Economic Growth - Business Environment 2020-21 PDF

INSTITUTE: USB DEPARTMENT: GSFA Bachelor of Commerce Business Environment 24CMT-106 By-Dr. Amrita Dhaliwal Economic Growth and DISCOVER. LEARN. EMPOWER Development Factors  Business Environment Course Outcome CO...

INSTITUTE: USB DEPARTMENT: GSFA Bachelor of Commerce Business Environment 24CMT-106 By-Dr. Amrita Dhaliwal Economic Growth and DISCOVER. LEARN. EMPOWER Development Factors  Business Environment Course Outcome CO Statement Performa Level of Target No nce Learning Attainm Indicator (Highest ent BT Level) Will be covered in CO The students would be able to Knowled 1,2 70% this lecture 1 Understand the nature of business ge environment and its components. CO The students would be able to Apply Applicati 3 70% 2 perceptive of the different on government policies and Acts that influence business and the changes that are taking shape in the recent years. CO The students would be able to Analysis 4 70% 3 Analyze various environmental factors and their impact on business CO The students would be able to Evaluatio 5 70% 4 Evaluate the impact of the global n factors on the environment. CO The students would be able to Outline Evaluatio 6 70% 5 framework for organization n and 2 considering factors of business Synthesi  Contents Objective: To provide conceptual understanding of business environment. The following topics are covered in upcoming slides: 1. Introduction To Economic growth. 2. Factors of Economic Growth. 3. Introduction to and Factors of Economic Development. 3  Economic Growth The terms Economic Growth and Economic Development sound very similar. However, the two concepts are different. While Economic growth is a quantitative concept, Economic development is a qualitative concept. Economic Growth is defined as the increase in the money value of goods and services produced by all sectors of the economy per head during a particular period. It is a quantitative measure that shows the possible increase in the number of commercial transactions in an economy. Economic growth can be measured in terms of the increase in the aggregate market value of additional goods and services produced, using economic concepts such as GDP and GNP. Economic growth is a much narrower concept when compared to Economic Development. 4  Economic Development Economic development refers to the process by which the overall health, well-being, and academic level of the general population of a nation improves. It also means improved production volume due to the advancements of technology. It is the qualitative improvement in the life of citizens of a country and is most appropriately determined by Human Development Index (HDI). The overall development of a country is based on many parameters such as standard of living, technological advancements, living conditions, improvement in self-esteem needs, quality of life, the creation of job opportunities, per capita income, infrastructural and industrial development, GDP and much more. Economic development is a broader concept that not only includes economic growth but also improvements in the quality of life and well- being of people. It focuses on reducing poverty, improving healthcare, education, and providing better living standards. 5 Basis of Comparison Economic Growth Economic Development Definition Increase in the monetary growth of a nation in a It refers to the overall development of the quality of particular period life in a nation which includes economic growth Span of Concept It is a narrower concept than Economic Development It is a broader concept than Economic Growth Scope It is a uni-dimensional approach which deals with the It is a multi-dimensional approach that looks into economic growth of the nation the income and as well as the quality of life of the nation Term Short-term process Short-term process Measurement Quantitative Both Quantitative and Qualitative Applicable to Developed Economies Developing Economies Government Support It is an automatic process that may or may not require It requires intervention from the government as all intervention from the government the developmental policies are formed by the government Kind of changes expected Quantitative changes Quantitative as well as qualitative changes Examples GDP, GNP HDI, Per capita Income, Industrial Development 6  Measurement of Economic growth Gross Domestic Product (GDP): GDP measures the total value of goods and services produced within a country over a specific period (usually annually or quarterly). It's a widely used indicator of economic performance and growth. Gross National Product (GNP): GNP is similar to GDP but includes income earned by residents from investments made abroad, and excludes income earned by foreigners domestically. It is a way to measure the total value of all the goods and services a country's people produce in a year, both inside the country and outside the country. GDP (Gross Domestic Product) only measures what happens inside a country. GNP measures everything that happens by a country’s people, no matter where in the world they are. 7  Measurement of Economic growth Per Capita Income: This is the average income earned per person in a specific area (usually a country) over a defined period. It provides insights into the standard of living and economic well-being of the population. Per capita income is the average income earned by each person in a country during a year. It's calculated by dividing the total income of a country by its population. Employment and Unemployment Rates: These indicators show the proportion of the labor force that is employed or actively seeking employment. Low unemployment rates typically indicate a healthy economy and potential for growth. 8  Measurement of Economic growth Productivity: Measures the efficiency of production, usually defined as output per unit of input (e.g., output per worker or per hour worked). Higher productivity often leads to economic growth as more is produced with the same amount of resources. Investment Levels: The amount of money businesses and governments spend on capital goods, infrastructure, and research and development (R&D). Higher investment can stimulate economic growth by increasing productive capacity. Consumer Spending: This represents the total expenditure by consumers on goods and services. Consumer spending is a key driver of economic growth, particularly in consumer-driven economies. Trade Balance: The difference between a country's exports and imports. A positive balance (surplus) can contribute to economic growth, while a negative balance (deficit) may indicate a drain on economic resources. 9  Measurement of Economic growth Infrastructure Development: Investments in infrastructure such as transportation, communication networks, and utilities can facilitate economic growth by reducing costs, improving efficiency, and attracting investment. Business Confidence and Sentiment: Surveys and indices that measure how optimistic businesses are about future economic conditions can provide insights into potential growth trends. 10  Economic Development Economic development refers to the process by which the overall health, well-being, and academic level of the general population of a nation improves. It also means improved production volume due to the advancements of technology. It is the qualitative improvement in the life of citizens of a country and is most appropriately determined by Human Development Index (HDI). The overall development of a country is based on many parameters such as standard of living, technological advancements, living conditions, improvement in self-esteem needs, quality of life, the creation of job opportunities, per capita income, infrastructural and industrial development, GDP and much more. The measurement of Economic development is done taking into account economic growth and various aspects of economic welfare. Since, economic welfare is a qualitative aspect of development; it needs to be measured in some way or the other. Some ways to measure the economic development are as follows: 11  Measures of Economic Development Growth in GNP/GDP Initially, only GDP /GNP was taken as a measure to assess economic development. Increase in GDP/GNP is expected to ensure greater availability of goods and services to a larger part of population with higher standards of living. However, there are several limitations of this method as follows: Increase in Size of GDP does not necessarily mean greater availability of goods and services. Increase in GDP may be eaten away by increasing population leading to no increase or even decrease in per capita income. If GDP is calculated at current prices, it might be increasing due to price rise and there may be no change in availability of goods and services. Sometimes, production for self consumption is not included in GDP due to non availability of data. It makes GDP underestimated. If increase in GDP is brought about by forcing labour to work for longer hours and thereby reducing their welfare, it can’t reflect economic welfare. If the share of capital goods is more in GDP, it will not increase Economic Welfare in the present but in the future. If increase in output is because of increased production of defence goods, even then there will be no change in economic welfare. If increased output is contributed by increase in the production of liquor, cigarettes, tobacco etc. It does not indicate economic welfare. If GDP increases and goes into the pockets of few rich leaving majority in the miserable 12 condition, it can’t be called an indicator of economic welfare.  Measures of Economic Development Per Capita Income as an Index of Economic Welfare Today, increase in per capita real income is taken as an indicator of economic welfare. However, this also has its own limitations as follows: Per capita income does not show the distribution of GDP whether it is equally distributed or unequally distributed. It does not reflect the kinds of goods and services that are being produced and consumed in the society. It may be so that the economy is producing pedigree, anti-aging creams on the one hand and 26% people are living below poverty line as it is happening in India. Economic Welfare also depends on the quality of public goods. Rs. 1, 06,744 Per capita Net national income on India 2023- 2024 (Total Income of area/Total Population) 13  Measures of Economic Development United Nations Research Institute on Social Development selected the most appropriate indicators of development and analyzed the relationship between these indicators at various levels of development. This was an alternative way of measuring economic development. The list of core indicators of socio-economic development is as follows: Expectation of life at birth Consumption of animal protein, Combined primary and secondary enrolment Average number of persons per room Newspaper circulation per 1,000 population Percentage of economically active population with electricity, gas, water, etc. Agricultural production per male agricultural worker Percentage of adult male labour in agriculture Electricity consumption, kw per capita 14  Measures of Economic Development The Physical Quality of Life Index (PQLI) The Physical Quality of Life Index (PQLI) was developed in 1970s by Morris to respond to the dissatisfaction due to use of GNP/GDP as a measure of economic development. It was a relatively simple index taken as average of three figures viz. basic literacy rate, infant mortality and life expectancy at age 1. Each of these were given equal weightage. It was calculated as follows: 15  The Physical Quality of Life Index (PQLI) is a way to measure the quality of life in a country by focusing on basic needs. It doesn't just look at how much money people make (like GDP does), but instead on three key factors that affect people's well-being. The three factors used to calculate PQLI are: Life Expectancy – How long people live on average. Infant Mortality Rate – The number of babies who die before reaching one year of age, per 1,000 live births. Literacy Rate – The percentage of people who can read and write. 16  How PQLI is calculated: Formula: PQLI = (Life Expectancy Score + Infant Mortality Rate Score + Literacy Rate Score) / 3 17  Measures of Economic Development Human Development Index (HDI) HDI is part of the UNDP Human Development Report developed by Pakistani Economist Mahbub ul Haq and Indian Nobel laureate Amartya Sen. Its goal was to place people at the centre of the development process in terms of economic debate, policy and advocacy. “People are the real wealth of a nation,” was the opening line of the first report in 1990. HDI measures average achievements in a country in three basic dimensions of human development viz. A long and healthy life; Access to knowledge; A decent standard of living. The overall index is a geometric mean of three indices viz. Life Expectancy Index, Education Index, GNI Index. They are shown in the following graphics: India ranks 134th out of 193 countries on the Human Development Index (HDI) 18  HDI measures development in three key areas: 1) Life Expectancy (Health) Measures the average life expectancy of individuals in a country. Indicates the overall health and longevity of the population. 2) Education Considers the mean years of schooling for adults and the expected years of schooling for children entering the education system. 3) Standard of Living (Income) Assessed using Gross National Income (GNI) per capita. Shows the economic capacity and wealth distribution of a 19  0–1 Scale: High HDI (closer to 1): Indicates high life expectancy, good education, and strong income. Low HDI (closer to 0): Suggests challenges in health, education, and income. The final HDI is the geometric mean of the three indices: Life Expectancy Index, Education Index, and Income Index. 20  Inequality-adjusted HDI (IHDI) The Inequality-adjusted Human Development Index (IHDI) is like the regular HDI but adjusted for inequality in a country. It shows how much people's access to things like health, education, and income is affected by inequality. HDI gives an average score based on life expectancy, education, and income for a country. But sometimes, that average hides the fact that some people are doing much better than others. For example: Some people might live much longer than others. Some might have better access to education. Some might earn much more money. 21  IHDI < HDI: If there’s a lot of inequality, the IHDI will be lower than the HDI. This means that while the average looks good, not everyone is benefiting equally. IHDI = HDI: If there’s no inequality, the IHDI would be the same as the HDI, showing that everyone has equal access to health, education, and income. 22  Measures of Economic Development Gender related Development Index (GDI) The Gender related Development Index (GDI) measures gender inequalities in achievement in three basic dimensions of human development as follows: Health, which is measured by female and male life expectancy at birth Education, which is measured by female and male expected years of schooling for children and female and male mean years of schooling for adults ages 25 and older. Command over economic resources, measured by female and male estimated earned income 23 24  Measures of Economic Development In order to address shortcomings of the GDI, a new index Gender Inequality Index (GII) was proposed. This index measures three dimensions viz. Reproductive Health, Empowerment, and Labor Market Participation 25 Multidimensional Poverty Index (MPI) The Multidimensional Poverty Index (MPI) is a measure of poverty that goes beyond income to consider various aspects of deprivation. Developed by the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP), MPI evaluates poverty through multiple dimensions, typically including: Education: This might look at school attendance and educational attainment. Health: This can include measures of child mortality and nutrition. Living Standards: Factors like access to clean water, electricity, and adequate housing. 26  Dimensions and Indicators The MPI evaluates poverty through various dimensions, each encompassing several indicators: Education: This dimension often includes indicators such as: Years of schooling: Whether adults have completed a certain number of years of education. School attendance: Whether children of school age are attending school. Health: Indicators in this dimension might include: Child mortality: The number of children who have died before a certain age. 27  Living Standards: This dimension covers several aspects of the quality of living conditions, including: Access to clean drinking water. Sanitation facilities: Whether the household has access to improved sanitation. Electricity: Whether the household has reliable access to electricity. Housing quality: Indicators such as the type of flooring, walls, and roof in the dwelling. 28  Methodology The MPI methodology involves two main steps: Identification: Households are identified as poor if they are deprived in a certain number of indicators. For example, a household might be considered multidimensionally poor if they lack access to clean water and proper sanitation. Aggregation: Once identified, the intensity of poverty is measured by the number of dimensions in which individuals or households are deprived. The MPI combines these deprivations to produce an overall score for each household or individual. 3. Calculation The MPI score is typically expressed as a percentage, reflecting both the proportion of people who are poor and the average intensity of their deprivations. The formula involves: Poverty Incidence (H): The proportion of people who are multidimensionally poor. Average Intensity of Poverty (A): The average number of dimensions from which poor people are deprived. The MPI is calculated as: 29 Assessment Pattern 30  APPLICATIONS After going through this presentation, Students will get an insight into how the to define economic growth. They will also come to comprehend the meaning of economic development. Students will be mindful of the meaning of terms of growth and development. 31  REFERENCES WEBSITES http://wikiprogress.org/articles/initiatives/environmental-performance-index/ https://ideas.repec.org/a/ora/journl/v1y2013i1p403-412.html https://byjus.com/commerce/meaning-and-types-of-economic-system/ https://www.cliffsnotes.com/study-guides/sociology/economics-and-politics/economy-defined. BOOKS. 1) An Evolution of Indian Economy, I.C.Dhingra -NCERT: Sultan Chand & Co, Latest edition. 2) Indian Economy, Mishra &Puri, Himalaya, Students Edition. 3) Indian Economy, Dutt& Sundaram, S. Chand & Company, Delhi, latest edition. 32 THANK YOU For queries Email: [email protected]