Economic development

Economic development ideally refers to the sustained, concerted actions of

communities and policymakers that improve the standard of living and economic health
of a specific locality. The definition of economic development given by Professor
Michael Todaro is an increase in living conditions, improvement of the citizens selfesteem needs and free and a just society. He suggests that the most accurate method of
measuring economic development is the Human Development Index which takes into
account the literacy rates & life expectancy which in-turn has an outright impact on
productivity and could lead to Economic Growth. However, economic development can
also be measured by taking into account the GDI (gender related index).
Economic development can also be referred to as the quantitative and qualitative
changes in an existing economy. Economic development involves development of
human capital, increasing the literacy ratio, improve important infrastructure,
improvement of health and safety and others areas that aims at increasing the general
welfare of the citizens. The terms economic development and economic growth are
used interchangeably but there is a very big difference between the two. Economic
growth can be viewed as a sub category of economic development. Economic
development is a government policy to increase the economic, social welfare and
ensuring a stable political environment. Economic growth on the other hand is the
general increase in the country products and services output.
Economic development will only be successful if the whole nation is willing to give
their best efforts towards its achievement. A lot of theories have been forwarded by
different schools of thought about how economic development should be achieved.
Many economists have suggested that each country should try to achieve modernization
and industrialization in order to achieve economic development.
There seems to be a lot of correlation between economic growth and human
development. This can be explained by a simple example in an economy. We shall
consider economic growth as a prerequisite for economic development. Assume we
have a household in an economy that ekes their livelihood from a horticultural firm.
Economic growth will bring business opportunities to the country and the effects spills
over to all sectors of the economy. The firm will increase its profits which will in turn
be used to pay for their generation education, improve the access to health care for that
family and will increase the general living standard of the family. If this effect is
replicated in each household overall economic development will be achieved.

ECONOMIC DEVELOPEMENT

Economic development leads to improvements in many sectors of a nation. There are a

variety of indicators that economist use to measure the level of economic development
in a country. The indicators are: declining poverty rates, increasing literacy rates,
declining infant morbidity and increasing life expectancy. Economic development has
to be supported by the whole nation from economists, politicians, and also civilians.
Thus it can be concluded that, economic development leads to the creation of more
opportunities in the sectors of education, health sector, research, human development
and environmental conservation It equally implies an increase in the per capita income
of every citizen.

Economic growth
Arguably one of the most used terms in economics, economic growth is a term that
just about everyone is at least remotely familiar with, even if they have no studied
economics at all. Sometimes it seems everyone knows what economic growth is.
Politicians use this term all the time, and so do teachers, managers and even preachers.
Often, peoples use of this term may not be quite accurate, but one has to admit that
most of the time they are never too far from the mark. In a nutshell however, an
economists description of economic growth is very precise: Economic growth is a
positive change in the output, or production, of a country or an economy. This
description involves all aspects of an economy, from profits to taxes and wages, to such
things as production rates.

WHAT IS DIFFERENCE BETWEEN ECONOMIC GROWTH AND

ECONOMIC DEVELOPMENT?
In general, the terms Economic Growth and Economic Development are
used to express the same idea i. e., Economic Advancement. But the term
economic development is more comprehensive in its scope. Growth means
persistent increase in per capita income. While development includes growth and
structural changes like, infrastructural, social and political in the country.
ECONOMIC GROWTH:
Definitions:

According to Micheal P. Todaro.

ECONOMIC DEVELOPEMENT

Economic growth is a steady process by which the productive capacity of the

economy is increased over time to bring about rising levels of national output and
income.

According to Simon Kuznets.

Economic growth may be defined as a long term process wherein the substantial
and sustained rise in real national income, total population and real per capita
income takes place.

Essentials of Economic Growth:

Above definitions are showing following basics of economic growth:
i.
ii.
iii.
iv.
v.

Economic growth is a long run process; it includes a period of decades.

Economic growth shows higher rate of increase in real per capita income than
rate of growth of population.
Economic growth is always linked with large increase in productive ability of
the economy.
Economic growth is connected with the fair distribution of income and
wealth.
Economic growth is attached with the reduction in poverty and
unemployment.
ECONOMIC DEVELOPMENT:
Definitions:

Simple Definition.
It refers to the process whereby the total supply of goods and services of the
society increases leading towards improved living standard.

According to Micheal P. Todaro.

Development must be conceived (considered) for as a multi-dimensional process
involving major change in social structures, popular attitudes and national
institutions as well as the acceleration of eco-growth, the eradication (end) of
poverty and reduction of inequality of wealth.

Structural Changes of Economic Development:

ECONOMIC DEVELOPEMENT

Economic development represents following structural changes in various sectors

of the country:
There is a change in the occupational structure. In economic development
there is decrease in the share of labour force in primary sector (farming, fishing and
mining etc.) and increase in the share of labour force in secondary sector (industry
etc).
i.
ii.
iii.

iv.
v.

There is a change in the structure of national output. The contribution of

primary sector in the national output falls and the share of secondary and tertiary
(3rd) sector slowly go up.
There is a change in the structure of industrial production. There is an
increase in the production of capital goods and decrease in the production of
consumer goods.
There is a change in the structure of foreign trade. The share of primary
goods in exports decreases and the share of capital goods in imports increase.
Accordingly, in economic development there is an increase in exports of
manufactured and final goods. Similarly, there is decrease in the imports of
consumer items.
There is a change in the structure of technology. In the economic
development modern and advanced techniques are used in all the sectors of
economy.
There is a change in the social and institutional sector. Due to economic
development there is an increase in the self-esteem and living standard of the
population.

Conclusion:
We conclude that, normally the terms economic growth and economic
development are used for the explanation of encouraging changes in the economic
achievements of a country.

Economic Growth

Economic Development

= Annual increase in per capita income

= Economic Growth + Structural Changes

DIFFERENCES BETWEEN ECONOMIC GROWTH AND

ECONOMIC DEVELOPMENT:
Both the terms seem similar, but there are various following points, which
create difference between these two:
ECONOMIC DEVELOPEMENT

1- Definition
Economic Growth

Economic Development

The term economic growth is only

concerned with raising income level The basic feature of economic
and volume of production of goods development is to raise income level
and services.
and improve the human being.

2- Nature in Economic Literature

Economic Growth

Economic Development

Economic growth is the key issue

undertraditional
economics. According
to
this
approach take care of growth and
poverty
would
eliminate
automatically.

Economic development is the main

issue
under modern
economics literature.
Accordingly, take care of poverty
and growth would take care of
itself.
3- Scope

Economic Growth

Economic Development

Scope of economic development is

wideand
comprehensive
than
economic growth. Its link is not only
Scope of economic growth is with income but also with the
narrowbecause it is concerned with prosperity of the society and
changes in income level only.
economy.
4- Institutional changes
Economic Growth

Economic Development

Efficient
institutional
set-up is
In case of economic growth strong necessary.Effective
and
strong
and effective institutional set-up is institutional revolution is the sign of
not necessary.
economic development.
ECONOMIC DEVELOPEMENT

5- Type of Approach
Economic Growth

Economic Development

According to various economists,

economic growth is said to Economic development refers to
be quantitative approach.
thequalitative approach.
6- Importance
Economic Growth

Economic Development

The
Concept
of
economic
Economic
growth
is less development
ismore
important due to the attachment with important because it discusses an
income level only.
economy in wider sense.
7- Time Span
Economic Growth

Economic Development

Economic development is a longEconomic growth is a short-term term process about 20 to 25 years.

process.We can measure income Because it takes years to change
changes yearly. So, its time span may social, economic and institutional
be of one year.
set-up.

8- National Problem
Economic Growth

Economic Development

Economic growth is the problem Economic development is the

ofdeveloped countries of the world.
problem ofdeveloping countries.
9- Political Changes
Economic Growth

Economic Development
ECONOMIC DEVELOPEMENT

The
concept
of
economic
Economic
growth
is not development isincomplete without
concerned with the political stability. political stability.
10- Dependence and Self-Sufficiency
Economic Growth

Economic Development

In case of economic development our

Economic growth does not ensure dependence on other countries
the freedom from the dependence of reduces and country adopts the selfforeign countries.
reliance policy.
11- Economic Application
Economic Growth

Economic Development

Economic growth first checks Economic development basically

the statistical upward movement in emphasizes
on
the balanced
the economy.
growth of economy.
12- Social Impact
Economic Growth

Economic Development

There may or may not be any social

changes in case of economic growth.
It ignores the human beings and it is
only concerned with income level
etc.

Social changes, in case of economic

development, are
compulsory. It
refers to the better jobs, availability
of food, better health and education
etc.

13- Economic Welfare

Economic Growth

Economic Development

Economic growth is not much In economic development, more

attachedwith the human beings. It importance is given to the mankind
has no link with the good or bad.
as compare to the economic growth.

ECONOMIC DEVELOPEMENT

14- Practical Significance

Economic Growth

Economic Development

Now, Pakistan is more developed

countryas compare to 1960s and
In Pakistan, in 1960s, growth rate 1990s. Today in Pakistan there is
was higher than the growth rate in more industries, universities and
1990s.
other infrastructure etc.
15- Measurement
A.

Economic Growth

Economic growth is measured only

by comparing income levels of
different years. It also can be
measured numerically.

Economic Development
Measurement
of
economic
development is based on the
reduction in poverty, development of
human being and living standard etc.

16- Quantity and Quality

Economic Growth

Economic Development

Economic growth is concerned Economic development is concerned

withquantity of goods and services with not only quantity but also with
only.
the quality.
17- Problem of Assessment

Economic Growth

B.

Economic Development

It is very difficult to estimate exactly Computation of economic development

the level of economic growth in isnot a difficult task in developed nations of
developing countries like Pakistan.
the world.
18- Use of Technology
Economic Growth

Economic Development
ECONOMIC DEVELOPEMENT

In economic growth, use of advanced For the economic development use

technology is not appreciated.
of modern technology is compulsory.

Conclusion:
From all above points of difference, we conclude that economic growth is
attached to the increase in production and income etc. while in economic
development more importance is given to man and it tries to remove poverty.

Difference between Developed and Developing Countries

According to Kofi Annan, former Secretary General of the United Nations, "A
developed country is one that allows all its citizens to enjoy a free and healthy life in a
safe environment." However, United Nations Statistics Division claims that , There is
no established convention for the designation of "developed" and "developing"
countries or areas in the United Nations system The designations "developed" and
"developing" are intended for statistical convenience and do not necessarily express a
judgment about the stage reached by a particular country or area in the development
process.
In common parlance, a country is deemed to be developing or developed mainly on the
basis of economics, per capita income, industrialization, literacy rate, living standards
etc. According to Wikipedia, A developed country or "more developed country"
(MDC), is a sovereign state that has a highly developed economy and advanced
technological infrastructure relative to other less developed nations. Most commonly
the criteria for evaluating the degree of economic development is gross domestic
product (GDP), the per capita income, level of industrialization, amount of widespread
infrastructure and general standard of living. Which criteria are to be used and which
countries can be classified as being developed are subjects of debate
Generalized characteristics of developed countries:
Post-industrial economies
ECONOMIC DEVELOPEMENT

High level of industrial development

High level of affluent citizens
Low levels of unemployment
Higher education rates
Technological advantages
Better roads
Stable governments
Good health care
Human and natural resources are fully utilized
High level of per capita income
High Human Development Index (HDI)
Increased life expectancy
Low birth rates
Low death rates
Good housing conditions
Safe water supplies
Abundant food supplies
Easy to access advanced medical services

Generalized characteristics of developing countries:

In the process of industrialization
Low level of affluent citizens
Higher levels of unemployment
Lower education rates
Often contain undeveloped rural villages
Unstable governments
High level of birth rates
High level of death rates
High infant mortality rate
Dirty, unreliable water supplies
Poor housing conditions
Poor nutrition
Diets that are short in calories and/or protein
Poor access to medical services
Endemic disease in some countries
Low to medium standard of living
Limited technological capacity
Unequal distribution of income
ECONOMIC DEVELOPEMENT

10

Factors of production are not fully utilized

Factors that Influence the Economic Development of a

Country
Types of Determinants (Factors) Which Influence the Economic Development of a
Country are as follows:
There are mainly two types of determinants (factors) which influence the economic
development of a country.

A) Economic Factors in Economic Development:

In a countrys economic development the role of economic factors is decisive. The
stock of capital and the rate of capital accumulation in most cases settle the question
whether at a juven point of time a country will grow or not. There are a few other
economic factors which also have some bearing on development but their importance is
hardly comparable to that of capital formation. The surplus of foodgrains output
available to support urban population, foreign trade conditions and the nature of
economic system are some such factors whose role in economic development has to be
analyzed:

ECONOMIC DEVELOPEMENT

11

1) Capital Formation:
The strategic role of capital in raising the level of production has traditionally been
acknowledged in economics. It is now universally admitted that a country which wants
to accelerate the pace of growth, has m choice but to save a high ratio-of its income,
with the objective of raising the level of investment. Great reliance on foreign aid is
highly risky, and thus has to be avoided. Economists rightly assert that lack of capital is
the principal obstacle to growth and no developmental plan will succeed unless
adequate supply of capital is forthcoming.
Whatever be the economic system, a country cannot hope to achieve economic progress
unless a certain minimum rate of capital accumulation is realized. However, if some
country wishes to make spectacular strides, it will have to raise its rate of capital
formation still higher.
2) Natural Resources:
The principal factor affecting the development of an economy is the natural resources.
Among the natural resources, the land area and the quality of the soil, forest wealth,
good river system, minerals and oil-resources, good and bracing climate, etc., are
included. For economic growth, the existence of natural resources in abundance is
essential. A country deficient in natural resources may not be in a position to develop
rapidly. In fact, natural resources are a necessary condition for economic growth but not
a sufficient one. Japan and India are the two contradictory examples.
According to Lewis, Other things being equal man can make better use of rich
resources than they can of poor. In less developed countries, natural resources are
unutilized, under-utilized or mis- utilized. This is one of the reasons of their
backwardness. This is due to economic backwardness and lack of technological factors.
According to Professor Lewis, A country which is considered to be poor in resources
may be considered very rich in resources some later time, not merely because unknown
resources are discovered, but equally because new methods are discovered for the
known resources. Japan is one such country which is deficient in natural resources but
it is one of the advanced countries of the world because it has been able to discover new
use for limited resources.

ECONOMIC DEVELOPEMENT

12

3) Marketable Surplus of Agriculture:

Increase in agricultural production accompanied by a rise in productivity is important
from the point of view of the development of a country. But what is more important is
that the marketable surplus of agriculture increases. The term marketable surplus
refers to the excess of output in the agricultural sector over and above what is required
to allow the rural population to subsist.
The importance of the marketable surplus in a developing economy emanates from the
fact that the urban industrial population subsists on it. With the development of an
economy, the ratio of the urban population increases and increasing demands are made
on agriculture for foodgrains. These demands must be met adequately; otherwise the
consequent scarcity of food in urban areas will arrest growth.
In case a country fails to produce a sufficient marketable surplus, it will be left with no
choice except to import foodgrains which may cause a balance of payments problem.
Until 1976-77, India was faced with this problem precisely. In most of the years during
the earlier planning period, market arrivals of foodgrains were not adequate to support
the urban population.
If some country wants to step-up the tempo of industrialization, it must not allow its
agriculture to lag behind. The supply of the farm products particularly foodgrains, must
increase, as the setting-up of industries in cities attracts a steady flow of population
from the countryside.
4) Conditions in Foreign Trade:
The classical theory of trade has been used by economists for a long time to argue that
trade between nations is always beneficial to them. In the existing context, the theory
suggests that the presently less developed countries should specialize in production of
primary products as they have comparative cost advantage in their production. The
developed countries, on the contrary, have a comparative cost advantage in
manufactures including machines and equipment and should accordingly specialize in
them.
In the recent years, a powerful school has emerged under the leadership of Raul
Prebisch which questions the merits of unrestricted trade between developed and underdeveloped countries on both theoretical and empirical grounds.

ECONOMIC DEVELOPEMENT

13

Foreign trade has proved to be beneficial to countries which have been able to set-up
industries in a relatively short period. These countries sooner or later captured
international markets for their industrial products. Therefore, a developing country
should not only try to become self-reliant in capital equipment as well as other
industrial products as early as possible, but it should also attempt to push the
development of its industries to such a high level that in course of time manufactured
goods replace the primary products as the countrys principal exports.
In countries like India the macro-economic interconnections are crucial and the
solutions of the problems of these economies cannot be found merely through the
foreign trade sector or simple recipes associated with it.
5) Economic System:
The economic system and the historical setting of a country also decide the
development prospects to a great extent. There was a time when a country could have a
laissez faire economy and yet face no difficulty in making economic progress. In
todays entirely different world situation, a country would find it difficult to grow along
the Englands path of development.
The Third World countries of the present times will have to find their own path of
development. They cannot hope to make much progress by adopting a laissez faire
economy. Further, these countries cannot raise necessary resources required for
development either through colonial exploitation or by foreign trade. They now have
only two choices before them:
i) They can follow a capitalist path of development which will require an efficient
market system supported by a rational interventionist role of the State.
ii) The other course open to them is that of economic planning.
The latest experiments in economic planning in China have shown impressive results.
Therefore, from the failure of economic planning in the former Soviet Union and the
erstwhile East European socialist countries it would be wrong to conclude that a
planned economy has built-in inefficiencies which are bound to arrest economic
growth.

ECONOMIC DEVELOPEMENT

14

B) Non-Economic Factors in Economic Development:

From the available historical evidence, it is now obvious that non- economic factors are
as much important in development as economic factors. Here we attempt to explain
how they exercise influence on the process of economic development:
1) Human Resources:
Human resources are an important factor in economic development. Man provides
labour power for production and if in a country labour is efficient and skilled, its
capacity to contribute to growth will decidedly be high. The productivity of illiterate,
unskilled, disease ridden and superstitious people is generally low and they do not
provide any hope to developmental work in a country. But in case human resources
remain either unutilized or the manpower management remains defective, the same
people who could have made a positive contribution to growth activity prove to be a
burden on the economy.
2) Technical Know-How and General Education:
It has never been, doubted that the level of technical know-how has a direct bearing on
the pace of development. As the scientific and technological knowledge advances, man
discovers more and more sophisticated techniques of production which steadily raise
the productivity levels.
Schumpeter was deeply impressed by the innovations done by the entrepreneurs, and he
attributed much of the capitalist development to this role of the entrepreneurial class.
Since technology has now become highly sophisticated, still greater attention has to be
given to Research and Development for further advancement. Under assumptions of a
linear homogeneous production function and a neutral technical change which does not
affect the rate of substitution between capital and labour, Robert M. Solow has observed
that the contribution of education to the increase in output per man hour in the United
States between 1909 and 1949 was more than that of any other factor.
3) Political Freedom:
Looking to the world history of modern times one learns that the processes of
development and underdevelopment are interlinked and it is wrong to view them in
isolation. We all know that the under-development of India, Pakistan, Bangladesh, Sri
Lanka, Malaysia, Kenya and a few other countries, which were in the past British
colonies, was linked with the development of England. England recklessly exploited
them and appropriated a large portion of their economic surplus.
ECONOMIC DEVELOPEMENT

15

Dadabhai Naoroji has also candidly explained in his classic work Poverty and UnBritish Rule in India that the drain of wealth from India under the British was the major
cause of the increase in poverty in India during that period, which in turn arrested the
economic development of the country.
4) Social Organisation:
Mass participation in development programs is a pre-condition for accelerating the
growth process. However, people show interest in the development activity only when
they feel that the fruits of growth will be fairly distributed. Experiences from a number
of countries suggest that whenever the defective social organisation allows some elite
groups to appropriate the benefits of growth, the general mass of people develop apathy
towards States development programs. Under the circumstances, it is futile to hope that
masses will participate in the development projects undertaken by the State.
Indias experience during the whole period of development planning is a case in point.
Growth of monopolies in industries and concentration of economic power in the
modern sector is now an undisputed fact. Furthermore, the new agricultural strategy has
given rise to a class of rich peasantry creating widespread disparities in the countryside.
5) Corruption:
Corruption is rampant in developing countries at various levels and it operates as a
negative factor in their growth process. Until and unless these countries root-out
corruption in their administrative system, it is most natural that the capitalists, traders
and other powerful economic classes will continue to exploit national resources in their
personal interests.
The regulatory system is also often misused and the licenses are not always granted on
merit. The art of tax evasion has been perfected in the less developed countries by
certain sections of the society and often taxes are evaded with the connivance of the
government officials.
6) Desire to Develop:
Development activity is not a mechanical process. The pace of economic growth in any
country depends to a great extent on peoples desire to develop. If in some country level
of consciousness is low and the general mass of people has accepted poverty as its fate,
then there will be little hope for development. According to Richard T. Gill, The point
is that economic development is not a mechanical process; it is not a simple adding- up
ECONOMIC DEVELOPEMENT

16

of assorted factors. Ultimately, it is a human enterprise. And like all human enterprises,
its outcome will depend finally on the skill, quality and attitudes of the men who
undertake.

Economic Condition of Pakistan

FEBRUARY 13, 2014
Pakistan is facing Economic challenges. It shows that our country is in the list of under
developed countries. In this article we will discuss about the Economic Condition of
Pakistan. In the last budget, the government gained 4.3 per cent economic growth but
with gas and load shedding problems they didnt achieve the targets. So due to lake of
experience and knowledge they came in the figure of 2.2 per cent growth which shows
almost no growth in the current year. The major problem in Pakistan is increase in
population which is directly effecting our economic growth. Of course, due to higher
rate of population, we should increase our investments but due to less financial reserves
this investment is not possible. The present rate of GDP is around 14 percent which is
lower than the developing countries. If we want to increase our investments for getting
higher growth we should increase our savings for GDP to at least 20 percent, especially

when foreign investments are not involved.

Cause of decreasing growth
Another challenge is inflation. Inflation means increase in the prices of commodity. It
badly affects the salary based groups. This also shows our higher rate of taxes because
tax is part of the inflation. When inflation rate high in our country then it generates the
public debts, which is about 70 percent of the Gross Domestic Product. This problem is
increasing day by day. So how we can overcome this problem? The answer is we have
ECONOMIC DEVELOPEMENT

17

been producing less and consuming more. And if investor wants to invest so they
should invest on human developments.

The major problem is immediate change in the situation of regional and international
market. Utilities such as gas, electricity, water is another cause of a problems because
IMF forced to the under develop countries to enhance their rates which is effecting the
common man or salary based groups. They dont save much in fact they just fulfill their

basic needs.
ECONOMIC DEVELOPEMENT

18

There are just few challenges but if our government applies effective polices so under
develop countries become develops countries.

Economic development as an objective of policy

Motives for development
The field of development economics is concerned with the causes of underdevelopment
and with policies that may accelerate the rate of growth of per capita income. While
these two concerns are related to each other, it is possible to devise policies that are
likely to accelerate growth (through, for example, an analysis of the experiences of
other developing countries) without fully understanding the causes of
underdevelopment.
Studies of both the causes of underdevelopment and of policies and actions that may
accelerate development are undertaken for a variety of reasons. There are those who are
concerned with the developing countries on humanitarian grounds; that is, with the
problem of helping the people of these countries to attain certain minimum material
standards of living in terms of such factors as food, clothing, shelter, and nutrition. For
them, low per capita income is the measure of the problem of poverty in a material
sense. The aim of economic development is to improve the material standards of living
by raising the absolute level of per capita incomes. Raising per capita incomes is also a
stated objective of policy of the governments of all developing countries. For
policymakers and economists attempting to achieve their governments objectives,
therefore, an understanding of economic development, especially in its policy
dimensions, is important. Finally, there are those who are concerned with economic
development either because they believe it is what people in developing countries want
or because they believe that political stability can be assured only with satisfactory rates
of economic growth. These motives are not mutually exclusive. Since World War II
many industrial countries have extended foreign aid to developing countries for a
combination of humanitarian and political reasons.

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19