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Economics of Growth and Development




                    Notes        1.1 Meaning of Economic Development

                                 Economic development is a process whereby an economy’s real national income as well as per
                                 capita income increases over a long period of time. Here, the process implies the impact of certain
                                 forces which operate over a long period and embody changes in dynamic elements. It contains
                                 changes in  resource supplies, in the rate of capital formation, in demographic composition, in
                                 technology, skills and efficiency, in institutional and organisational set-up. It also implies respective
                                 changes in the structure of demand for goods, in the level and pattern of income distribution, in size
                                 and composition of population, in consumption habits and living standards, and in the pattern of
                                 social relationships and religious dogmas, ideas and institutions. In short, economic development
                                 is a process consisting of a long chain of inter-related changes in fundamental factors of supply and
                                 in the structure of demand, leading to a rise in the net national product of a country in the long run.

                                 1.2 Definitions of Economic Development

                                 The term ‘economic development’ is generally used in many other synonymous terms such as
                                 economic growth, economic welfare, secular change, social justice and economic progress. As such,
                                 it is not easy to give any precise and clear definition of economic development. But in view of its
                                 scientific study and its popularity, a working definition of the term seems to be quite essential.
                                 Economic development, as it is now generally understood, includes the development of agriculture,
                                 industry, trade, transport, means of irrigation, power resources, etc. It, thus, indicates a process of
                                 development. The sectoral improvement is the part of the process of development which refers to the
                                 economic development. Broadly speaking, economic development has been defined in different ways
                                 and as such it is difficult to locate any single definition which may be regarded entirely satisfactory.

                                 1.3 Characteristics of an Developed Economy

                                 A developed economy is the characterised by increase in capital resources, improvement in efficiency
                                 of labour, better organisation of production in all spheres, development of means of transport and
                                 communication, growth of banks and other financial institutions, urbanisation and a rise in the
                                 level of living, improvement in the standards of education and expectation of life, greater leisure
                                 and more recreation facilities and the widening of the mental horizon of the people, and so on. In
                                 short, economic development must break the poverty barrier or the vicious circle and bring into
                                 being a self-generating economy so that economic growth becomes self-sustained.
                                 The main characteristics of developed countries are as follows:
                                 1. Significance of Industrial Sector.
                                 2. High Rate of Capital Formation.
                                 3. Use of High Production Techniques and Skills.
                                 4. Low Growth of Population.
                                 These are discussed in below.
                                 1. Significance of Industrial Sector: Most of the developed countries in the world have given much
                                 importance of the development of industrial sector. They have large capacities to utilise all  resources
                                 of production, to maximise national income and to provide employment for the jobless people. As
                                 we are quite aware that these countries receive the major portion of their national income from the
                                 non-agriculture sectors which include industry, trade, transport, and communication. For instance,
                                 England generally receives nearly 50% of her national income from industrial sector, 21% from
                                 transport and commerce, 4% from agriculture and 25% from other sectors. The same case is with the
                                 U.S.A., Japan and other West European countries. But in India and other developing countries
                                 agriculture contributes, say, 35 to 40 percent, to their national income.
                                 2. High Rate of Capital Formation: Developed countries are generally very rich, as they maintain a
                                 high level of savings and investment, with the result that they have huge amount of capital stocks.




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