Economic Development

Definition of Economic Development
Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising gross national product and per capital income.
According to Lewis,
Economic development means increase in output per head.
According to Micheal Todaro,
Economic development must be conceived of as a multi-dimensional process involving major changes in social structures, people’s attitudes, national institutions, acceleration of economic growth and reduction of inequality.
According to Kindleberger,
Economic development means an increase in output of goods and services in the economy.
It is more important than economic growth because economic development is more comprehensive process than economic growth. Economic growth is a quantitative term as it represents quantitative increase in the production of goods, services and factors of production, whereas economic development is a qualitative terms as it indicates continuous increase in real national income and structural changes in the economy of a country.
Definition of Economic Growth
Economic growth means more production of goods and services growth is measured in terms of an increase in real gross national product (GNP or GDP) or an increase in per capital income.
According to Micheal Todaro,
Economic growth is a steady process by which the productive capacity of an economy increases overtime to bring rising levels of national output and income.

Objectives

Objectives of Economic Development
1. Increase of supply of food, clothing, health and education facilities.
2. Increase in standard of living of the people.
3. Increase in leisure, political freedom and equal opportunities of life.
4. Increase in capital formation that is new buildings and industries.

Measurement

Measurement of Economic Development
Previously four methods including, national income method, per capital income method, welfare method and social indicators method were used for the measurement of economic development of a country but non of them provided an acceptable answer.
According to Prof. Todaro,
The Human Development Index method, which is prepared by United Nations Development Program is the best method, which should be adopted by the nations and organizations.
This method includes the opportunities for education, health, income, employment, environment and economic freedom.
Measurement of Economic Growth
1. Increase in the real gross national product.
2. Increase in the real per capital income.
3. Increase in the general welfare of the masses.
4. Increase in social, economic and human development.

Factors

Factors Needed For Economic Growth
Ability of an economy to produce more goods and services depends on the following factors:
1. An increase in stock and quality of its capital goods.
2. An increase in quantity and quality of its labor force.
3. An increase in quantity and quality of its natural resources.
4. An efficient use of factor inputs so as to maximize their contribution to the expansion of output, through improved productivity.
5. Development and introduction of innovative techniques and new products i.e. technological progressiveness.
6. An increase in level of demand to ensure full utilization of the increased productive capabilities of the economy.
Achievement of a high rate of economic growth is one of the main objectives of macro economic policy. The significance of economic growth lies in its contribution to the general prosperity of the community. Growth is desirable because it enables the community to consume more goods and services. It also contributes to the provision of a greater quantity of social goods and services such as health and education, thereby improving real standard of living of the people. Govt. can stimulate growth process by increasing current spending in the economy through tax cuts by Fiscal policy and by increasing money supply and reducing interest rates by adopting Monetary policy.

Economic Factors

Economic Factors Needed For Economic Development
1. Natural Resources
Natural resources are one of the three main factors of production the other two are labor and capital. Natural resources include area of land, forests, rivers, climate and mines. If a country is rich in better quality of all natural resources, it will develop economically at a fast speed.
2. Capital Formation
It is the process of adding net physical capital stock of an economy. Capital formation creates productive potential for future production. Capital formation has three stages namely

• savings
• financial institutions and capital market for mobilization of savings
• act of investment in machinery and buildings.

3. Specialization
Output is greater as a result of specialization. Specialization enables an economy to use its scarce resources more efficiently, thereby producing larger volume of goods and services. It increases the rate of economic development of a country.
4. Technology
Inventions and innovations reduce manufacturing and distribution costs. Technological progress serves to change cost conditions in the long run; thus technological changes play an important role in the economic development.
5. Transport and Communication
Efficient communication facilities increase the production capacity of all sectors of the economy. It reduces cost of production, increases mobility of goods within and outside the country.
6. Entrepreneurship
If an entrepreneurship is capable, skillful and trained then out put of his organization will be greater. Entrepreneurship results in the introduction of new types of output, new techniques and new sources of supply of inputs for business and industry.

Non-Economic Factors

1. Social Values and Attitudes
It includes culture, religion and life style of a society. Some societies are orthodox and do not like material approach of life. Religion does not allow them to keep themselves busy day in and day out for material prosperity. Most societies believe in festivals and different cultural ceremonies. They do not prefer to save money; hence savings rate reduces too much. In such societies material gains are not appreciated.
2. Political Stability
Strong and stable Governments can prepare five-year development plans, they can enforce monetary and fiscal policies and change social attitudes and institutions, which may be progressive one. The frequent changes in Govt. setup results in the lack of concrete economic policy decisions.
3. Administrative Efficiency
Educated, trained, skillful and hardworking Govt. officers can push development of a country at a very fast speed, whereas untrained administration of a country retards the economic development.
4. Economic Freedom
Private ownership of resources and maximum freedom to deploy these resources in line with profit signals create strong incentives to work hard. If every body is allowed to participate in economic activity, then due to competition the rate of economic development will increase.
5. Right of Private Property
Private ownership of the means of production results in the increase in supply of goods and services. In order to own and accumulate profit and property, people work hard, thus trade and business activity flourishes.

Difference between Economic Development and Growth

Economic Development
Economic development is a qualitative term as it indicates continuous increase in the real national income and structural changes in the economy of a country. It means increase in output of goods and services in an economy. Economic development is more important than economic growth because economic development is wider and more comprehensive process than economic growth. Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising GNP and per capital income.
Economic Growth
Economic growth is a quantitative term as it represents quantitative increase in production of goods and services in an economy. Economic growth is a steady process by which the productive capacity of an economy increase overtime to bring about rising levels of national output and income. Economic growth is the name of more production. Growth is measured in terms of an increase in real gross national product (GNP/GDP) over time or an increase in per capital income.