Economic Growth and Development

Learning Outcomes

• Basic knowledge of economic growth, economic development, and their affecting factors can be learned
• The difference between economic growth and economic development can be understood
• The roles of natural resources, capital accumulation, technological progress, population, and human capital in economic growth can be identified
• The impact and measurement of economic growth, along with indices for measuring economic development, can be evaluated
• The impact of economic growth on the general population, and the comparison between economic growth and economic development can be analyzed

Introduction

• Economic growth is a relatively recent phenomenon
• The Netherlands was the leading industrial nation from 1580-1820, with an average annual real GDP per worker hour growth of about 0.2%
• The United Kingdom experienced an annual growth of 1.2% from approximately 1820-1890
• The USA has been the leader since 1890, with an average growth rate of 2.2% per year during 1890-1989
• A modest 2% growth doubles a nation's per capita Gross Domestic Product (GDP) in 35 years
• Increase in the market value of goods and services produced by an economy over time is economic growth
• It is conventionally calculated as the percent rate of increase in real GDP
• Economic growth theory refers to growth of potential output, i.e., production at full employment
• Economic growth generally refers to the increase in per capita income
• Economic development focuses on quantitative and qualitative changes during economic advancement
• Economic growth results in more output
• Economic development results in more output, with changes in technical and institutional arrangements
• Growth involves more output from higher amounts of input and greater efficiency, i.e., increase in output per unit of input

Difference between Economic Growth and Economic Development

• Economic development involves quantitative and qualitative changes in the economy
• Arthur Lewis defined economic development as expanding people's choices
• Economic development focuses on health, education, employment, safety, environmental sustainability, social exclusion, gender empowerment, and infrastructure
• Economic growth, measured by GDP or market productivity, is part of economic development, as Amartya Sen stated
• Economic development expands people’s entitlements, capabilities, morbidity, enrichment, literacy, education, and socio-economic indicators
• Economic growth is only one aspect desired by people, including also nutrition, water, health, schooling, transport, shelter, employment, and jobs
• Non-material benefits often valued like freedom to choose, movement, speech, safety, expression, identity, and empowerment are more important than income
• Economic growth can be rapid without improving life quality
• Per capita GDP increase benefits a small population section, leading to wealth concentration, inequality, and dual economies
• Economic growth sets prerequisites for economic development
• Economic growth, with proper resource distribution and institutional mechanisms, ensures qualitative change, environmental sustainability, and economic development
• There is a correlation between income per head and human development indicators
• The use of additional income affects public education, health, and employment which also affect the correlation
• Initial asset distribution determines economic development, benefiting more people if land and education are accessible
• Growth is the increase in goods and services produced and consumed over time
• Growth should apply to poverty reduction, employment, investment, income distribution, environment protection, and leisure
• Growth should consider income, consumption, production, ‘What?”, “To whom?”, “By whom?”, “For what?”, and “When?”
• Growth is abstract, aggregate, and unbounded
• It implies an infinite horizon, with no limits to income increases
• Matters include national income composition, uses, distribution among beneficiaries, efforts, and conditions of production
• Extra resources from growth spent on public health and education contribute to human development
• National income is inadequate for measuring human development because it counts exchanged goods and services, ignoring inside family work and charitable volunteer work
• Public services are counted at cost, doubling wages appears to double welfare
• National income disregards goods and regrettable necessities like military expenditure, anti-crime efforts, or addictive eating/drinking like food and alcohol consumed, as well as diet industry and alcoholism cures.
• Much of what counts as economic growth involves combating evils, fixing blunders, reversing social decay, borrowing, or shifting community/household functions to the market
• Gender inequality affects opportunity to choose family size
• Smaller families are chosen, without adverse effects, when women have opportunities
• Human development through education, reduced infant mortality, and better medical facilities decreases fertility
• More surviving children reduce population growth by reducing family uncertainty
• Human development curbs population growth
• Reduced population growth advances the news ways of economic advancement
• Sudhir Anand and Amartya Sen divided countries into low, medium and high human development levels
• Basic human development Index ranks low-level countries
• Anand and Sen added indicators to life expectancy, literacy, and GDP per head for medium-value countries infant/child mortality (under five) added to longevity; secondary school enrollment added to education; and income poverty incidence added to income.

Factors Affecting Economic Growth

• Natural resources are the principal components for economic growth
• A country's non-availability of natural resources hinders its rapid development
• Abundant resources do not guarantee economic growth
• Resources must be accompanied by exploitation
• Without proper utilization, natural resources is not able to develop
• Technological advancement helps use resources
• Natural resources can augment economic growth through introducing improved technology
• Value depends on usefulness
• Usefulness relies on adapting/updating technology

Capital Accumulation

• The second most important factor in economic growth is capital accumulation
• Capital is a stock of physical reproducible production factors
• Capital accumulation is when capital stock grows over time.
• Capital accumulation is cumulative and self-sustaining if continuous rise in saving, investment in goods, and intermediaries exist to mobilize saving and divert it

Technological Progress

• Technological changes count as a key factor in economic growth
• It refers to changes in production mode through research or innovation
• Changes in technology increase labour, capital, and other factors productivity
• Schumpeter considers innovation the critical technological factor

Population

• Population growth affects economic growth
• Population growth systematically changes with overall development
• Changes in population growth with development are demographic transition
• High population growth requires more effort
• Higher populations lower per capita income growth
• Family planning decreases growth (incentives for few children), and increases education and permits growth

Other Factors

• Infrastructure development is a determining factor in modern economic growth
• Means of transport and communication are key to infrastructure
• Structural changes determine the shape of economic growth
• Transition from a primary sector to modern manufacturing and service sectors is a structural change
• Structural changes should increase employment, labour productivity, capital stock, and promote new ideas, innovation, or research
• Structural changes begin with population transfer from primary to secondary, and then tertiary sector
• Creation of human capital determines growth like skilled labour (scientists, engineers, managers, etc.)
• Shortage of skilled labour hinders development in LDCs
• Overcoming shortages requires scientific, technological, and various institutions to fill those gaps
• Human endowments, social attitudes, political conditions, and historical factors greatly influence the process of growth
• Social, cultural, political, and administrative factors determine the spirit of adventure, discoveries, and invention