Page 10 - DECO501_ECONOMICS_OF_GROWTH_AND_DEVELPOMENT_ENGLISH

Economics of Growth and Development

Notes 5. In an underdeveloped economy, the fundamental problem is that of output, real income or the
standard of living, as these economies are characterised by low productivity, low income and
a poor standard of living. A vast majority of people in an underdeveloped country are ill-
clothed, undernourished and without adequate shelter. To use Rostow’s terminology,
economies of poor countries similar to those of a traditional society, where modern science
and technology are either not available or not regularly and systematically applied. On the
other hand, most of the developed countries at present enjoy a high rate of mass-consumption.
In their economies, per capita real income has risen to a level at which a large number of
people can afford consumption transcending food, shelter and clothing.
6. Capital deficiency is the main cause of poverty of a poor country, while affluent capital
accumulation is the main cause of stagnation of an advanced country.
7. In an underdeveloped economy, the problem of under-employment is more important than
that of unemployment, whereas a developed economy may have a cyclical unemployment
problem. There is chronic unemployment in an underdeveloped economy. An advanced
economy may have unemployment occasionally due to business fluctuations and a low
marginal propensity to consume. Whereas an under developed economy is confronted with
the problem of disguised unemployment in the sense that even with unchanged techniques in
agriculture could be removed without reducing agricultural output. Thus, in a developed
economy, unemployment means waste of resources, while in an underdeveloped economy, it
is of disguised type.
8. Poor countries are poor in technology, advanced countries are advanced in technology. In fact,
the level of technology attained in production is a reliable indication of the level of economic
development. Employment of advanced technology goes along with large capital resources,
high attainments in the fields of scientific research, greater availability of entrepreneurial skill
and a good supply of efficient skilled labour. Thus, development of technology is the basic
objective of the backward economy whereas development of technology no longer remains
the overriding objective of an affluent society.

Economic growth is a necessary but not sufficient condition of economic development.

Self-Assessment

1. Fill in the blanks:
(i) .................... a way of life.
(ii) Economic growth is a narrower concept than .................... development
(iii) Economic development is a .................... concept.
(iv) Economic growth does not take into account the size of the .................... economy.
(v) Economic growth is .................... but not sufficient condition of ecnomic development.

1.5 Difference between Economic Growth and Economic Development
The difference between economic growth and economic development are:
1. Economic Growth is quantitative while economic development is qualitative.
2. Economic growth is comparatively a narrow concept and development is much more
comprehensive.
3. Economic growth refers to increase in the total output of final goods and services in a country
over a long period of time. In contrast, economic development refers to progressive change in
the socio-economic structure of the country. It includes gender equality, change in composition
of output, shift of labour force from agriculture to other sectors.

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