreign aid and loan
For economic development these countries obtain loans and aid
from advanced countries give loans along with hard terms and
conditions which is indeed an undue interference in the internal
affairs of an aid receiving countries.
11

12.  Brain drain (Migration of skilled persons)
There is an outflow of the best and brightest student from
developing countries to developed countries. They are thus not
entrepreneurs of economic growth for their own countries
 Unproductive expenditures
In developing countries a lot of capital is used for unproductive
purposes ( wedding , birthday ceremonies etc).
 Out dated technology
The technological backwardness in these countries is due to
absence of technical know-how, capital deficiency, shortage of
foreign exchange etc.
12

13.  Imperfect market
The imperfect market restricts the transfer from less
productive to more productive employment. Due to imperfect
markets factors of production are not mobile
 Social and cultural factors
Underdeveloped countries have also some factors such as
caste system, religious views and joint family system which
affect their economic development.
 General poverty
The people living in developing countries are poor. Mostly
people in under developed countries are facing the shortage of
food, clothing and shelter etc.
13

14. These were the features of under-developed
countries. There is no hard and fast rule that a
country may have all the feature but it may
have some of them
14

15. There are a number of measures which have been
used to estimate the economic development of a
country. These measures, in brief, are
1. Increase in real GNP
2. Increase in real per Capita income
3. Human development of life Index
4. Physical quality of life index
15

16. Economist like Sinder and Meier and Baldwin are in favor
of this method. Before 1970 this method was
considered as most important indicator of economic
development.
GNP:
GNP is the value of all goods and services being
produced by the nationals of the country
In a given period of time usually a year
Real GNP:
Real GNP is arrived at by deducting the value of
inflation from nominal GNP.
Real GNP= Nominal GNP- Inflation
Nominal GNP:
Nominal GNP is the value of GNP at current prices
16

17. Criteria:
 According to this method if the real GNP of a
country increases in a particular period of time,
this country will be considered economically
developed.
 If the real GNP of a country does not increases in
a particular period of time, this country will not be
considered economically developed.
Before 1970 economic development was regarded
as an increase in national products of country over a
long period of time. The long run expansion in
production was achieved by rapid industrialization of
country at the expense of agriculture and rural
development. The growth and development at that
time mainly mean the growth of material.
17

18. Per Capita Income ($ 1,370)
Per capita income is per person income of
country in a given period of time usually a year.
P.C.I =Total national income/Total population
Real per capita income is arrived at by
deducting the value of inflation from nominal per
capita income.
Real per capita income:
R.P.C.I = Nominal Per capita income - inflation
Real per capita income is the value of per
capita income at constant prices of some base year.
Nominal per capita income is the value of per
capita income at current prices.
18

19. Criteria:
 According to this method if the per capita
income of a country increases in a particular period
of time, this country will be considered
economically developed.
 If the per capita income of a country does not
increases in a particular period of time, this country
will not be considered economically developed.
Another traditional measure of economic
development was increase in real per capita income of
country. It was considered at time that if the rate of
growth of income per capita increase over a long
period of time, it would indicate that the country was
moving toward higher stander of living and achieving
economic goals. The increase in real per capita
income can achieved if the nation has the ability to
expand its output at rate faster than the growth of
population.
19

20. This method was presented by “United nations
development Organization” in 1990. under this
method development in a country is judged by
following points.
 Health facilities
 Education
 Decent living stander
 Political Freedom
 Human Rights
 Self respect
20

21. Criteria:
 According to this method if the above
mentioned facilities are being provided in a
country that country is making economic
development.
 According to this method if the above
mentioned facilities are not being provided in
a country that country is not making
economic development.
21

22. This is relative a new approach of measuring
economic development. Under this approach
development is measured by two points.
 Reduction in poverty
 Satisfaction of basic needs
Criteria
According to this method if poverty is decreasing in
a country and basic needs of the people are being
fulfilled in a country that country is making economic
development.
According to this method if poverty is not
decreasing in a country and basic needs of the people
are not being fulfilled in a country that country is not
making economic development.
22

23. Most economists consider real GNP method as best
method for measurement of national income due to
following reasons:
 National income is the name of country's production
in period of one year and increase in goods and services
of country is indeed economic development.
 United Nations and most of the members also use this
method.
 Countries having high rate of per capita income are not
in the list among develop nations like Arab countries.
Because per capita income is not a suitable stander.
 Countries having high national income like Germany,
Japan are included in economically developed nations.
 Ultimately National Income is real indicator; other
indicator s are derived from national income like per
capita income is derived from national income.
23

24. All LDCs have a common feature that is vicious circle of
poverty. Vicious circle of poverty refers to the economic
backwardness. If a country's economy start and ends at
economic backwardness then the country is in a close
sided figure of poverty i.e. Vicious Circle of Poverty.
When economic backwardness in an economy
happening both as a cause and as an effect then it is a
vicious circle of poverty.
“A country is poor because it is poor”
(Nurkse)
24

25. What is V.C.P?
The most common characteristics of LDCs
is vicious circle of poverty. Vicious circle refer
to economic backwardness. According to
“Nurkse”
“Less developed countries remain poor due
to certain obstacles. These obstacles react upon
one another in such a way that they form a
vicious circle, which keeps a country at low level
of development,”
25

26. SUPPLY SIDE:
LDCs have little ability to save due to low
level of income. Low saving leads to low
investment and low productivity, which
adversely affect the per capita income in the
country. Low per capita income and high
consumption again create the problem of low
saving capacity and keep them in a circle which
is called vicious circle of poverty.
26

27. Supply Side
Low level of saving
Low level of investment
Low level of production
Low per capita income
27

28. DEMAND SIDE:
On the other hand, low level of income
reflect low level of demand, which
shows less incentive for investors and
negatively affects the rate of investment
in country. Due to low rate of
investment, productivity of factors of
product also remains low.
28

29. Demand Side
 Low level of demand
 Low level of investment
 Low production
 Low per capita income
29

30.  Optimum utilization of resources
 Saving and its utilization
 Awareness
 Role of government
 Self employment schemes
 Population skill and research
 Attracting foreign investment
 Foreign technical assistance
 Foreign aid/ loan
 Political and social contributions
 Use of hording
30

31. Optimum utilization of resources
Generally, by definition, developing countries have potential to become
economically developed. Sometime resources remain undiscovered in
developing countries and also are not utilization
Appropriately. For instance in Pakistan different survey reveal that the country
is resourceful country. Unfortunately we are not getting benefit from them.
Saving and its utilization
where saving depend on will and power to save saving also need an
atmosphere for their utilization.
Awareness
Financial institutions should properly propagate their schemes to public to
develop awareness among people. Majority of our population live in rural
areas. People in rural areas hoard money and make I stagnant. Saving schemes
should be started in these areas.
Role of government
Government should promote safe investment schemes. In this regard
Government should issue securities launch different schemes for saving ,
corporate bond etc. Government should also start credit schemes. Credit
should be given only to deserving person.
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32. Self employment schemes
To break vicious circle and to utilize all resources effective self
employment schemes should be started. Short term loans should be
particularly provide to skilled persons. A large number of job
opportunities can be created through effective self employment
schemes.
Population skill and research
It is beneficial for our economy if we control the growth rate of
population . It is also necessary to increase the quality population. If we
equip our population with skill and education then the labour force
would help the industry and other sector of economy.
Attracting foreign investment
By stabilizing our internal situation and by introducing opportunities of
investment to the countries abroad , we may attract foreign investment
in Pakistan.
Foreign technical assistance
To train our own labour force initially we should import technicians from
abroad, development of human capital and research is an important need
of time. In this regard foreign technical services can be hired.
32

33. Foreign aid/ loan
with a care foreign loans can also be obtained initially in order to
compensate deficiency of capital in Pakistan . Positively these loans
should be used for development purpose.
Political and social contributions
Very important to break vicious circle of poverty are political sustained
policies, honest and efficient administration etc., which can really help
us. Planners should make effective economic plans. Government
should work for sole objective of Pakistan's development
Use of hording
Mostly in Pakistan people do save money not for sake of investment .
But they keep their money in a stagnant form, Which is hoarding . 3%
of Pakistan's national income is hoarded. Dishoarding in Pakistan can
increase the capital which is very important in this regard. A sound
network of capital institutions particularly in rural areas can increase
capital formation rate in Pakistan.
33

34. Capital formation is one of the major factor that
play very important role in economic
development of a country. Capital formation is
process of forming new assets in the country.
Basically it is real economic development. These
assets are formed by utilizing resources of the
country productively.
34

35. According to Prof. Thomas
“ That wealth of individual and of communities
other than land which is used to assist in
production of further wealth”
35

36. According to Prof. Dillard
“ Increase in real assets of a country is capital
formation”.
Real assets means dams , bridges, factories etc.
According to J.L Hanson
“ It is also known as capital accumulation. It
means increase in a country's stock of real
capital”.
“Capital formation consists of both tangible goods
like tools, and machinery and intangible good like
high standard of education, health, scientific
research”.
36

37. There are two ways of accumulated
capital in a country.
Internal sources
External sources
37

38. These are the domestic arrangement to
accumulate capital in a country. All domestic
efforts to accelerate development are the
internal methods of capital formation.
Savings
Saving is the part of income that is not consumed. Saving
should be used for investment purposes. For the promption of
saving, a country should have efficient and reliable capital
market so that people can invest their surplus incomes in banks,
stock exchange and purchase of bonds etc.
 Voluntary Saving
 Involuntary Saving
38

39.  Voluntary Saving
Voluntary saving are those which one saves after ones own
will without any compulsion and by force.
There are two main resources of voluntary savings.
1. Household sector
2. Business sector
 Involuntary Saving
In voluntary saving are those which one saves with
compulsion and by force from someone.
In developing countries, the income per capita of people is
low. The governments therefor adopt certain measures which
restrict consumption and increase the volumes of savings. The
traditional methods used for increasing the volume of saving
1. Taxation etc
39

40.  Use Of Hoarding
Mostly in Pakistan people do save money not for the sake of
investment. But they keep their money in stagnant form, which
is hoarding. Dishoarding in Pakistan can increase the capital
formation. A sound network of capital market institutions
particularly in rural areas can increase capital formation rate in
Pakistan.
 Government Borrowing
Government can increase capital formation through internal
borrowings in this regard issuing corporate bonds and
securities are important.
40

41.  Use Of Idle Resources
In Pakistan natural and human resources remain idle
like we have land where cultivation can be done. We also
have sick industrial units. Capital can be accumulated in
our country if we utilize all these known resources and
discover new ones. In Pakistan's agriculture there exist
disguised unemployment. This can be reduced if these
people would be accumulated in primary industries.
 Deficit Financing
When all the traditional methods by the government to
collect revenue become inadequate then government
issue currency note without keeping reserves or borrows
money from SBP. Which is artificial way to meet the
development expenditures; issuing of new currency notes
or borrowing from S.B.P is deficit financing.
 Private Development Program
Not only government alone is responsible for
construction of bridges , dams etc. Private individuals and
entire community is itself responsible for construction of
roads, dispensaries etc.
41

42. These are the arrangements and efforts obtained by
other countries and international agencies.
Particularly developing countries like us have to make
these arrangements in order to increase capital
formation.
 Foreign Investment
we have been facing inadequacy of domestic capital and have
to rely on foreign investment. Investment level can be improved
in Pakistan if we attract foreign investment to Pakistan. In this
connection we should introduce our potential abroad. This can
help us to bridge the gap of saving and investment.
42

43.  Foreign Aid And Loan
Another way is by obtaining foreign loans and aids which
can compensate the deficiency of capital in Pakistan. A country
has also to be careful in obtaining loans as the aid giving
countries like to have such countries on the hook. In a way they
succeed in influencing their internal as well as external affairs.
 Restrictions On Imports
To appreciate local industries we have to discourage
imports. Only necessary items should be imported. Particularly
the import of luxuries should be restricted. This arrangement
encourages local industry And on the other side correct balance
of payment
 Import Substitutes
Making of substitutes of imported commodities obviously
restricts imports and also internally helps in capital formation
by promoting local industries
43

44.  Increase In Employment
Capital formation increase the opportunities of
employment. In this way it solves the problem of
unemployment. Establishment of new industries,
construction of roads and dams increase the chances for
employment.
 Increase In Trade And Commerce
Market size increase and agricultural and industrial
development activates trade and commerce activities in country.
Capital formation promotes chances to investment, transport
etc. which accelerate the growth of economic development.
 Import Substitute
Making of substitutes of imported commodities
obviously restricts imports and also internally helps in
capital formation by promoting local industries.
44

45.  Self Reliant Economy
Due to capital formation, a country minimizes the foreign
assistance, aids, and loans. Full utilization of internal resources
and increasing rate of saving promotes development. The self
reliant policy is ideal for development.
 Full Utilization Of Resources
Optimum utilization mostly depends on the accumulation of
capital in a country. Idle resources can be utilized with
adequate amount of capital. Full utilization of resources
strengthens the supply side.
 Technological Changes
New technologies are also introduced due to capital
formation. Which minimizes cost and maximizes profit. These
new techniques give large amount of production within a short
span of time.
45

46.  Improvement Of Infrastructure
To build up infrastructure like, roads, power, communication
system means of transportation, law etc., has important effect
on capital formation.
 To Improve The Balance Of Payment
Improvement in balance of payments is another important
role in capital formation. Most of LDCs spend their income on
the payment of imported goods. With the help of capital
formation a country can produce goods to avoid imports.
 Expansion Of Market
Expansion of market is also fruit of capital formation. By
making investment in agricultural and industrial sector,
production of these sector can be increased. Thus surplus
production could be sold in new markets to get maximum
benefits
46

47.  Vicious circle of poverty
Vicious circle of poverty is the common feature of
developing economies. In Pakistan income levels are low and
consumption is high. As a result people cannot save and capital
formation remain low.
 Hoarding
Pakistanis have their own conviction and keep their savings
stagnant in their houses. They do not utilized it for investment
purposes.
 High growth rate of population
High population growth rate is very bad sign for the capital
formation. Due to this the capital formation cannot be
enhanced because of high level of expenditure.
47

48.  Unproductive expenditure
In developing countries a lot of capital is used for
unproductive purposes ( wedding , birthday ceremonies etc).
This is a big cause of low capital formation.
 Unequal distribution of wealth
In Pakistan there is concentration of wealth in few hands.
The poor class cannot save and on the other hand the rich
spend their wealth on luxuries.
 Market imperfection
Markets are limited in Pakistan .there are disturbance in demand
and supply mechanism. Mostly manufactures form small scale industry
and small agriculturists accept lower prices which lower their incomes.
Having low incomes money cannot be saved and resultantly rate of
capital formation remain low.
48

49.  Consumption of imported goods
Large amounts of saving are spent on the import of
consumption goods which increase the incomes of foreign
countries and national industry remains underdeveloped and
provides less employment and low incomes to people.
 Export of raw material
Due to export of raw material and semi finished goods,
revenues derived from exports remains low and government
have to face deficit in balance of payment.
 Weak infrastructure
In Pakistan basic infrastructure is weak which is cause
of under development of agriculture and industrial sector,
so the per capita income in these sectors is low.
49

50.  Capital flight
Due to political instability, weak infrastructure facilities,
people refer to invest their money somewhere abroad.
 Capital market inefficiencies
Capital market promote saving and investment. We have
inefficient capital market. Due to recent cooperative collapse in
Pakistan, people have lost their confidence over capital market.
50

51. Introduction
Many economists believe that the quality of
labor inputs or human capital is very important
for economic development. Only population
cannot help in the development of country but
if training, education, skills etc is given to
population then it can increase the pace of
economic development.
51

52. Definitions
“ The skills and knowledge of human
beings” (Michael Parkin)
“The process of acquiring and increase
the number of persons who have the skills,
education, and experience which are critical
for the economic and political development
of a country” (Prof.Harbinson)
52

53. Economic Aspect
 Co existence
 Full utilization of resources
 Effective planning
 Maintenance of machinery
 Infrastructure
 Industrial performance
 More productive
 Self employment
 Modern technology
53

54. Co existence
we know that actual capital formation is
important but along with that human capital is
necessary for proper utilization of the capital.
Full utilization of resources
Only the increase in saving and investment is
not enough for full utilization of resources,
human capital formation is also required.
Effective planning
Effective planning is possible only if there are
a large number of engineers, doctors, teachers,
scientists in the country.
54

55. Maintenance of machinery
More import of machinery, technology cannot
alone help the economy, trained, skilled people
are required to run and maintain the machines/
equipment.
Infrastructure
Human capital is the part of country's
infrastructure so investment in this sector is
essential
Industrial performance
Industrial performance are increase if it is
working on the principle of division of labor. It is
possible only when economy has specialized
labor.
55

56. More productive
To improve the efficiency of population ,
investment in human capital is necessary for
modernization of a society.
Self employment
Schemes of self employment can be
implemented properly if country has better
qualified and trained human capital.
Modern technology
Use of modern technology is required for
development. It can be adopted when country's
population has enough qualities.
56

57. Historical Aspect
Japan and Germany are countries which built their
economy on the basis of technological advancement,
know how and education.
There is general agreement among government advisor
in United state that it will be necessary to increase
investments in human capital. They tell us that a dollar
invested on education brings a greater increase in
national income than a dollar invested on dams, roads,
factories.
Social Aspect
It is observed that literacy & education provide a
balanced approach towards life. The educated people
remain busy if they are trained & skilled & also enjoy their
lives.
57

58.  Unawareness
 High increase in population
 Unequal distribution of wealth
 Defective system of education
 Shortage of health facilities
 No facilities of on job training
58

59. Unawareness
People are not aware of the usefulness of the
available resources as they do not have enough
knowledge to judge the hidden benefits.
High increase in population
The population of almost all developing countries
including Pakistan is increasing faster than rate of
accumulation capital. As a result, the countries are
not making satisfactory use their resources and
physical capital.
Unequal distribution of wealth
In developing countries of world, due to
inequality of income, only rich can afford higher
and quality educations as professional education/
studies are costly as compared to basic education.
59

60. Defective system of education
In this respect, no proper plans are made. There
is no strategy for providing solid base to the
students. Most of people think it essential to get
primary education and no pay attention to
secondary education.
Shortage of health facilities
In the less developed countries of the world,
there is shortage of trained nurses, qualified
doctors, medical equipment, machines etc. The
less availability of health facilities is a threat to
millions of the people living there.
No facilities of on job training
On the job or service training is very essential for
improving or acquiring of new skills to the
persons employed in various occupations. In LDCs
least importance is given on the job training for
the employees.
60

61. Generally inflation means rise in prices. If value
of money falls owing to rise prices, it called
inflation. In economics, inflation is an economic
situation when the value of money is falling and
prices are rising. This situation arises when
equilibrium of demand and supply is disturbed.
In other word, the demand for goods is more
than their supply.
61

62. “ when the price level rises continually with a
great speed, this situation is called inflation.”
(Prof.
Gardener)
“ Inflation is a situation when demand for goods
and services has become greater than their
supply”
( Prof.
A.P.Lerner)
62

63.  Increase in the quantity of money
 Increase in demand of goods
 Increase in cost of production
 Development expenditure
 Inflation on international level
 Rapid increase in population
 Increase in investment
 Export policy
 Smuggling and hoarding
63

64.  Monetary Measure
 Open market operation
 Increase in reserve requirement
 Reduction in government expenditure
 Increase in taxes
 Encouragement of saving
 Increase in the production of goods and
services
 Control on prices
 Control on population
64

65. Meaning of Unemployment
“People who are able to work and looking
for job but unable to find suitable paid
employment.”
In other word; Unemployment is the
situation where an able bodied person seek a
job but is unable to find one at current wage
rate.
65

66.  Poverty
 Higher Population Growth
 Shortage Of Capital
 Agriculture Development
 Slow Rate Of Industrial Development
 Use Of Machinery In Industry
 Political Instability
 Seasonal Variation
 General Education
 Biased Attitude For Public Sector Employment
 Lack Of Skills
66

67.  Population Control
 Increase In Capital Formation
 Rapid Industrial Growth
 Small Scale Industries
 Technical Training
 Development Project
 Development Project
 Employment Exchange Office
67

68. Generally, the terms economic growth and
economic development are used to convey the
same idea i.e economic progress. However the
term economic development is more
comprehensive in scope. Growth means
persistent increase in per capita income of
country. While development includes growth
and infrastructural , social, political changes in
country.
68

69. Economic development
“ Development must be conceived for as
multidimensional process involving major
changes in social structures, people attitudes,
and national institutions as well acceleration of
economic growth, the eradication of poverty
and reduction of inequality of wealth”
69

70. Economic growth
“Economic growth is a steady process by which
the productive capacity of economy is increased
over time to bring about rising levels of national
output and income.”
Analysis
Economic growth = Annual increase in per capita
income
Economic development = economic growth+
structural changes
70