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Unit 1: Economics of Growth and Development: Meaning, Measurement, Difference and Comparisions
The rate of investment constitutes 20 to 25 percent of the total national income. The rate of capital Notes
formation in these countries is also very high.
Besides this, well-developed capital market, high level of savings, broader business prospects and
capable entrepreneurship have led to a high growth of capital formation in these economies.
3. Use of High Production Techniques and Skills: High production techniques and skills have
become an essential part of economic development process in the developed countries. The new
techniques have been used for the exploitation of the physical human resources. These countries
have, therefore, been giving priority to the scientific research, so as to improve and evolve the new
and technique of production. Consequently, these countries find themselves able to produce goods
and services of a better equality comparatively at the lesser cost. It is because of the use of high
production techniques and latest skills, that the countries like Japan, Germany and Israel could have
developed their economies very rapidly, though they have limited natural resources.
4. Low Growth of Population: The developed countries, like the U.S.A., the U.K. and other Western
European countries have low growth of population because they have low level of birth rate
followed by low level of death rate. Good health conditions, high degree of education and high
level of consumption of the people have led to maintain low growth of population followed by low
level of birth and death rates. The life expectancy in these countries is also very high. The high rate
of capital formation on the one hand and low growth of population have resulted in high level of
per capita income and prosperity in these countries. Consequently, the people in these countries
enjoy a higher standard of living and work together unitedly for more rapid economic and industrial
development of the nations. Besides this, the entire society, its structure and values are found to be
dedicated to the goal of rapid economic and industrial development. The position of individuals in
the society is decided by the ability of the persons and not by their birth, caste or creed. Dignity of
labour is maintained. The economic motive and strong desire to lead a better social life always inspire
people to contribute to the process of development. The main objective of rapid economic development,
particularly in the developed economies is to achieve the level of stagnant economic growth, so that
they may maintain the existing economic status and exercise control over business cycle.
1.4 Distinction Between Developed and Underdeveloped Economies
We may now distinguish between the features of an underdeveloped economy from that of developed
one as follows:
1. Underdeveloped economies are distinguished from developed economies on the basis of per
capita income. In general, those countries which have real per capita incomes less than a
quarter of the per capita income of the United States, or roughly less than 5000 dollars per year,
are categorized as under-developed countries.
2. An underdeveloped economy, compared with an advanced economy, is underequipped with
capital in relation to its population and natural resources. The rate of growth of employment
and investment in such an economy lags behind the rate of growth of population. The resources
are not only employed but also underemployed. In technical jargon, the production possibility
frontier of a poor country is far ahead of the actual production curve, whereas the gap between
the potentiality and actual utilisation of resources is narrow in a developed economy.
3. High rate of growth of population is an important characteristic of most of the underdeveloped
economies. Population growth in underdeveloped countries neutralises economic growth. In
advanced economies, the case is different. As Prof. Hansen points out, one of the empirical tests
of secular stagnation in advanced economies is the declining rate of population growth. The
stagnation problem in a developed economy is a problem of population, natural resources and
technology failing to keep pace with capital accumulation.
4. The central problem of underdeveloped economies is the prevalence of mass poverty which is
the cause as well as the consequence of their low level of development. Shortage and scarcity
are the main economic problems in these economies, whereas the affluent societies of advanced
countries have economic problems resulting from abundance.
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