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Unit 1: Economics of Growth and Development: Meaning, Measurement, Difference and Comparisions

capital. Nurkse’s suggestion to use unemployed or underemployed rural youths in construction Notes
works has importance for capital formation in backward economies. In addition to it, the
external resources like foreign loans and grants, and larger exports can also help these economies
in capital formation.
The capital formation possesses special significance, as it is key to economic growth, particularly
in backward economies. It increases sectoral productivity in the economy on the one hand and
enhances ultimately national output by raising effective demand, on the other. According to
Kuznets’ estimates, during modern economic growth the gross capital formation and net
capital formation was gradually between 11.13 to 20 percent and 6 to 12.14 percent in developed
countries. According to Lewis, the rate in underdeveloped countries was 5 percent or less
which should be raised to the level of 12 to 15 percent.
3. Technological Progress: The technological changes are most essential in the process of economic
growth. Adam Smith, the father of political economy, pointed out the great importance of
technological progress in economic development. Ricardo visualised the development of
capitalist economies as a race between technological progress and growth of population. The
great importance of technological progress in capitalist development was recognised by Karl
Marx too.
There is no doubt that technological progress is a very important factor in determining the rate
of economic growth. In fact, even capital accumulation is not possible without technical progress.
A country may be adding to its means of transportation and communications, its power
resources and its factories.
According to modern technique, it is called widening of capital. The use of improved techniques
in production and technological progress bring about a significant increase in per capita
income. Technological progress has something to do with the research into the use of new and
better methods of production or the improvement of the old methods. Sometimes technical
progress results in the availability of natural resources. But generally technological progress
results in increase in productivity, e.g., green revolution. In other words, technological progress
increases the ability to make a more effective and fruitful use of natural and other resources for
increasing production. By the use of improved technology it is possible to have greater output
from the use of given resources or a given output can be obtained by the use of a smaller
quantity of resources.
It is a matter of common knowledge that technological progress adds greatly to our ability to
make a fuller use of the natural resources, e.g., generation of hydro-electricity. With the aid of
power - driven farm equipment a marked increase has been brought about in agricultural
yields per acre and per worker.
Technical progress also increases the ability to make a more effective use of capital equipment.
Technological progress has very close connection with capital formation. In fact, both go hand
in hand. Without capital formation technical progress is out of the question because heavy
investment is required for making use of better and more efficient methods of production,
although after they are well established, capital cost per unit of output may fall.
Thus, technological progress has a very important role to play in the economic development
of a country. No backward country can hope to march ahead on the road of economic
development with out adopting a newer and newer techniques of production and unless it is
assisted in its march by technological progress. We have a already brought out the importance
of capital accumulation in economic growth. But capital accumulation promotes economic
growth because it facilitates technological improvements, which raise labour productivity
and thus add to the national and percapita income.
4. Human Resources: A good quality of population is very important in determining the rate of
economic progress. Instead of a large population a small but high quality of human race in a

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