What are the important sources of economic growth?

ROHIT BURA


Important sources of economic growth

Economic growth is the increase of per capita gross domestic product (GDP) or other measure of
aggregate income. It is often measured as the rate of change in real GDP. Economic growth refers only
to the quantity of goods and services produced. Economic growth can be either positive or negative.

Negative growth can be referred to by saying that the economy is shrinking. Negative growth is
associated with economic recession and economic depression. In order to compare per capita income
among countries, the statistics may be quoted in a single currency, based on either prevailing exchange
rates or purchasing power parity.

To compensate for changes in the value of money (inflation or deflation) the GDP or GNP is usually given
in "real" or inflation adjusted, terms rather than the actual money figure compiled in a given year, which
is called the nominal or current figure.

Economists draw a distinction between short-term economic stabilisation and long-term economic
growth. The topic of economic growth is primarily concerned with the long run. The short-run variation
of economic growth is termed the business cycle.

The long-run path of economic growth is one of the central questions of economics; despite some
problems of measurement, an increase in GDP of a country is generally taken as an increase in the
standard of living of its inhabitants. Over long periods of time, even small rates of annual growth can
have large effects through compounding.

A growth rate of 2.5% per annum will lead to a doubling of GDP within 29 years, whilst a growth rate of
8% per annum will lead to a doubling of GDP within 10 years. This exponential characteristic can
exacerbate differences across nations.

Growth is not an automatic birthright for an economy. For an economy to grow, it has to create the right
conditions for growth. Growth depends to a significant extent on the resources a country has. The
better the quantity and the quality of the resources the more potential it has to grow.

The sources of growth therefore include:

Natural resources:

If an economy has a plentiful supply of natural resources it may help it to expand. However, natural
resources on their own are not enough. There also have to be the skilled people to exploit the
opportunities.

Capital:

More capital generally means more production, and more production means more growth. To get
capital, countries have to invest and so the level of investment may be a big determinant of future
growth. The quality of the capital is important as well. It's no good investing in out of date equipment!

Rate of savings:

To have more tomorrow we often have to have less today (jam tomorrow!). This is true with savings as
well. To provide funds for investment there needs to be a good level of savings. This should in turn mean
more growth in the future.

Technological progress:

This is perhaps the most widely accepted (and easiest to understand) source of economic growth. This is
because technology makes it possible to produce more from the same quantity of resources. This boosts
the potential level of output of the economy. The pace of technological change will depend on:

I. The scientific skills of the country

II. The quality of education

III. The amount of GDP devoted to research and development.
Free Essay on Economic Growth and Sustainable Develop
VINEET PRAKASH


Economic growth has been used with other terms such as development, modernization, westernization
and industrialization. It is, in other words, a transition from a simple, low-income economy to a modern,
high- income economy. Its scope includes the process and policies by which a nation improves the
economic, political, and social well-being of its people. Though it is often measured by rate of change of
gross domestic product, it is generally understood in terms of increase in per capita income, and
attainment of a standard of living equivalent to that of industrialized countries.

Economic growth implies a change in the way goods and services are produced, not merely an increase
in production achieved using the old methods of production on a wider scale. It also involves
improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. In
addition to increasing private incomes, economic growth also generates additional resources that can be
used to improve social services such as healthcare, safe drinking water etc.

However, the conflict between economic growth and sustainable development is not always necessary.
Economic growth does not always contribute to environmental degradation. In the early stages of
growth, quality of environment generally deteriorates but at higher levels of per capita income, it
improves. The link between income and pollution arises because the composition of output changes
with growth in favor of newer, cleaner technologies. Thus, sustained economic growth is the key to
sustainable development.

Pollution tends to be related to population, and population growth is inversely related to income
growth. Higher average income and output levels are only good for the environment when associated
with policies that lessen demographic pressures by reducing personal risk and the need for large
families. Also, improvements in the security of employment, education and training, pension policies,
social security and the employment of women are especially important in this respect.

Trade is something which leaves an impact on both growth and environment. If trade is distorted by
subsidizing fuels that pollute, it would result in environmental pollution. On the other hand, trade
liberalization offers a particularly powerful impetus to growth and is entirely compatible with
sustainable development. In fact, Sustainable development encompasses growth along dynamically
efficient development patterns.

Sustainable development aims to meet human needs while preserving the environment so that these
needs can be met not only in the present, but also for future generations. The Brundtland Commission,
which coined the term 'sustainable development', defines it as development that "meets the needs of
the present without compromising the ability of future generations to meet their own needs."

Sustainable development does not focus solely on environmental issues and it can be conceptually
broken into three constituent parts: environmental sustainability, economic sustainability and
sociopolitical sustainability. The United Nations 2005 World Summit Outcome Document refers to the
"interdependent and mutually reinforcing pillars" of sustainable development as economic
development, social development, and environmental protection. Indigenous peoples have argued that
it has a fourth pillar of cultural diversity.

Then there is a concept of 'economic sustainability'. Agenda 21 emphasizes that broad public
participation in decision making is a fundamental prerequisite for achieving sustainable development.
Thus sustainability is a process of resolving the conflict between the various competing goals. It involves
the simultaneous pursuit of economic prosperity, environmental quality and social equity famously
known as three dimensions (triple bottom line) with is the resultant vector being technology, hence it is
a continually evolving process.

A relatively new term is 'Green development', which is generally differentiated from sustainable
development in that Green development prioritizes environmental sustainability over economic and
cultural considerations. There are other views that consider environmental and social challenges as
opportunities for development action. This is particularly true in the concept of sustainable enterprise
that frames these global needs as opportunities for private enterprise to provide innovative and
entrepreneurial solutions. This view is now being taught at many business schools in the West.

Sustainable development is said to set limits on the developing world. It is being argued, while current
first world countries polluted significantly during their development, the same countries encourage third
world countries to reduce pollution, which sometimes impedes growth. Sustainability requires that
human activity only uses nature's resources at a rate at which they can be replenished naturally.
Theoretically, the long-term result of environmental degradation is the inability to sustain human life.
Such degradation on a global scale could imply extinction for humanity.

In the Indian context, infrastructure development is critical for sustainable growth. It is often noted that
poor infrastructurea lack of water and sanitation, shoddy roads, and unpredictable energy supply-
constrains foreign direct investment and overall economic potential. A key issue is of attracting private
investors willing to participate in infrastructure projects given their complex and risky nature.

Cases of corruption and political and economic risk make investors hesitate. In such a situation,
infrastructure financing with transparency and efficiency in mind may do more for India than would be
obvious. Hence, a new approach is needed in financing infrastructure to properly cultivate this form of
social investment which yields more benefits beyond the infrastructure project itself.

There is a need for government to re-think how infrastructure's role interacts with other areas that
impact firms' decisions to invest such as bureaucracy, corruption, and macroeconomic stability. There
arises the need to reconcile existing infrastructure financing approaches with India's desire for better
governance and a more attractive business climate for private investment.

Given the vast infrastructure needs in India, a progressive approach is needed that levels the playing
field, deters political and policy risk, and develops more efficient, transparent market mechanisms. If
there is to be real progress toward development goals and reduced poverty, this modernization of
approaches offers a way forward.

In addition to physical infrastructure, India has a solid foundation in "soft" infrastructure. A reliable
banking system, functional capital markets, a well-developed legal system, and educational
opportunities underpins India's political and economic life. The appearance of many diverse
stakeholders foreign investors, governments, and domestic investors and consumers can further
catalyze the reforms needed to infuse additional private sector activity.

Individual and institutional investors alike can have new choices available in social investment. Parts of
the vicious cycle of infrastructure project finance can be turned more virtuous, supporting ends beyond
simply funding the infrastructure project itself. Thus, infrastructure challenged India represents a fertile
opportunity for a new approach that would attract needed financial resources for sustainable
development and allow even greater participation in the global economy.
Differences between Economic Development and Economic Growth



Differences between Economic Development and Economic Growth. 1. Single dimensional i.e. increase
in output alone. 1. Multi dimensional i.e. more output and changes in technical and institutional
arrangements.

Economic Development

1. Single dimensional i.e. increase in output alone.

2. Quantitative Changes-Change national and per capita income.

3. Spontaneous in character.

4. Continuous Change.

5. Growth is possible without development.

6. Determinant of economic growth may be economic development.

7. Solution of the problem of developed countries.

Economic Growth

1. Multi dimensional i.e. more output and changes in technical and institutional arrangements.

2. Qualitative Change-Change in composition and distribution of national and per capita income and
change in functional capacities.

3. Regulated and controlled in character.

4. Discontinuous Change.

5. Growth to some extent is essential for development.

6. Economic development is the determinant of economic growth.

7. Solution of the problem of under developed countries.
What is the difference between economic growth and economic development?
ROHIT BURA


Difference between economic growth and economic development

Economic Growth is often seen as the 'holy grail' of economic policy. This simplistic emphasis on
economic growth is often criticised because of the limitations of economic growth in improving living
standards.

Some suggest rather than economic growth, we should measure economic development through
measures such as Human Development Index (HDI) which looks at GDP but also statistics such as literacy
and health care standards.

Some also argue we should not be using GDP but, a happiness index. Economic Growth can definitely
have limitations in improving living standards. Economic development is the increase in the standard-of
living in a nation's population with sustained growth from a simple, low- income economy to a modern,
high-income economy.

Also, if the local quality of life could be improved, economic development would be enhanced. Its scope
includes the process and policies by which a nation improves the economic, political, and social well-
being of its people.

Goncalo L. Fonsesca at the New School for Social Research defines economic development as "the
analysis of the economic development of nations." The University of Iowa's Center for International
Finance and Development states that:

"Economic development' is a term that economists, politicians, and others have used frequently in the
20th century. The concept, however, has been in existence in the West for centuries.

Modernisation, Westernisation, and especially Industrialisation are other terms people have used when
discussing economic development. Although no one is sure when the concept originated, most people
agree that development is closely bound up with the evolution of capitalism and the demise of
feudalism."

The study of economic development by social scientists encompasses theories of the causes of industrial
- economic modernisation, the phases or waves of economic development historically used by economic
developers, plus organisational and related aspects of enterprise development in modern societies.

It embraces sociological research on business organisation and enterprise development from a historical
and comparative perspective; specific processes of the evolution (growth, modernisation) of markets
and management-employee relations; and culturally related cross-national similarities and differences in
patterns of industrial organisation in contemporary Western societies.

Economic development refers to social and technological progress. It implies a change in the way goods
and services are produced, not merely an increase in production achieved using the old methods of
production on a wider scale.

Economic growth implies only an increase in quantitative output; it may or may not involve
development. Economic growth is often measured by rate of change of gross domestic product (e.g., per
cent GDP increase per year.) Gross domestic product is the aggregate value-added by the economic
activity within a country's borders.

Economic development typically involves improvements in a variety of indicators such as literacy rates,
life expectancy, and poverty rates. GDP does not take into account other aspects such as leisure time,
environmental quality, freedom, or social justice; alternative measures of economic well-being have
been proposed. A country's economic development is related to its human development, which
encompasses, among other things, health and education.

Dependency theorists argue that poor countries have sometimes experienced economic growth with
little or no economic development; for instance, in cases where they have functioned mainly as
resource- providers to wealthy industrialised countries. There is an opposing argument, however, that
growth causes development because some of the increase in income gets spent on human development
such as education and health.

According to Ranis, we view economic growth to human development as a two-way relationship.
Moreover, Ranis suggested that the first chain consist of economic growth benefiting human
development with GNP.

Namely, GNP increases human development by expenditure from families, government and
organisations such as NGOs. With the increase in economic growth, families and individuals will likely
increase expenditures with the increased in incomes, which leads to increase in human development.
Further, with the increased in expenditures, health, education tend to increases in the country and later
will contribute to economic growth.

In addition to increasing private incomes, economic growths also generate additional resources that can
be. Used to improve social services (such as healthcare, safe drinking water etc.). By generating
additional resources for social services, unequal income distribution will be limited as such social
services are distributed equally across each community; benefiting each individual.

Thus, increasing living standards for the public. It depends on the distribution of higher incomes.
Economic growth could bypass the poorest in society. Economic growth may cause negative
externalities such as pollution, higher crime rates and congestion which actually reduce living standards.

Economic Growth may conflict with the environment, e.g. global warming. It depends on what is
produced. The Soviet Union has fantastic rates of economic growth, but, often through producing a lot
Steel and Pig Iron that was not actually very useful. Economic growth can be unsustainable, especially if
it is a boom and bust.

Economic Growth definitely has limitations and we need to be aware of these. But, notwithstanding
these limitations potential problems, economic growth is still very important. It reduces Poverty.

Growth doesn't necessarily reduce poverty. But, without economic growth it is very difficult to make any
meaningful and sustained reduction in poverty. This is especially important in developing economies.

It reduces unemployment. A stagnant economy leads to higher rates of unemployment and the
consequent social misery.

Gross National Product (GNP), in economics, a quantitative measure of a nation's total economic
activity, generally assessed yearly or quarterly. The GNP equals the gross domestic product plus income
earned by domestic residents through foreign investments minus the income earned by foreign
investors in the domestic market.

Gross domestic product, often confused with GNP, is calculated from the total value of goods and
services produced in an economy over a specified period. Since World War II, GNP has been generally
regarded as the most important indicator of the status of an economy.

In the United States, the economy is considered to be in recession if there are two consecutive quarters
of decrease in GNP. Despite the fact that GNP does not allow for inflation, overall value of production,
and other factors, it is nevertheless a significant measurement of economic health.

In 1995 the International Bank for Reconstruction and Development (World Bank) created a new system
for measuring national wealth, based on the value of natural and mineral resources.

Budget deficits:

The deep recession has led a corresponding rise in budget deficit. Economic growth is essential to
improve governments' budget deficits.

Living Standards:

If managed correctly, economic growth enables an increase in resources for important public services
like education and health care. Economic growth enables an increase in social spending without an
increase in tax rates.
What is the New View of Economic Development?



During the 1950s and 1960s while many of the Third World Nations did realise the economic growth
targets, the respective levels of living of the masses remained unchanged.

This resulted in the rejection of the narrow definition of economic development by an increasing
number of economists who now clamoured for the "dethronement of GNP" and advocated direct attack
on widespread absolute poverty, increasingly inequitable income distribution and rising unemployment.
Thus, in the 1970s economic development came to be redefined within the context of a growing
economy. "Redistribution from growth" became a common slogan.

In this contextKindleberger argued that "economic development is generally defined to include
improvements in material welfare, especially for persons with the lowest incomes, the eradication of
mass poverty with its corelates of illiteracy, diseases and early death, changes in the composition of
inputs and outputs that generally include shifts in the underlying structure of production away from
agricultural growth towards industrial activities, the organisation of the economy in such a way that
productive employment is general among the working age population rather than the situation of a
privileged minority and the correspondingly greater participation of broadly based groups in making
decisions about the directions, economic and otherwise, in which they should move to improve their
welfare

Dudley Seers posed three basic questions about the meaning of development:

What has been happening to poverty,

What has been happening to unemployment.

What has been happening to inequality?

If all three of these have declined from high levels then beyond doubt this has been a period of
development for the country concerned. If one or two of these central problems have been growing
worse, especially if all three have, it would be strange to call the result 'development' even if per capita
income doubled.4

This assertion was a hard reality for a number of developing countries which experienced relatively high
rates of growth of per capita income during the 1960s and 1970s but showed little or no improvement
or even an actual decline in employment, equality and the real income of the bottom 40 per cent of
their population. By the earlier definition of 'growth', these countries were developing, but by the new
criteria of poverty, equality and employment, they were not.

The situation in the 1980s worsened further as GNP growth rates turned negative for many less
developed countries and the governments, faced with mounting foreign debt problems, were forced to
cut back on their already limited social and economic programmes.

While during the 1980s, the World Bank championed "economic growth" as the goal of development, its
World Development Report of 1991 asserted that "the challenge of development ... is to improve the
quality of life. For the world's poor countries, a better quality of life generally calls for higher income ...
and it involves much more. It encompasses, as ends in themselves, better education, higher standards of
health and nutrition, less poverty, a cleaner environment, more equality of opportunity, greater
individual freedom, and a richer cultural life."
What are the effect of economic development on environmental degradation in India?
SHANTI


After independence, India launched a series of economic plans for rapid expansion in agriculture,
industry, transport and other infrastructure, with a view to increase production and employment, to
reduce poverty and inequality of incomes and wealth and to establish a socialist society based on
equality and justice.

To bring about increase in agriculture, the Five Year Plans in India brought additional land under
cultivation, expanded irrigation facilities and used increasingly chemical fertilizers and pesticides and
high yielding hybrid seeds, etc. In the sphere of industries, new industries, new industries have been set
up, existing industries have been expanded and technology is being continuously upgraded,
Development of Agriculture and industry has been accompanied by development and expansion of
infrastructure- namely, of power, transport and communication, banking and finance, etc.

At the same time, because of growing population and high degree of mechanisation, mindless and
ruthless exploitation of natural resources, we have degraded our physical environment such as, soil,
water, and biotic factors on which we all subsist, and on which our entire agricultural and industrial
development depends.

Rapid economic development is actually turning India into a vast westland. Environmental degradation
include: Land degradation & soil erosion, deforestation, pollution, destruction of habitat, water logging,
overgrazing and ecological degration, etc.
Brief notes on Human Development Index of welfare
KARUNA


Considering quality of Life Index, the United Nations was the first to prepare and publish Human
Development Indian Economic Development and Elementary Statistics not be simply added. Moreover,
basic literacy can have a natural zero for minimum and 100 for maximum, thus there exists no natural
minimum or maximum values for other indicators.

For comparison, each of the levels should be normalized. Prof. Morris chose the best and worst levels in
each of the three cases. In the case of positive indicators of life expectancy and basic literacy, the best is
shown by the maximum and worst by the minimum.

While in case of negative indicator of infant morality, the best is denoted by the minimum and the worst
by the maximum. For converting the actual levels of a positive variable into normalised indicators, first
the minimum values are subtracted from the actual values and then the gap is divided by the range. For
positive indicators, the formula is:

Actual Value - Minimum Value

Achievement Level

Maximum Value - Minimum Value For negative indicator of infant mortality, actual value has to be
subtracted from the maximum value and the gap if any has to be divided by the range. The formula is

Minimum Value - Actual Value

Achievement Level =

Maximum Value - Minimum Value

If a nut shell, three indicators are averaged to give what is called the Physical quality of Life Index (PQLI).

PQLI = (1/3) (LEI + IMI + BLI)

Choice of Minimum and Maximum Values

In case of life expectancy and infant mortality, there exist no natural minimum and maximum values.
The conversions from values to indices are linear. Put the/actual value of these indicators of the country
in the expression and get the reasonable indices as Physical Quality of Life Index.

HUMAN DEVELOPMENT INDEX

Considering quality of Life Index, the United Nations was the first to prepare and publish Human
Development Index in the year 1990. Human Development Index studies the following three basic
human aspects:

(i) Living a long life or Longevity (LEI).

(ii) Being knowledgeable on Educational Attainment (Index EAI).

(iii) Standard of living on real per capita GDP (SLI).

These three indices can be expressed as

HDI = (1/3) (LEI + EAI + SLI)

Let us discuss these three aspects.

(i) Longevity (LEF):

Longevity means life expectancy at birth. It refers to the number of years a newly born baby is expected
to live. Life expectancy in India at present is 63 years.

(ii) Educational Attainment (EAI):

It means education attained by the people of the country on an average basis. The constituents of
educational attainment are expressed through the following two variables:

(a) Adult literacy rate (ALR)

(b) Gross enrolment ratio (GER)

(a) Adult Literacy Rate (ALR):

The rate or the percentage of people aged 15 and above who can understand, read and write a short
and simple statement in their everyday life are known as literate.

It implies that every literate must be capable of reading and writing certain sentences. If someone is
able to sign but not capable of reading and writing simple statement is not literate. Thus, capability of
reading only or writing only does not make a person literate. Literacy is the symbol of the quality of the
people.

(b) Gross Enrolment Ratio (GER):

Gross Enrolment Ratio refers to the number of students enrolled at different levels of education. It is the
percentage of population of different age groups engaged in educational pursuit.

The education level consists of primary, secondary and tertiary level. Basic elements of education are
provided at primary level. Secondary level education is studied at middle and secondary level. University
level education is studied under tertiary level.

General enrolment ratio shows the percentage population enrolled at primary, middle, secondary and
university level. The higher GER indicates higher quality of life. It will be the sincere effort of every
economy to increase general enrolment ratio as far as possible.

(iii) Real GDP Per Capita or Standard of Living (SLI):

It is considered as a measure of the standard of living of the people of a country. In order to calculate
human development index we are required to study and analyze longevity, educational attainment and
real GDP per capita