Bài 1: Measurement of development:

1. National Income as an Index of Development

(i) A larger real national income is normally a pre-requisite for an increase in real per capita
income and hence, a rising national income can be taken as a token of economic development.

(ii) If per capita income is used for measuring economic development, the population problem
may be concealed, since population has already been divided out. In this context, Prof. Simon
Kuznets writes, “The choice of per capita, per unit or any similar measure to gauge the rate of
economic growth carried with it danger of neglecting the denominator of the ratio.”

(iii) If an increase in per capita income is taken as the measure of economic development, we
are likely to be put in an awkward situation of saying that a country has not developed if its
real national income has increased but its population has also increased at the same rate.

Against:
(i) It cannot definitely be said that economic welfare has increased if the national and even the
per capita income may be rising unless the distribution of income is equitable.

(ii) Expansion of national and per capita income cannot be identified with enrichment because
the composition of the total output is also important. For example, an expansion of total
output could be accompanied by a depletion of natural resources or it could compose of only
armaments or could consist of merely a greater output of capital goods.

(iii) It must not only consider what is produced but also how it is produced. It is possible that
when real national output grows, the real costs i.e., ‘pain and sacrifice’ of the society may also
grow.

(iv)It is difficult to determine proper deflators to eliminate the effects of price changes in an
underdeveloped countries.

(v) It is also complicated when average income is rising but unemployment exists due to the
rapid growth of population, thus, such a situation is not consistent with the development.

2. Per Capita Real Income

The aim of economic development is to raise the living standard of the people and through
this to raise consumption level. This can be, estimated through per capita income rather than
national income. If national income of a country goes up but the per capita income is not
increasing, that will not raise the living standard of the people. That way, per capita income is
a better measure of economic development than the national income.

The increase in per capita income is a good measure of economic development. In the
advanced countries, per capita income has been on continuous increases because the growth
rate of national income is greater than the growth rate of population. This has raised the
economic lot of the people. In underdeveloped countries, there is very less capacity to
produce per head. So, as the capacity to produce goes up these economies proceed towards
economic development.

Increase in per capita income can be better index of an increase in the welfare of the people.
In advanced countries, national income has increased much faster than the growth rate of
population. It means the per capita real income has been constantly increasing and this has led
to the increase in welfare of the people. That way, per capita income can be considered a
better index of the welfare of the people.

Against:
(a) According to Meier and Baldwin, “If an increase in per capita income were taken as the
measure of development, we would be in the awkward position of having to say that a country
had not developed if its real national income had risen, but population has also risen at the
same time.”
If in a country an increase in national income is offset by the increase in population, then we
would be bound to say that no economic development has taken place. Similarly, if national
income in a country has not gone up but population has reduced due to epidemic or war, in
that case we would be bound to conclude that economic development is taking place.

(b) When we divide national income by population, the problem of population in that case is
ignored. It confines the scope of the study.

(c) In this measure, distributive aspect has been ignored. If national income goes up but there
is unequal distribution of income among different sections of the society, in that case rise in
national income will be meaningless.

(d) In the underdeveloped countries where per capita income is regarded as a measure of
economic development, with the increase in per capita income of these countries, there is also
increase in unemployment, poverty and income inequalities. This cannot be regarded as
development.
(e) Economic growth is multi-dimensional concept which involves not only increase in money
income but also improvement in social activities like education, public health, greater leisure
etc. Such improvements cannot be measured by changes in per capita real income.

(f) The data of per capita national income are often inaccurate misleading and unreliable
because of imperfections in national income data, and its computation. That way, per capita
real income cannot be free from weaknesses. Despite these drawbacks in the measure of real
per capita income, many countries have adopted this measure as an indicator of economic
development.

3. Economic Welfare as an Index of Economic Development

(a) When there is equal distribution of national income among all the sections of the society.
It raises economic welfare.

(b) When the purchasing power of money goes up, even then there is an increase in the level
of economic welfare. The purchasing power of money can go up when with the increase in
national income there is also increase in the prices of goods. That means economic welfare
can increase if price stability is ensured.

Against:

In order to assess economic welfare, it is essential to know the nature of national income and
the social cost of production. We face lot a practical difficulties while estimating these
economic factors. It is on account of this reason that many economists do not consider
economic welfare as a good measure of economic development. Also the concept of welfare
is subjective in nature which cannot be measured. Also welfare is a relative term which differs
from person to person

4. Comparative Concept

Economic development is a comparative concept and it can easily be understood and

measured. In a simple way, from comparative concept, we can ascertain how much the
economic development has been attained in a country.

The comparison can be made by two methods over time period:

(а) Comparison within the country.
(b) Comparison with other countries.

(a) Comparison within the Country:

5. Measurement through Occupational Pattern

(1) Primary Sector:

It includes agriculture, fisheries, forestry, mining etc.

(2) Secondary Sector:

It consists of manufacturing, trade, construction etc.

(3) Tertiary Sector:

It includes services, banking, transport, etc. In under-developed countries, majority of the
working population in engaged in primary sector. On the contrary, in developed countries the
majority of the working population works in tertiary sector.

6. Standard of Living Criterion:

Another method to measure economic development is the standard of living. According to

this view, standard of living and not rise in per capita income or national income should be
considered an indicator of economic development. The very objective of development is to
provide better life to its people through improvement or upliftment of the standard of living.
In other words, it refers to increase in average consumption level of the individual. But, this
criteria is not practicably true.

Let us suppose, national income and per capita both increase but the government mops up this
income with the way of heavy dose of taxation or compulsory deposit scheme or any other
method, in such a situation, there is no possibility to raise to average consumption level i.e.,
standard of living.

Moreover, in poor countries, propensity to consume is already high and stern efforts are made
to reduce superfluous consumption in order to encourage savings and capital formation. Again
‘standard of living’ is also subjective which cannot be determined with objective criterion.
 - Measurements for measure growth

- Indicators for structural change

- Indicators for social development

o Measurements for basic human needs such as: income (calorie intake),
educational attainment, life expectancy (separate or composite in HDI)
(employment and worker’s time use, population growth)

o Measurement for poverty and inequality: HCI, HCR, PG, Lorenz Curve, Gini
coefficient,

o Measurements for gender equality: GDI and GEM

Bài 2:

a. Meaning of non-economics factors included in 2 frameworks:

From M. Torado’s point of view:

Non-economic factors inclide attitudes toward life, work, and authority, public and
private bureaucratic, legal, and administrative structures, patters of kinship and
religion, cultural traditions, systems of land tenure; the authority and intergrity of
government agencies; the degree off popular participitation in development decisions
and activities and the flexibility or rigidity of economic and social classes.

From Yujiro Hayami’s point of view:

b. Examples:

Non-economic factors:

Here, some of the main non-economic factors that seem to influence economic growth
and economic development are briefly introduced. These factors are: culture; religion;
class and family; tradition; the role of individual; sociopolitical dependencies; the role
of government; and existence of duality in the society .
 Economics factors:

Land, labour, agriculture, capital and technological progress

c. Interaction among non-economic factors and economic factors

Thus, while the progress of technology provides a basis of resource augmentation, it is

promoted by purposive resource-using activities. For example, advances in irrigation
technology are achieved through research on the identification of water-flow patterns
as well as the development of irrigation facilities for adequate control of the water-
flows through experiments of various designs, be it done by scientists and engineers in
modern research laboratories or by primitive trial and error by peasants on their farms.
Those activities use both human effort and capital for the addition of the stock of
engineering knowledge. Since this increase in knowledge has the same output-
increasing effect as investment in tangible capital—such as the construction of
irrigation canals and dams—research and development activities can be called
'investment in intangible capital'.

Similar to the production of tangible capital, it is possible to formulate a process of

producing technical knowledge from the inputs of labour and capital. A critical
element in augmenting this knowledge production function is 'investment in human
capital', defined as enlargement of human capacity by such means as education,
training, and health care. Investment in human capital will increase the efficiency of
knowledge production, which in turn will improve the efficiency of production of
economic value added from given resources in the society. Thus, cumulative increases
in average product per capita will result from investments in both tangible and
intangible capital.
The productivity of an economic subsystem, consisting of its resource endowments
and technology, is conditioned by culture and institutions in society. Broadly defined,
institutions as well as technology are a part of culture. However, culture is here
narrowly defined to imply the value system of people in the society, while institutions
are defined as 'rules sanctioned by the members of the society' including both formally
stipulated laws and informal conventions. Cultures and institutions thus defined are
inseparably related. The rules that contradict the morals of people would not be
sanctioned socially and, if stipulated formally, would not function effectively. For
instance, an important
parameter to determine the rate of investment is the ratio of saving to income; this
parameter is determined largely by people's future preference over present
consumption, which is a part of their value system. It has been the tradition of modern
neoclassical economics to analyse the workings of the economic subsystem under the
assumption of fixed preferences. Such an approach would be effective for the analysis
of a situation in which the upper subsystem was relatively constant. Yet, the approach
would be grossly inadequate for dealing with the wide range of economic
development within which major cultural and institutional changes inevitably occur. In
this respect, the theory of Max Weber (1920) identifying the Protestant ethic as a
source of modern capitalist development represents an important methodological
suggestion, irrespective of its empirical validity.