Economic Growth and Development

None of the theories are without its flaws. Economic development is the increase in the standard of living in a nation's population with sustained growth from a simple, low-income economy to a modern, high-income economy. Its scope includes the process and policies by which a nation improves the economic, political, and social well-being of its people. The underdeveloped economy consists of two sectors characterized by a traditional overpopulated rural subsistence sector and zero marginal labor productivity. Thus the primary focus is on the process of labor transfer and the growth of output and employment in the modern sector. This is called Lewis Model for Economic Growth. Two-sector development model is simple and roughly reflects the historical experience of economic growth in the west; however, it has been argued that its key assumptions do not fit the institutional and economic realities of contemporary developing countries. The assumption that the rate of labor transfer and employment creation in the modern sector is proportional to the rate of modern sector capital accumulation; the faster the rate of capital accumulation, the higher the growth rates of the modern sector and faster the rate of new job creation is not always true. Secondly, the nation that surplus labor exists in rural areas while there is full employment in the urban areas has also been questioned. Most contemporary research indicates that there is little general surplus labor in rural locations. Thirdly, the nation of a competitive modern-sector labor market that guarantees the continued existence of constant real urban wages up to the point where the supply of rural surplus labor is exhausted has also been criticized on the grounds of being unrealistic. Economic development is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used when discussing economic development. Although no one is sure when the concept originated, most people agree that development is closely bound up with the evolution of capitalism and the demise of feudalism. Todaro and Smith have identified eight significant differences in initial conditions that require special analysis of the growth prospects and requirements of modern economic development: Physical and human resource endowments Per capita incomes and levels of GNP in relation to the rest of the world Climate Population size, distribution and growth Historic role of international migration

International trade benefits Basic scientific and technological research and development capabilities Stability and flexibility of political and social institutions.

Contemporary developing countries are often less well endowed with natural resources than the currently developed nations were at the time when the latter nations began their modern economic growth. A few developing nations have abundant supplies of natural resources like petroleum, other minerals, and raw materials for which world demand is growing; most less developed countries especially Asia are poorly endowed with natural resources. Another important element is a country's ability to exploit its natural resources and sustain long term. The ingenuity of managerial and technical skills of its people is an important factor on which economic growth is dependant. Economic growth is the increase of per capita gross domestic product (GDP) or other measure of aggregate income. It is often measured as the rate of change in real GDP. Economic growth refers only to the quantity of goods and services produced. The growth of gross national product over time. Calculation is highly complex and does not necessarily relate to improvements in the economic experience of the general population as great disparities of wealth can occur with the bulk of the wealth becoming concentrated in the hands of small elite. A positive change in the level of production of goods and services by a country over a certain period of time. Nominal growth is defined as economic growth including inflation, while real growth is nominal growth minus inflation. Economic growth is usually brought about by technological innovation and positive external forces. Economic growth can be either positive or negative. Negative growth can be referred to by saying that the economy is shrinking. Negative growth is associated with economic recession and economic depression. Economists draw a distinction between short-term economic stabilization and long-term economic growth. The topic of economic growth is primarily concerned with the long run. The short-run variation of economic growth is termed the business cycle. In 1377 an Economists describe the Economic Growth like this: When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life.

The modern conception of economic growth began with the critique of Mercantilism (An economic system (Europe in 18th century) to increase a nation's wealth by government regulation of all of the nation's commercial interests), especially by the physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam, and the foundation of the discipline of modern political economy. They stressed the importance of agriculture and saw urban industry as "sterile", Smith extended the nation that manufacturing was central to the entire economy. Six characteristic features manifested in the growth process of almost every developed nation:

High rates of growth per capita output and population High rates of increase in total factor productivity High rates of structural transformation of the economy High rates of social ideological transformation. The propensity of economically developed countries to reach out to the rest of the world for markets and raw materials. The limited spread of this economic growth to only a third of the world's population.

Why Investment is Important for Economic Growth: Investment is when money from profits made is used to buy products that aid production in order to increase the quality or quantity of the output. Investment is normally in new capital. This will increase output from normal and also mean that they would be getting more out than they were putting in. The UK economy at the moment is not as productive as the Japanese or the American economy. The Japanese invested loads of money into new modern capital after the World War 2. This is why they are doing well. Whilst American productivity is twice that of the UK. This is because the Americans had recently over time invested a lot into buying new capital to the point that they now have too much. The UK economy is suffering, as they have not spent much in recent years investing in capital. The capital they use now, are old and not as efficient as what the other countries have. The two most economically powerful countries in the world both have modern capital and the UK is slowly falling further and further behind them. This is why it is necessary to rebuild the UK economy to its old stature when the UK was the strongest power in the world. What are the main advantages and disadvantages of economic growth? The main advantage of economic growth is that it improves living standards. (As measured by real G.D.P. per capita) Then Growth also stimulates higher employment levels. Economic growth also has positive effects on government finances because of government benefits. The last significant advantage of economic growth is that it makes it easier to redistribute income to the poor.

The disadvantages of economic growth are that the economy will grow too quickly and therefore, there might be a danger of inflation. Growing income and wealth inequalities in societies are also disadvantages. Negative externalities are also given off (pollution and congestion) which damage social welfare and there will also be a depletion of non-renewable resources, such as North Sea oil, which will eventually run out. What are the main causes of economic growth? There and two types of economic growth. Short run and long run growth. Short run economic growth can be caused by consumer expenditure, investment expenditure, government spending, exports and imports increasing. Long run economic growth though, can be increased by increasing the factors of production in the economy. These include, land, labor and capital. Long run economic growth involves an increase in the productive potential of the economy. Land includes natural resources and if a country is rich in natural resources, its economy is likely to grow. North Sea oil contributed 2-3% a year to economic growth in the 1980s. But the economy only grows if there is demand for the resource and if it has a high market value. On the labor side, economic growth is caused by labor as an increase in population makes it possible to increase the countrys output. But this also does not mean that income per head is growing. Increasing the quantity and quality of the workforce with training, education and experience also increase the size of the workforce. Economic growth also increases with the stock of capital. More capital increases productivity. This is due to investment in technology, growth of new industries and new techniques in production. Economic growth can be caused by massive growth in consumer spending. This is because if the government lowered interest rates to try and make people buy more and spend less. People will go out and borrow money to buy houses and cars, which they would normally not be able to afford. This results in massive economic growth. Economic Growth is clearly seen as a desirable objective for all economies. It is obviously important for the Pakistan to keep growing at a similar rate as other rich economies globally, in order to remain competitive in terms of trade. The main advantages of economic growth include: Higher levels of Employment or lower unemployment, however you look at it! An economy where demand is rising and businesses are growing is likely to have in it ample capacity to employ more and more people in its growing industry. If growth leads to higher employment and higher wages, then it follows that tax revenues increase also. This might allow replenishing some of the Budget Deficit. Living Standards tend to improve in a growing economy. Living Standards are generally measured in real GDP per capita, so if Real GDP really...u knows but I here want to quote the example of BRIC countries. Which are the countries developed in a real manner for their societies and growth is awesome.

Now if I say that is economic growth is necessary for economic development. The answer to this is a big no. Means economic growth is not a single condition for economic development.

Todaro says: Development is not purely an economic phenomenon but rather a multi dimensional process involving reorganization and re orientation of the entire economic and social system. Raising peoples living levels, i.e. incomes and consumption, levels of food, medical services, and education through relevant growth processes. Creating conditions conducive to the growth of peoples self esteem through the establishment of social, political and economic systems and institutions which promote human dignity and respect. Increasing peoples freedom to choose by enlarging the range of their choice variables.

Must Read: To some extent we say that economic growth may result in an improvement in the standard of living of a relatively small proportion of the population whilst the majority of the population remains poor. It is how the economic growth is distributed amongst the population that determines the level of development. Taking into consideration the trickle-down theory of economics by Lewis, if the growth in economy is not sufficient to satisfy the needs and wants of the upper sections, nothing or very little shall trickle down to the lower sections in the hierarchy of society. Thus, the gap between the rich and poor widens and though economic growth has impacted a certain section of society, this cannot be considered development. Economic growth is not enough in itself to measure economic development as even if there has been a leap in the income of people in a particular nation, but the inflation rate is very high, then economic development cannot be claimed as having taken place. Undoubtedly economic growth and economic development are complementary. Economic development may be considered our short term goal towards the achievement of utopia in the long run, and economic growth is one of the myriad essential factors necessary for bringing about economic development, a much broader term concerned with a lot more than just the monetary aspect of development. Hence it may be said that Economic growth is a necessary but not sufficient condition of economic development. Does economic development always lead to improvement in living standards? Economic development may be defined as sustained increase in the economic standard of living of a country's population, normally accomplished by increasing its stocks of physical and human capital and improving its technology. The Standard of living refers to the level of material comfort as measured by the goods, services, and luxuries available to an individual, group, or nation. The term standard of living also encompasses the quality of life, which takes into account not only the material standard of living, but also other more subjective factors that contribute to human life, such as leisure, safety, cultural resources, social life, mental health etc.

Thus it is evident that economic development does not always lead to an improvement in living standards, due to its limited scope and inability to impact the non materialistic aspects of human life in Capitalists countries. But here I want to Discuss the Economic Growth and Development in the BRIC Countries: B: Brazil R: Russia I: India and Iran C: China These are the countries that are developing without capitalism and having more economic growth with more betterment of resources with more health, mental health, social life and cultural life betterment so growth is a vision it is not the result of policy of some of the industrialists it is result of policy of those people who have the vision of growth and development in actual terms the REAL GROWTH as it really means. And also the way for economic development rules and policies given by Molana Obaidullah Sindhi and Shah Waliullah are really awesome and better for the whole society mean no single person remains in the society who is poor. But due to restrictions and Capitalism system in Pakistan I am not going to discuss those here. Also there were examples in the history of Russia that Russian revolution and development was due to Molana Obaidullah Sindhi. There are examples quoted in Russian history.