Economic Development Policy

Economic Development
Policies
By: Taj Mohammad Tamkeen

Lecturer Economics, Rokhan University
Mail: taj_tamkeen@yahoo.com
Cell: 0788889195
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By: Taj M Tamkeen(0788889195,taj_tamkeen@yahoo.com)
Economic development policy
From a policy perspective, economic development can be defined as efforts that
seek to improve the economic well-being and quality of life for a community by
creating and/or retaining jobs and supporting or growing incomes and the tax
base.
You most likely help fund economic development every time you purchase
something at the store and pay local or state sales tax. That cup of coffee, those
new shoes you bought, or the real estate taxes you may pay, all usually have a
percentage of the sales going towards economic development projects or
initiatives.
In general, economic development is usually the focus of federal, state, and local
governments to improve our standard of living through the creation of jobs, the
support of innovation and new ideas, the creation of higher wealth, and the
creation of an overall better quality of life. Economic development is often
defined by others based on what it is trying to accomplish. Many times these
objectives include building or improving infrastructure such as roads, bridges,
etc.; improving our education system through new schools; enhancing our public
safety through fire and police service; or incentivizing new businesses to open a
location in a community.
Economic development often is categorized into the following three major areas:
1. Governments working on big economic objectives such as creating jobs or

growing an economy. These initiatives can be accomplished through
written laws, industries' regulations, and tax incentives or collections.
2. Programs that provide infrastructure and services such as bigger highways,
community parks, new school programs and facilities, public libraries or
swimming pools, new hospitals, and crime prevention initiatives.
3. Job creation and business retention through workforce development
programs to help people get the needed skills and education they need.
This also includes small business development programs that are geared to
help entrepreneurs get financing or network with other small businesses.
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How do we know if economic development is working? There are hundreds of
ways to measure things for the hundreds of different economic development
objectives that communities may have. We can measure many of the above
things through improvements in average income of families, local unemployment
rates, standardized testing and literacy results in children, leisure time and
changes in life expectancy, or hospital stays.
Economic development is the sustained, concerted actions of policy makers and

communities that promote the standard of living and economic health of a
specific area. Economic development can also be referred to as the quantitative
and qualitative changes in the economy.
Scope of economic development policy

Scope of economic development policy contains all efforts carried out for the
betterment of the society and achieving economic growth and development.
Many students get confused between these two terms, so let’s put short light on
growth and development difference.
 Economic growth means an increase in real national income / national

output.
 Economic development means an improvement in quality of life and living
standards,
 E.g. measures of literacy, life-expectancy and health care.
 Ceteris paribus, we would expect economic growth to enable more
economic development. Higher real GDP enables more to be spent on
health care and education.
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 However, the link is not guaranteed. The proceeds of economic growth
could be wasted or retained by small wealthy elite.
Economic growth in the UK
Economic growth measures an increase in Real GDP (real output). GDP is a

measure of the national income / national output and national expenditure. It
basically measures the total volume of goods and services produced in an
economy.
Economic Development looks at a wider range of statistics than just GDP per
capita. Development is concerned with how people are actually affected. It looks
at their actual living standards and the freedom they have to enjoy a good
standard of living.
Measures of economic development will look at:
 Real income per head – GDP per capita

 Levels of literacy and education standards
 Levels of health care e.g. number of doctors per 1000 population
 Quality and availability of housing
 Levels of environmental standards
 Life expectancy.
Economic growth without development

It is possible to have economic growth without development. I.e. an increase in
GDP, but most people don’t see any actual improvements in living standards.
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1. Economic growth may only benefit a small % of the population. For
example, if a country produces more oil, it will see an increase in GDP.
However, it is possible, that this oil is only owned by one firm, and
therefore, the average worker doesn’t really benefit.
2. Corruption. A country may see higher GDP, but the benefits of growth may
be siphoned into the bank accounts of politicians
3. Environmental problems. Producing toxic chemicals will lead to an increase
in real GDP. However, without proper regulation it can also lead to
environmental and health problems. This is an example of where growth
leads to a decline in living standards for many.
4. Congestion (overcrowding). Economic growth can cause an increase in
congestion. This means people will spend longer in traffic jams. GDP may
increase but they have lower living standards because they spend more
time in traffic jams.
5. Production not consumed. If a state owned industry increases output, this
is reflected in an increase in GDP. However, if the output is not used by
anyone then it causes no actual increase in living standards.
6. Military spending. A country may increase GDP through spending more on
military goods. However, if this is at the expense of health care and
education it can lead to lower living standards.
Economic policy as a part of general policy

As we know every country has a general policy that contains political sector,
international ties and economic policy. Economic policy is a part of general policy
that refers to the actions that governments take in the economic field. It covers
the systems for setting levels of taxation, government budgets, the money supply
and interest rates as well as the labor market, national ownership, and many
other areas of government interventions into the economy.
Economic policy is generally working for macroeconomic stability
Macroeconomic stability would involve a commitment to low inflation. Low

inflation creates a climate where foreign investors have more confidence to invest
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in that country. High inflation can lead to devaluation in currency and discourage
foreign investment. To create a low inflationary framework, it requires:
 Effective monetary policy. E.g. given a Central Bank independence to

control inflation through using monetary policy.
 Disciplined Fiscal Policy – i.e. avoid large budget deficits.
 For example, if you look at current situation of China and India – they both
have high rates of economic growth, but the concern is that their
economies could easily ‘overheat’ and cause inflationary pressures.
Therefore, to keep a lid on inflation is an important underlying factor in
sustainable economic development.
A potential problem of macroeconomic stability is that in the pursuit of low

inflation, higher interest rates can conflict with lower economic growth – at least
in the short term. Sometimes, countries have pursued low inflation with great
force, but at a cost of recession and higher unemployment. This creates a
constraint to economic development. The idea is to pursue a combination of low
inflation and sustainable economic growth.
It depends on the economic situation; some countries may be in a situation where

there is a fundamental lack of demand due to overvalued exchange rate and tight
monetary policy. Therefore, economic development may require demand side
policies which boost aggregate demand.
Macroeconomic stabilization may involve policies to reduce government budget

deficits. However, this may involve spending cuts on social welfare programs.
Economic policy experiments
Suppose you get on an airplane and the pilot announces, “In a few minutes we’ll
be taking off on the inaugural flight of this plane. We expect it to cut your travel
time in half. We’ve haven’t actually tested the plane—but our panel of experts is
confident it will be the fastest, safest plane ever built. Fasten your seatbelts.”
Would you stay on that plane? I doubt it. Before airplanes are approved for
commercial travel, they’re tested in wind tunnels and flown by test pilots, to work
out all the kinks. Why would an airline operate an untested plane when the costs
of failure are so great—and can easily be avoided?
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We can ask the same question about new economical and public policies.
Changes in government policies—such as new fisheries regulations—can have
major effects on people’s lives. Should we support a proposed but untested policy
based solely on the testimony of experts, or people with some stake in the
outcome?
That’s where the growing field of experimental economics comes in. Experimental
economics uses controlled, scientific experiments to test what choices people
actually make in specific circumstances. In 2002, Vernon Smith won the Nobel
Prize in Economics for developing a methodology that allows researchers to test
proposed new policies before they are implemented.
Here’s how it works. Researchers design an experiment that captures the key
features of some “real world” market under study. People who have agreed to
take part in the experiment are assigned the roles of buyers and sellers making
trades. Participants have an incentive to think carefully about their decisions,
since the money they earn from trading is theirs to keep.
During the experiment, researchers can change the rules of exchange and the
incentives—and by observing how the participants’ behavior changes as the rules
or incentives change, they can examine the effects of policy changes. They can
then compare the actual results of the experiment with theoretical predictions
about how people would respond to some policy change.
Besides experiments in the laboratory, Resource Economics professors also use

experiments in classrooms, to give students hands-on experience with the power
of markets and incentives. Students see how economics can explain what goes on
in the real world—and how those same economic concepts can help policymakers
make better decisions.
Experimental economics could be useful in many policy debates. We might, for

example, want to study the relative merits of different carbon trading programs,
or the incentive properties of different fisheries management proposals. Other
projects which have been undertaken by members of our lab include
investigations into theoretical solutions to noncompliance with environmental
regulation as well as using experimental economics to discriminate between
competing models that may explain firms’ anticompetitive behavior.
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Fair economic policy as a socio applied knowledge
Fair economic policy is having good impact on all the social aspects of the society.
Focusing on infrastructures not only create facilities for investment but having a
good impact in the social welfare sector of the society.
Accurate planning
Accurate planning means that economists should authentically design and
forecast the future conditions for an economic policy. There should be no
contradictions in the planning process. A fair economic development policy needs
specialists to design accurate planning.
Comprehensive goals
Comprehensive goals mean smart goals.
To make your goal S.M.A.R.T., it needs to conform to the following criteria:

Specific, Measurable, Attainable, Relevant and Timely.
S.M.A.R.T. goal setting: Specific
What exactly do you want to achieve? The more specific your description, the
bigger the chance you'll get exactly that. S.M.A.R.T. goal setting clarifies the
difference between 'I want to be a millionaire' and 'I want to make €50.000 a
month for the next ten years by creating a new software product'.
Questions you may ask yourself when setting your goals and objectives are:
 What exactly do I want to achieve?

 Where?
 How?
 When?
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 With whom?
 What are the conditions and limitations?
 Why exactly do I want to reach this goal? What are possible alternative
ways of achieving the same?
S.M.A.R.T. goal setting: Measurable
Measurable goals means that you identify exactly what it is you will see, hear and
feel when you reach your goal. It means breaking your goal down into measurable
elements. You'll need concrete evidence. Being happier is not evidence; not
smoking anymore because you adhere to a healthy lifestyle where you eat
vegetables twice a day and fat only once a week, is.
Measurable goals can go a long way in refining what exactly it is that you want,
too. Defining the physical manifestations of your goal or objective makes it
clearer, and easier to reach.
S.M.A.R.T. goal setting: Attainable
Is your goal attainable? That means investigating whether the goal really is
acceptable to you. You weigh the effort, time and other costs your goal will take
against the profits and the other obligations and priorities you have in life.
If you don't have the time, money or talent to reach a certain goal you'll certainly
fail and be miserable. That doesn't mean that you can't take something that
seems impossible and make it happen by planning smartly and going for it!
There's nothing wrong with shooting for the stars; if you aim to make your
department twice as efficient this year as it was last year with no extra labor
involved, how bad is it when you only reach 1,8 times? Not too bad...
S.M.A.R.T. goal setting: Relevant
Is reaching your goal relevant to you? Do you actually want to run a multinational,
be famous, and have three children and a busy job? You decide for yourself
whether you have the personality for it, or your team has the bandwidth.
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If you're lacking certain skills, you can plan trainings. If you lack certain resources,
you can look for ways of getting them.
The main questions, why do you want to reach this goal? What is the objective
behind the goal, and will this goal really achieve that?
You could think that having a bigger team will make it perform well, but will it
really?
S.M.A.R.T. goal setting: Timely
Time is money! Make a tentative plan of everything you do. Everybody knows
that deadlines are what makes most people switch to action. So install deadlines,
for yourself and your team, and go after them. Keep the timeline realistic and
flexible, that way you can keep morale high. Being too stringent on the timely
aspect of your goal setting can have the perverse effect of making the learning
path of achieving your goals and objectives into a hellish race against time –
which is most likely not how you want to achieve anything.
Goals efficiency
The goals should be achieved more efficiently in the economic development
policy. The goals should be rightly selected and should be rightly achieved in
order to attain the main purpose of economic development.
Goals orientation
Goal orientation describes the actions of people and organizations regarding their
primary aims. In economics, goal orientation is a type of strategy that affects how
the economy approaches its revenues and plans for future projects. While all
businesses are naturally goal oriented in some way, goal orientation plays an
important role in focus and fund allocation. Goal orientation also plays a part in
management styles and information technology projects.
Economic development thought
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Economic development is the need of the current world. Every country wants to
promote the living standard of its people and that is why such thought gets
promoted by the policy makers.
Economic development policy ideology
Like all ideologies, Development promises a comprehensive final answer to all of

society’s problems, from poverty and illiteracy to violence and despotic(dictating)
rulers. It shares the common ideological characteristic of suggesting there is only
one correct answer, and it tolerates little dissent)disagree). It deduces (realizes)
this unique answer for everyone from a general theory that purports (claim) to
apply to everyone, everywhere. There’s no need to involve local actors who reap
its costs and benefits. Development even has its own intelligentsia, made up of
experts at the International Monetary Fund (IMF), World Bank, and United
Nations.
The power of Developmentalism is disheartening, because the failure of all the

previous ideologies might have laid the groundwork for the opposite of ideology
— the freedom of individuals and societies to choose their destinies. Yet, since
the fall of communism, the West has managed to snatch defeat from the jaws of
victory, and with disastrous results. Development ideology is sparking a
dangerous counteraction. The "one correct answer" came to mean "free
markets," and, for the poor world, it was defined as doing whatever the IMF and
the World Bank tell you to do. But the reaction in Africa, Central Asia, Latin
America, the Middle East, and Russia has been to fight against free markets. So,
one of the best economic ideas of our time, the genius of free markets, was
presented in one of the worst possible ways, with unelected outsiders imposing
rigid(inflexible) doctrines on the xenophobic (racist) unwilling.
Economic development policy systems

As we have many economic systems in the world that is why every system is using
different development system and strategies for modernization. Social economies
are using total government command system while capitalist economies are
focusing on privatization.
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Objectives of economic development policy
Following are the economic objectives of economic development:
1) To Reduce Poverty
The most of the developing countries including Afghanistan are facing the
problem of general as well as absolute poverty. Poverty is not only itself bad but it
produces a lot of economic and social crimes. Reduction in poverty is one of the
main goals of economic development.
2) To Reduce the Burden of Internal and External Debts
Economic development helps a nation to adopt the self-reliance policy.
Poor nations like Afghanistan are loans and grants receiving nations. The most of
the developing countries are receiving domestic and foreign loans. Another aim of
economic development is to reduce the burden of debts. Recently Brussels
conference has announced 15.2 billion US dollars for Afghanistan to be given to
the government of Ashraf Ghani in upcoming four years.
3) To Increase the Per Capita Income

Per capita income of developing countries is very low. Economic
development leads to increase in per capita income of poor countries. Increase in
PCI leads to more saving and more investment. High per capita income is a
symbol of progress and prosperity. Now per capita income of Afghanistan is $
677.
4) Development of Agricultural Sector
Backward agricultural sector is the largest sector of the economy of
Afghanistan. Here due to use of traditional means of production productive
quality and quantity is very low. Economic development is required to develop
the backward agricultural sector that is essential for a country. Agriculture sector
has 35 percent contribution in afghan GDP
5) Development of Industrial Sector
Industrial sector is the second largest sector of our economy. Development
of industrial sector is not satisfactory right now in Afghanistan. Economic
development also helps to develop the industrial sector. Without industrial
development progress and prosperity is impossible.
6) To Reduce Unemployment
One more objective of economic development is to reduce the
unemployment. Unemployed population is a burden on our economy. Economic
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development creates new employment opportunities. Rapidly raising population
creates a problem of unemployment that can be solved through economic
development. Rate of unemployment in Afghanistan is 35%.
7) To Enhance the Productivity Level
Productivity level in agricultural and industrial sector is very low in
Afghanistan. Another objective of economic development is to increase the
productivity level with the help of using modern technologies.
8) To Correct the Balance of Payment

Usually Afghanistan has been facing deficit in its balance of payment. It is
due to more imports and less exports. To correct the balance of payment
economic development is necessary. Economic development will increase the
exports and decrease the imports of a country.
9) To Remove the Deficiency of Capital

Afghanistan is also facing the problem of shortage of capital. Economic
development will increase the income of people and overall nation. It will lead to
more saving and more investment. So, economic development is helpful to
remove the deficiency of capital. Economic development will increase the rate of
capital formation.
10) To Use Resources Optimally
Economic development enables a nation to utilize the existing resources
optimally. Developing counties have a lot of natural resources that remains un-
utilized, under-utilized or mis-utilized due to poor state of technology.
11) To Remove Market Imperfection
Market forces in developing countries are not acting freely. Monopolists
have a complete control over the economy. They create artificial shortage of
goods to charge high prices. Problems of market imperfection can be removed
through economic development.
12) To Remove the Vicious Circle of Poverty
According to Ragnar Nukse, vicious circle of poverty is the biggest reason of
backwardness of developing countries. Economic developments will lead to
remove the vicious circle of poverty. Due to vicious circle of poverty national
income, national savings and national investments all are very low.
13) To Control Inflation
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High rate of inflation in developing counties is also creating a lot of
problems. Economic development is required to control the increasing inflation.
B. DEMOGRAPHIC OBJECTIVES
Following are the demographic objectives of economic development:

14) To Improve the Living Standard
Population is rapidly increasing in developing countries. On the other hand
already existing population has non-availability of basic needs. Living standard of
population is very low in Afghanistan. Economic development also contains the
objective to improve the living standard of population.
15) To Remove Pollution
Due to industrialization in poor countries, the air pollution and water
pollution is common. Economic development will lead to installation of treatment
plants which will reduce pollution. Pollution is creating a lot of diseases and
causing the efficiency of labor.
16) To Achieve Better Health
Developing countries have less health facilities. Economic development
causes, the production of more and better instrument for treatment. Reduction in
death rate and improvement in life expectancy is possible due to economic
development.
17) To Check Brain Drain
Brain drain is the out flow of best brain. It takes place due to misuse of their
talents and abilities. Economic development has an aim to engage these people
within the country, which is better for a nation.
18) To Develop Infrastructure
Better infrastructure like education system, better health facilities,
sanitation and quick means of transportation & communication creates attraction
for foreign investment. An additional objective of economic development is to
develop the infrastructure facilities.
A. CULTURAL & POLITICAL OBJECTIVES
Following are the cultural & political objectives of economic development:

19) To Attain Higher Education
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An extra target of economic development is to provide higher education to
population within the country. In Afghanistan literacy rate is very low. Low
literacy rate leads to backwardness and ignorance in population.
20) To Control Un-productive Expenditure
Our government has to allocate a huge amount for un-productive
expenditures. Objective of economic development is to control the un-productive
expenditure.
21) To Maintain Political Stability
Political situation is not satisfactory in Afghanistan. There is instability in
government and its policies. An extra objective of economic development is to
maintain political stability. Government is strongly criticized by almost the whole
population in Afghanistan.
22) To Remove the Feudalism
Feudal-lords and landlords are exploiting poor tenants. One more objective
of economic development is to remove the bad role of feudalism.
23) To Productive Use of Funds
An additional objective of economic development is to use the funds of
government in productive ways. Use of funds must provide more utilities to
public. It will increase the social welfare.
24) To Stabilize the Polices
Stability in fiscal and monetary policies is necessary for the economic
stability. Another aim of economic development is to maintain the stability in
various policies.
B. TECHNOLOGICAL & MISCELLANEOUS OBJECTIVES
Following are the technological and miscellaneous objectives of economic

development:
25) To Use Modern Technology
The purpose of economic development is to enable a country to use
modern technology. Use of modern technology will lead to more output and
better quality.
26) To Reduce the Dependence

Developing countries have to depend upon rich countries. Poor countries
receive loans and grants from them. So they interfere directly in the policies of
developing countries for their own interests.
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27) To Fair Distribution
Distribution of resources is not suitable in Afghanistan. A lot of resources
are in the hands of only some people. Very few people are having high standard
life with huge wealth in Kabul, Jalalabad, Herat and mazar.Fair distribution of
resources is also an objective of economic development.
28) To Improve Skill
Economic development improves the skill and training of worker. It
increases the efficiency of labor that causes more and better output.
29) To Self Reliance
Adoption of self-reliance policy is possible due to economic development.
Economic development reduces the dependence on other countries and their
interference.
30) To Develop Money Market
Another motive of economic development is to develop the money market.
Developed money market is essential for a country. It will create social welfare for
population.
Population policy
A population policy is a policy that a country engages in order to get its
population to a level that it feels is optimal for it. Though we often think of this in
terms of policies that are meant to reduce population growth, population policy
can also be aimed at increasing the population.
Perhaps the most famous example of a population control policy is China's one
child policy. In this policy, China has been trying to limit family sizes so as to
reduce population growth. The one-child policy was a policy implemented by the
Chinese government as a method of controlling the population. The one-child
policy was introduced in 1979 in response to an explosive population growth, and
mandated that couples from China's Han majority could only have one child.
However, other countries, such as Singapore, have at times tried to do things like
offering tax incentives to encourage people to have more children.
Increase in population means development (totally wrong)
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Is Afghanistan overpopulated?
This connects to overpopulation in Afghanistan because Afghanistan has one of
the highest fertility rates in the world. It is around 6 or 7 children per woman.
Most people are aware over birth control techniques, but choose not to use them
for religious reasons.
Types of population policies
 Direct or explicit
– Government actions taken for the purpose of affecting a
Demographic outcome, e.g., migration laws
• Indirect or implicit
– Government actions that only indirectly have some demographic
Effects, e.g., promoting female education
Explicit vs. implicit policies

Example (slowing population growth)
Explicit Policies
• Provide free family planning services
• Increase taxes for each additional child
• Restrict immigration
• Raise the age of marriage
Implicit policies
• Compulsory secondary education
• Restrict child labor
• Limit size of houses
• Raise status of women
• Provide old age security
Population control policy sample (India)

India’s population has already reached 1.26 billion in the current year and
considering the present growth rate, by 2028, the country’s population will be
more than China, according to a recent report from the UN. Though, the report
has clearly mentioned that the rate of population growth has slowed down in
recent years, due to effective implementation of family planning and family
welfare programmes, yet the rate is growing at a much faster rate compared to
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China. The national fertility rate is still high which is leading to long-term
population growth in India.
However, the family planning programme in India cannot be ignored. Let us

discuss below about family planning in India and how it has played a major role in
solving the problem of population growth in India to a certain extent:
History of Family Planning in India
Population growth has been a cause of worry for the Government of India since a
very long time. Just after independence, the Family Planning Association of India
was formed in 1949. The country launched a nationwide Family Planning
Programme in 1952, a first of its kind in the developing countries. This covered
initially birth control programmes and later included under its wing, mother and
child health, nutrition and family welfare. In 1966, the ministry of health created a
separate department of family planning. The then ruling Janata Government in
1977 developed a new population policy, which was to be accepted not by
compulsion but voluntarily. It also changed the name of Family Planning
Department to Family Welfare Programme.
Family Planning / Family Welfare Programme (FWP) by the Government in India
This is a centrally sponsored programme, for which 100% help is provided by the
Central to all the states of the country. The main strategies for the successful
implementation of the FWP programme are:
 FWP is integrated with other health services.

 Emphasis is in the rural areas
 2-child family norm to be practiced
 Adopting terminal methods to create a gap between the birth of 2 children
 Door-to-door campaigns to encourage families to accept the small family
norm
 Encouraging education for both boys and girls
 Encouragement of breast feeding
 Proper marriageable adopted (21 years for men and 18 years for women)
 Minimum Needs Programme launched to raise the standard of living of the
people.
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 Monetary incentives given to poor people to adopt family planning
measures.
 Creating widespread awareness of family planning through television,
radio, news papers, puppet shows etc.

Importance of Family Planning in India
Family planning is not confined to only birth control or contraception. It is

important as whole for the improvement of the family’s economic condition and
for better health of the mother and her children. First of all, family planning
highlights the importance of spacing births, at least 2 years apart from one
another. According to medical science, giving birth within a gap of more than 5
years or less than 2 years has a seriously affect the health of both the mother and
the child.
Giving birth involves costs and with an increase in the number of children in a
family, more medical costs of pregnancy and birth are involved, along with
incurring high costs of bringing up and rearing the children. It’s the duty of the
parents to provide food, clothing, shelter, education to their children. Family
planning, if adopted, has an effective impact on stabilizing the financial condition
of any family.
Employment policy
For the developing countries as a whole, the most critical question is how to
create quickly hundreds of millions of jobs for the poor with limited purchasing
power and limited capital for investment. The idea that most of these jobs could
be created in the corporate sector or by government-sponsored activities has
been put to rest. Currently, there are nearly one billion self-employed and unpaid
family workers in the world, most of them self-employed farmers in developing
countries. The self-employed represent 48 per cent of the workforce in low-
income economies (less than $500 per capita GDP). For any strategy to be
successful, it must give central importance to self-employment and
entrepreneurship, with emphasis on agriculture, agro-industry and small firms in
the informal sector. While a single approach will not be applicable to countries
and regions of the world in different stages of development, a number of
common principles and strategies are widely applicable.
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Agriculture as an engine
Slightly more than half the world's workforces, of whom 30 per cent are women,
are still engaged in agriculture. Agriculture will remain the largest single
occupation for the foreseeable future. For too long this sector has been regarded
by planners primarily as the source of essential food production. Historically,
agriculture has also played a major role as an engine for economic growth and
employment. The Industrial Revolution in nineteenth-century England was
spawned by rising productivity and incomes in agriculture that increased demand
for manufactured goods. In post-war Japan, South Korea, and more recently
Thailand, rising agricultural productivity and a shift to commercial crops have
been dynamic engines for economic growth, job creation, higher incomes and
rural purchasing power, wider markets for produce, and the growth of
downstream industries. In Taiwan, this was the result of a conscious strategy to
utilize agriculture to stimulate job creation and domestic demand.
The barren lands should be given to people to cultivate them.
The vast technological gap between the levels of agricultural productivity

achieved by most developing countries and the highest yields achieved globally
represents an enormous untapped potential for stimulating economic growth and
job creation. The reduction in agricultural subsidies to farmers in industrial
nations called for in the recently signed GATT trade agreements will generate far
higher international demand for agricultural exports from developing countries. In
the next chapter, we argue strongly for an agriculture-led job creation strategy
and cite evidence to show how it can generate sufficient jobs to eradicate poverty
in many countries.
New deal for the self-employed
Excluding agriculture, there are 104 million self-employed and unpaid family
workers in developing countries, representing 37 per cent of the non-agricultural
workforce. Self-employed persons and the small firms which they establish have
enormous potential for rapidly generating large numbers of new jobs and raising
productivity to increase incomes, provided the right policy measures are in place
to support them. Japan's economic growth has relied heavily on the proliferation
of small rural enterprises. Today, 74 per cent of the Japanese workforce is
employed by small and medium-sized firms. China created 101 million jobs
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between 1985 and 1991, 70 per cent in ‘township and village enterprises', of
which nearly half are privately owned. In many countries, a large proportion of
small enterprises is established by women and employ predominately women. An
appropriate mix of policies focusing on access to technology, training, credit,
marketing and distribution channels can substantially accelerate self-
employment, particularly in the informal sector and rural areas, and among
women.
Expand services
The service sector represents only 25 per cent of the labor force in developing
countries compared with more than 67 per cent in the industrial nations. Contrary
to common conception, services can be a major contributor to job growth even in
countries at earlier stages of development. This sector is as amenable to
stimulation by government policies as agriculture or manufacturing, and it also
provides impetus for the growth of other sectors. Supportive policies have
enabled trade, transport and other services to generate more than 50 per cent of
all jobs in Japan, Hong Kong, South Korea and Singapore. Services have produced
more than half of all job growth in many other Asian nations, including private
day-care centers, nursery schools and computer training institutes, which are
multiplying rapidly in many countries, but can be expanded much further. India
has adopted an innovative, low-cost, self-employment strategy to expand
availability of long-distance telecommunications services by setting up small
private telephone and fax centers throughout the country. Informal private
service enter prises in construction, commerce, food catering, repair and
transport have vast growth potential. Rapid expansion of education, training and
public health, especially rural health and education, can also serve as a conscious
strategy for employment generation.
Technology of organization
Much emphasis is placed on the widening gap in technology between North and
South, but the gap in the technology of organization is even greater. Creation of
new types of systems and organizations can create markets and jobs in many
ways. The Dutch system of flower auction co-operatives is so successful that 68
per cent of the entire world's exports of cut flowers pass through markets in the
Netherlands. The franchise system has led to a rapid proliferation of new
businesses and new jobs in the West in such widely diverse fields as food services,
21
home remodeling, dry cleaning and real estate. Industrial estates, export
processing zones, export promotion councils, export insurance, warehouse
receipts, quality standards, and thousands of other organizational innovations
have been either created or borrowed by developing countries to accelerate
social progress. A comprehensive study of successful systems and institutions that
can be transferred and adapted to local conditions will document the enormous
untapped potential for stimulating faster economic and job growth by inventing,
imitating and further improving social systems.
Action Plan to Stimulate Employment in Developing Countries
Employment generation is a product of multiple factors that combine together.

Stimulating job creation requires a comprehensive approach, rather than partial
policies or piecemeal strategies. The achievements of the Newly Industrializing
Economies (NIEs) of East Asia demonstrate that tremendous increases in
employment generation can be achieved based on comprehensive strategies.
While broad prescriptions should not be indiscriminately applied to the widely
disparate situations confronting different countries, the availability of a number
of tested methods underlines the fact that effective and proven policy measures
can be formulated to meet the employment needs of every developing country. A
number of the strategies briefly listed below are enlarged upon in sub sequent
chapters of the report, but listed here for the purpose of comprehensiveness.
Emphasize agriculture
Utilize agriculture as a source of economic growth and job creation by a shift to

high value-added, commercial crops, supported by policy measures to upgrade
technology, improve skills, raise productivity, ensure the supply of essential
inputs, establish marketing and distribution channels, create linkages between
agriculture and industry, and cater to export markets.
Promote small enterprises
Promote small enterprises by policies to make technology, training, credit, and

marketing and distribution channels more easily accessible to small business, and
by forging linkages between universities, research institutes and small
enterprises. The creation of micro-enterprise banks and credit unions specifically
designed to cater to the needs of the self-employed and small firms can be
22
especially effective. There are a growing number of these institutions targeting
clients that lack access to commercial lending institutions, particularly women,
providing unsubsidized loans, and achieving very low levels of default.
Upgrade skills
Absorbing new technology, raising productivity, improving the quality and

competitiveness of exports - all depend on the skills of the workforce. Labour
productivity has been increasing in East Asia by 10 per cent a year, half of which is
attributable to investment in education and technical skills. Training institutions
and programmes in most developing countries provide only a narrow range and
low level of skill acquisition to a small portion of the population. Raise skills to
increase productivity by vastly expanding the lower tiers of the agricultural, craft,
technical and vocational training systems at the local level to provide practical
training in job-related skills to the saturation point. Imbalances between supply
and demand for skills exist at all levels in developing economies. Make a careful
assessment of present supply and demand for key skills. Compare the density of
different types and levels of skill in countries at the next higher stage of
development and evolve programmes to raise the quantity and quality of skills to
that level.
Improve marketing
The organization of marketing is typically one of the weakest links and, therefore,
one of the greatest barriers to economic growth and job growth. Brazil set up a
distribution system for the export of citrus fruits that has enabled it to become
the world's largest exporter of this commodity. Improve distribution and
marketing systems, especially for agricultural produce, by identifying missing links
and establishing successful model programmes that bridge the gap between rural
producers and urban or overseas markets.
Expand services
Actively encourage and support growth of the service sector through programmes
similar to those utilized to support the expansion of small industry.
23
Develop exports
The new GATT treaty ensures that, contrary to earlier projections, export-led
growth is far from over. After agriculture, the textile and clothing industry is one
of the largest employment sectors in developing countries. The industry's global
exports are $250 billion a year, of which Asian countries command 40 per cent.
Trade in clothing is expected to rise by 60 per cent and textiles by 34 per cent
over the next ten years. As labor costs have risen in East Asia, greater
opportunities are emerging for lower-wage developing countries to take a larger
share in growing international markets. In order to take advantage of the
increasing opportunities opened up by liberalization of world trade, developing
countries should accelerate steps to expand export-oriented markets by forging
foreign collaborations and overseas subsidiaries, acquiring technology, creating
an attractive commercial environment for foreign investment, and continuously
building the skills of the labor force.
Innovate organizationally
Significant improvements in the competitiveness and growth of businesses in

developing countries can be achieved through raising organizational efficiency
and dynamism through better internal management practices and better
commercial systems in the marketplace. Conduct a comprehensive study of
successful management practices, systems and institutions from both developing
and developed countries that can be transferred and adapted to local conditions
in order to accelerate development in each field of activity. Evolve new
organizational patterns for existing industries based on adaptation of new
technologies in small, geographically decentralized, labour-intensive production
units in order to make these industries more responsive, flexible, efficient and
competitive.
Extend basic education
A distinguishing feature of the East Asian countries has been their emphasis
during the early stage of industrialization on primary and secondary education,
especially in rural areas. This strategy increases the productivity of the mass of
the workforce, helps promote income equality, consumer spending power and
24
broad support for high growth and pro-business policies. Raise the educational
qualifications of the workforce to the level pertaining in more economically
advanced nations. Place particular emphasis on primary and secondary education,
rural education and education of young girls.
Disseminate information
Encourage the establishment of new institutions, programmes and systems to

speed and extend the dissemination of practically useful information as a
powerful catalyst for more rapid social progress. Encourage a national climate of
open-mindedness to foreign ideas, influences and success stories.
Increase the velocity of money and other transactions
Increase the speed of commercial transactions, especially money flows, in the

economy by streamlining government and banking procedures, ensuring rapid
utilization of funds by all government agencies, setting strict limits on the time
taken for bank transfers, introducing agencies for credit verification and collection
of unpaid bills, and improving the telecommunications infrastructure.
Revamp(restore) higher education
Educational systems which 'manufacture graduates' compound the problem

rather than alleviating it. The problem of the educated unemployed is not so
much the amount of education they receive, but the type of knowledge and
attitudes imparted. Reorient the educational curriculum at all levels, especially
higher education, to impart the knowledge and attitudes needed to promote self-
employment and entrepreneur ship rather than salaried employment.
Employment planning
Studies of Japan indicate that conscious employment planning is an essential

requirement for generating full employment. Place the employment objective
high on the national agenda and evolve a comprehensive plan to achieve full
employment by identifying untapped growth potentials in agriculture, industry,
exports and services. Launch a nationwide programme to implement all
employment-related strategies on a highest priority basis.
25
Comprehensive Strategies
While most of the prescriptions listed above are known to all, very few are
systematically and efficiently applied. Africa can benefit enormously by applying
strategies that have worked in Asia. The ‘Prosperity 2000' programme evolved for
India and presented in the next chapter seeks to utilize a combination of these
strategies to generate 100 million new jobs within a decade or less, which will be
sufficient to raise 25 per cent of the world's poorest billion people above the
poverty line. Given a comprehensive approach, the right mix of policies, good
government and a conducive international environment for trade, technology
transfer and investment, every nation has the capacity to develop and meet the
employment needs of its people within the next one or two decades.
Education policy
Education policy is the principles and government policy-making in the
educational sphere, as well as the collection of laws and rules that govern the
operation of education systems. Speding on education policy is a great
investment.
Developing countries should prepare program for elder by the name of learning
by doing in order to increase their literacy rate.the curriculum of the universities
should be modern which prepare a student to analyse the national and
internation issues easily and to develop their analytical skills.
Most of the budget should be allocated for the promotion of the educational level
of the people.
The misfortune in developing country is that most children leave school in
primary then in middle and finally in high school.very few people make their way
to universities.education policy is the direct reason of the economic development
and indirect instrument of the economic development.
26
Environment protection policy
Environmental policy refers to the commitment of an organization to the laws,
regulations, and other policy mechanisms concerning environmental issues.
Environment should be kept clean in the country. The main responsibilities of the
governments are to protect environment from the pollution and prepare suitable
surrounding for the labor force.
Clean environment bring the social welfare, the people live healthy
Clean environment is necessary for the working sector.
Economic development policy application

Many economists present different theories .everyone has tried to get the
purpose of the human welfare.we will study different development theories here
in the chapter
Lewis development theory
or
Lewis Model of Unlimited Supply of Labour
Some of the main features of Lewis model of unlimited supply of labour are given
below:
(I) Two Sector Economy or Dual Economy:
W.A. Lewis believes that most of the underdeveloped countries of the world live
under a heavy pressure of population due to rapid growth of population.
In such economies, unlimited supply or surplus supply of labour is available at a

subsistence wage.
27
According to Lewis underdeveloped countries have the dual economy and hence
can be divided into two sectors:
(i) The capitalist sector, and
(ii) The subsistence sector.
The capitalist sector is that part of the economy which uses reproducible capital
and pays capitalists for the use thereof. The use of capital is controlled by
capitalist sector which hires the services of the labourers. It may be either private
or public. The average wages are quite high. The people are generally advanced,
literate, sophisticated and skilled in the capitalist sector. They employ labourers
for wages in mines, factories and plantations etc. for earning profits. The output
per head is high. On the other hand, the subsistence is that part of the economy
which does not use reproducible capital.
In this sector, the output per head is quite low as compared to the capitalist
sector. The average productivity of labor is low and people are generally
backward, illiterate, and unskilled. Thus, there are less similarities between the
two sectors and the development is lopsided.
Under the above circumstances, the main problem is to provide gainful

employment to the unlimited supplies of labor. It requires greater attention in
development and expansion of subsistence sector. In his own words, “The central
problem in the theory of economic development is to understand the process by
which a community, which has previously, earning and investing 4 or 5 per cent of
its national income or less, converts itself into an economy, where the voluntary
savings are running about 12 to 15 per cent of the national income or more”.
Thus, it is clear that gainful employment can be provided to unlimited labor force
when rate of investment is at least 12 to 15 per cent of the national income. In
order to provide employment to the unlimited supply of labor or surplus labor
new industries can be set up or existing industries expanded without limit at the
current wage rate by drawing up labor from the subsistence sector or the
subsistence wage.
The main source from laborers would be coming for employment at the
subsistence wage as economic development proceeds at “the farmers, the
casuals, and the petty traders, the retainers (domestic and commercial) women in
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the household and population growth”. It implies the mobilization of labour from
the subsistence sector where the marginal productivity of labour is quite low to
the capitalist sector where the wages are high and the marginal productivity of
labour is also high.
According to Lewis, the capitalist sector needs skilled workers for its expansion
and the supply of this type of labour cannot be regarded unlimited in these
countries. In this connection, Lewis argued that skilled labour is only a quasi-
bottleneck a temporary bottleneck which can be removed by providing training
facilities to unskilled labour.
(II) Capitalist Surplus:
Now, how the unlimited supply of labour is converted into capitalist surplus which
is an essential prerequisite of growth. The main objective of capitalists is to’
maximize their profits. The capitalist surplus is the difference between the
marginal productivity of labour and the capitalist wage. The capitalist sector starts
drawing labour from the subsistence sector on account of higher wages.
Their contribution to output is also higher despite higher wages. In this way
surplus is generated in the capitalist sector. Lewis termed this surplus as the
‘capitalist surplus’. The capitalist surplus is reinvested in the new capital assets by
the entrepreneurs. It leads to capital formation in the economy. This investment
creates new jobs for the unemployed labourers withdrawn from the subsistence
sector. The supply of labour is supposed to be perfectly elastic at the capitalist
wage rate. Thus, the labourers continue to be available at the existing capitalist
wage rate.
Thus the circular process of surplus generation, increased investment and

increased demand for labour continues to steer the system out of the state of
underdevelopment. In short, the process of economic development continues till
the capital labour ratio rises and the supply of labour becomes inelastic, and
surplus labour disappears. Thus the capitalist formation depends on the capitalist
surplus.
Diagrammatic Representation:
Lewis theory of unlimited supply can be explained in the following diagram.
29
In the diagram, quantity of labour employed is shown on axis-OX and the marginal
productivity has been shown on axis-OY. OS is the wage rate in the subsistence
sector and OW is the wage rate in capitalist sector.
The supply of labour is unlimited, as shown by the horizontal supply curve of

labour WW. At the start when OE1 labour is employed in the capitalist sector, its
marginal productivity curve is A’D1 and the total output of this sector is OA’b’E1.
Out of this labourers are paid wages equal to the area OWB’E1.
The remaining area WA’B1 shows surplus output. This is the capitalist surplus or
total profit earned by the capitalist sector. As this surplus is reinvested, the curve
of marginal productivity shifts upward to A2D2. The capitalist surplus and
employment are now larger than before being WA2B2 and OE2 respectively
reinvestment raises the marginal productivity curve and the level of employment
to A,3D3 and OE3 so on, till the entire surplus is absorbed in the capitalist sector.
After this, the supply curve will slope from left to right upwards like an w ordinary
supply curve, and wages and employment will continue to rise.
According to Lewis, the technical progress may be recognized as capital saving

device and labour saving device. In both ways, the technical progress tends to
enhance profits or capitalist surplus and employment in the capitalist sector.
30
Big Push Theory (Rosenstein rodan theory)
Under developed economies are generally characterized with many poor social
and economical indices. Over taking of the under developed characteristics is one
of the great challenges and it is a long term task. Basically under developed
economies are running under the trap of vicious circles of poverty. Which means
that the economy suffering low employment or mass unemployment. Therefore
people will earn lower income. So saving and consumption will be lower. This will
lead to small market size and slower rate of capital formation. When the capital
formation is lower, there will no more investment, production, employment,
income etc. This kind of trap exists in under developed economies.
The biggest task of an under developed economies is to break the trap of vicious
circles of poverty. Then only the economy can grow. The big push theory is states
that, under developed economies are in urgent of heavy investments in its
different sectors. This may push the economy in to a higher developed stage from
under developed conditions. The theory also states that, low rate of investment in
a single industry will not create any impacts in the economy. So it will be wastage.
Because low rate of investment in a single industry cannot influence the economy
as a whole and cannot able to break the trap of vicious circles of poverty,
unemployment, low productivity, low income etc.
Three Indivisibilities
To explain the big push theory, Professor R. Roden has suggested three
indivisibilities namely,
31
i) Indivisibility of production function
ii) Indivisibility of demand, and
iii) Indivisibility of supply of savings.
Each of this indivisibility is explained separately given below.
i) Indivisibility of Production Function
Indivisibility of production function refers to the improvements in the various

production aspects of an under developed economies. It consists of inputs for
production, factors of production, output etc. Generally, under developed
economies are functioning with poor productivity, lower income, lower
employment, poverty etc. This is basically because of the low capital-output ratio
in the under developed economies. In advanced countries, the capital output
ratio will be lower since the availability of better technologies.
To improve the productivity of the under developed countries, government must

invest in social over head capitals like canals, roads, bridges, rail, power etc. This
kind of investment requires huge public expenditure and the result is based on
long term period. Investments in the basic infrastructure will directly generates
employment opportunities and indirectly widen the market size by increasing the
income and aggregate demand of households. Once people get employment,
there will be an increasing trend in both consumption and savings. Which may
lead the economy to produce more and by optimum utilization of the resources.
ii) Indivisibility of Demand
As mentioned above, market size of under developed economies is very small. It

means that, lower demand, lower production, low rate of capital formation and
lower income. So there required wide changes in the economy to achieve growth
and development. The ultimate solution for the deficiency in demand is to
conduct huge investment in every sector of the economy. It is not better to invest
in a particular industry. Because small rate of investment in a single industry or
few industries of under developed countries will be wastage. Generally, higher
32
investment will provide maximum employment, income, demand, investment and
so on. In this way the economy can achieve growth and development.
iii) Indivisibility in the Supply of Savings
Supply of sufficient amount of savings is one of the most important factors of

economic growth and development. Because, a higher rate of savings denotes
that, people are earning higher income. In other sense, savings is higher because
of higher employment rate. In under developed countries, supply of savings will
be lower since people lack employment and earns lower income. This is the basic
reason for the lower capital formation, investment and small market size. In fact,
under developed economies can grow more only when it can able to generate
saving habits in the society. Therefore, the solution is that, government must
invest on heavy projects, which will automatically generate employment and
income. When people began to get more and more income, there will be also an
increase in the rate of savings and investment. This will ensure higher capital
formation. Further, the economy can enjoy the fruits of economic growth and
development only when its marginal rate of savings exceeds average rate of
savings.
Conclusion
The big push strategy is one of the most important strategies of economic growth
and development. It put some methods before the under developed economies
to improve and empower the economy from its pathetic conditions. The theory is
emphasis on the role of investment in an economy. It also mentioned that, there
should be equalization in investment in the every sector of the economy.
New growth theory of economic development

The classical growth theory is the theory on economic growth that argues that
economic growth will end because of an increasing population and limited
resources. Classical Growth Theory economists believed that temporary increases
33
in real GDP per person would cause a population explosion that would
consequently decrease real GDP.
The latest economists have developed a new theory of economic development
A central proposition of New Growth theory is that, unlike land and capital,
knowledge is not subject to diminishing returns.
The importance of knowledge
Indeed, the development of knowledge is seen as a key driver of economic

development. The implication is that, in order to develop, economies should
move away from an exclusive reliance on physical resources to expanding their
knowledge base, and support the institutions that help develop and share
knowledge.
Governments should invest in knowledge because individuals and firms do not

necessarily have private incentives to do so. For example, while knowledge is a
merit good, and acquiring it does not deny anyone else that knowledge, its
usefulness to individuals and firms may be undervalued, and yet knowledge can
generate increasing returns and drive economic growth. Government should,
therefore, invest in human capital, and the development of education and skills. It
should also support private sector research and development and encourage
inward investment, which will bring new knowledge with it.
The role of the public sector
Because ‘public’ investment in social capital is subject to market failure, New

Growth theorists argue that government should allocate resources to compensate
for this failure.
Public Utilities and infrastructure
Essential utilities like electricity, gas, and water are natural monopolies, and in
many countries are provided by the public sector. However, if these utilities are
under-supplied due to inadequate public funds, the private sector will suffer and
34
growth will be limited. This is because the industrial sector relies on energy and
water for its production and distribution, without which it will not produce
efficiently or competitively. The accumulation of private capital, therefore,
depends up the correct level of expenditure by government.
Similarly, New Growth theorists argue that government should also finance, or
seek finance for, infrastructure projects, such as road, rail, sea, and air transport.
Such projects involve the creation of quasi-public goods, and the theory of market
failure suggests that they would be ‘under-supplied’ without government. The
huge fixed costs and the difficulty of charging users prevents the private sector
supplying, and the state may choose to act like a producer and financier, and
provide necessary legislation for and co-ordination of such projects.
These projects also generate positive externalities, and as such justify government
involvement. For example, an improved infrastructure increases the likelihood of
tourist revenue as well as reducing production costs.
International trade
International trade is the exchange of capital, goods, and services across
international borders or territories, which could involve the activities of the
government and individual. In most countries, such trade represents a significant
share of gross domestic product (GDP).
International trade theories are simply different theories to explain international

trade. Trade is the concept of exchanging goods and services between two people
or entities. International trade is then the concept of this exchange between
people or entities in two different countries.
People or entities trade because they believe that they benefit from the
exchange. They may need or want the goods or services. While at the surface, this
many sound very simple, there is a great deal of theory, policy, and business
strategy that constitutes international trade.
New international economic system
35
New International Economic Order: Objectives, Programme of Action
NIEO
New International Economic Order (NIEO): Objectives, Programme of Action!
At the Sixth Special Session of the United Nations General Assembly in 1975, a
declaration was made for the establishment of a New International Economic
Order (NIEO). It is regarded as “a turning-point in the evolution of the
international community.”
NIEO is to be based on “equity, sovereign equality, common interest and co-

operation among all States, irrespective of their social and economic systems,
which shall correct inequalities and redress existing injustices, make it possible to
eliminate the widening gap between the developed and the developing countries
and ensure steadily accelerating economic and social development and peace and
justice for present and future generations.”
Though the declaration on the NIEO by the General Assembly (GA) is of recent
origin, the idea is not altogether a new one. In fact, a similar resolution was
adopted by the GA itself long back in 1952. Again, similar demands were raised
from time to time by the UNCTAD since its inception in 1964. A.K. Das Gupta,
however, says that what is spectacular about the NIEO Declaration is its timing.
The NIEO aims at a development of the global economy as a whole, with the set
up of interrelated policies and performance targets of the international
community at large.
Origin of NIEO:
The movement for the establishment of the NIEO is caused by the existing
deficiencies in the current international economic order and the gross failures of
the GATT and the UNCTAD in fulfillment of their vowed objectives.
The present international economic order is found to be a symmetrical in its

working. It is biased. It is favoring the rich-advanced countries. There has been
over dependence of the South on the North. Rich countries tend to have major
36
control over vital decision making in the matter of international trade, terms of
trade, international finance, aids, and technological flows.
As a matter of fact, the basis for the NIEO is constituted by the U.N. Resolution in
1971, in the seventh special session on “Development and International Economic
Co-operation” with various reforms in the area of international monetary system
transfer of technology and foreign investment, world agriculture and cooperation
among the Third World Countries.
The Resolution categorically mentions that “Concessional financial resources to

developing countries need to be increased substantially and their flow made
predictable, continuous and increasingly assured so as to facilitate the
implementation by developing countries of long-term programmes for economic
and social development.” It emphasises global interdependence. It seeks radical
changes in allied social, economic, political and institutional aspects of
international relations.
New developing sovereign countries of the South have insisted on the NIEO. It has
been further supported by the non-aligned nations which vehemently criticised
the politicalisation of development and trade issues by the developed nations.
The developing nations are now asserting their right to participate in the decision
making processes of the international institutions like the IMF, World Bank, GATT,
UNCTAD, etc.
The origin of North-South dialogue for a new economic order may be traced back
to over 30 years ago, at the Afro-Asian Conference at Bandung held in 1955.
However, the formal idea of the NIEO was put forward in the Algiers Conference
of non-aligned countries in 1973. In 1975, a declaration for the establishment of
NIEO was adopted along with a programme of action in the Sixth Special Session
of the UNCTAD.
The North-South Dialogue:
In 1977, there was a negotiation between the North and South at the Paris talks.
The developed countries agreed to provide an additional U.S. 1 billion towards
the Aid Fund for the development of the poor nations.
37
In December 1977 the Willy Brandt Commission was set up with a view to review
the issues of international economic development. The WB Commission’s Report
(1980) stresses the need for North-South co-operation.
Beside establishment of a common development fund, its recommendations

include strengthening the structure of development lending a code of conduct for
the multinational co-operation as well as the need for intergovernmental co-
operation in monetary and fiscal areas along with the trade policies. It also
proposed for the increasing participation of developing nations in the decision-
making processes at international level.
As Mehboob-ul-Haque observes, the demand for NIEO is to be viewed as a part of

historical process rather than a set of specific proposals. Its important facets are
the emergence of non-aligned movement, the politicisation of the development
issue and the increased assertiveness of the Third World countries.
The NIEO led to a serious thinking on the part of the developed countries (DC) to
solve the problems of trade of LDCs. There has been a move towards
programmed actions in two directions: (i) Commodity Agreements, with a view to
stabilise prices of exportable of LDCs; and (ii) Compensatory Financing through
IMF’s liberal loans to LDCs having deficits due to fluctuations in prices.
Objectives of the NIEO:
In essence, the NIEO aims at social justice among the trading countries of the
world. It seeks restructuring of existing institutions and forming new organisations
to regulate the flow of trade, technology, capital funds in the common interest of
the world’s global economy and due benefits in favour of the LDCs. It has the
spirit of a ‘world without borders.’
It suggests more equitable allocation of world’s resources through increased flow

of aid from the rich nations to the poor countries.
It seeks to overcome world mass misery and alarming disparities between the
living conditions of the rich and poor in the world as large.
Its aim is to provide poor nations increased participation and have their say in the
decision-making processes in international affairs.
38
Among to other objectives, the NIEO envisages the establishment of a new
international currency the implementation of SDR aid linkage, the increased
stabilisation of international floating exchange system and the use of IMF funds as
interest subsidy on loans to the poorest developing countries.
The crucial aim of the NIEO is to promote economic development among the poor
countries through self- help and South-South co-operation.
The NIEO intends to deal with the major problems of the South, such as balance
of payments disequilibrium, debt crisis, exchange scarcity etc.
Programme of Action for the NIEO:
In essence, the UNCTAD resolutions provide a source of programme of action for

the international economic order.
The NIEO is not in favour of the existing system of free market orientation. It is
biased in the less developed countries through interventionist approach.
Its action programme narrates the need for a more rapid economic development
of the poor countries and their increasing share in the world’s trade at favourable
terms of trade.
Its line of action is to adopt discriminatory approach in trade favouring the LDCs.
It also insists on de-politicalisation in the flow of official as well as private direct

investment from the rich to the poor countries.
It contains that aid has to be of multi-lateral form with a view to facilitate

structural adjustments in the less developed countries.
It also stresses the need for restructuring the international monetary system.
There has been always a great opposition from the rich countries. They have
vested interests which do not allow for the healthy outcome and actions in
various negotiations and their implementation. Again, the poor countries have
weak bargaining power in negotiations. Further, there is very weak trade link
between LDCs and the socialist blocs.
39
So far, however, no result-oriented action programme has been undertaken.
Nevertheless, the zeal for an NIEO should be continued in the interest of the
global welfare.
Industrial sector and economic development
The following points explain the role of industrial sector in economic

development:
1. Modernisation of Industry:
Industrial development is necessary for modernisation of agriculture. In India,

agriculture is traditional and backward. The cost of production is high and
productivity is low. We need tractors, threshers, pump sets and harvesters to
modernise agriculture. To increase productivity, we need chemical fertilizers.
These are all industrial products. Without industrial development, these goods
cannot be produced. Agricultural products like jute, cotton, sugarcane etc. are
raw materials. To prepare finished products like flex, textiles and sugar etc. we
need industrialisation. So industrial development is necessary for modernisation
of agriculture.
2. Development of Science and Technology:
Industrial development encourages the development of science and technology.

The industrial enterprises conduct research and develop new products. Ethanol in
the form of biofuel is an example of industrial development. Industry conducts
research on its wastes and develops byproducts like biodiesel from Jatropha
seeds. Due to industrialisation, we have made progress in atomic science, satellite
communication and missiles etc.
3. Capital Formation:
Acute deficiency of capital is the main problem of Indian economy. In agricultural

sector, the surplus is small. Its mobilisation is also very difficult. In large scale
industries, the surplus is very high. By using external and internal economies,
40
industry can get higher profit. These profits can be reinvested for expansion and
development. So industrialisation helps in capital formation.
4. Industrialisation and Urbanisation:
Urbanisation succeeds industrialisation. Industrialisation in a particular region

brings growth of transport and communication. Schools, colleges, technical
institutions, banking and health facilities are established near industrial base.
Rourkela was dense forest but now is ultra modern town in Orissa. Many ancillary
units have been established after setting up of big industry.
5. Self-reliance in Defence Production:
To achieve self-reliance in defence production, industrialisation is necessary.

During war and emergency dependence on foreign countries for war weapons
may prove fatal. Self-reliance in capital goods and industrial infra-structure is also
necessary. Atomic explosion at Pokhran (Rajasthan) and Agni Missile are
examples of industrial growth.
6. Importance in International Trade:
Industrialisation plays an important role in the promotion of trade. The advanced

nations gain in trade than countries who are industrially backward. The
underdeveloped countries export primary products and import industrial
products. Agricultural products command lower prices and their demand is
generally elastic. While industrial products command higher values & their
demand is inelastic. This causes trade gap. To meet the deficit in balance of
payments we have to produce import substitute products or go for export
promotion through industrial development.
7. Use of Natural Resources:
It is a common saying that India is a rich country inhabited by the poor. It implies
that India is rich in natural resources but due to lack of capital and technology,
these resources have not been tapped. Resources should be properly utilized to
transform them into finished industrial products. The British people took India’s
cheap raw-materials for producing industrial goods in their country. India was
41
used as a market for their industrial products. So India fought with poverty and
England gained during industrial revolution. Hence industrialisation plays
important role for proper utilisation of resources.
8. Alleviation of Poverty and Unemployment:
Poverty and unemployment can be eradicated quickly through rapid

industrialisation. It has occurred in industrially advanced countries like Japan. The
slow growth of industrial sector is responsible for widespread poverty and mass
unemployment. So with fast growth of industrial sector, surplus labour from
villages can be put into use in industry.
9. Main Sector of Economic Development:
Industry is viewed as leading sector to economic development. We can have

economies of scale by applying advanced technology and division of labour and
scientific management. So production and employment will increase rapidly. This
will bring economic growth and capital formation.
10. Fast Growth of National and Per Capita Income:
Industrial development helps in the rapid growth of national and per capita
income. The history of economic development of advanced countries shows that
there is a close relation between the level of industrial development and the level
of national and per capita income. For instance, the share of industrial sector to
national income was 26% and the per capita income in year 2000 was 36,240
dollar in USA.
The share of agriculture in the same year was only 2%. In Japan, the share of
industrial sector in her GDP was 36% and her per capita income was 36210 dollar.
In India due to industrialisation, the contribution of industrial sector to GDP has
gone upto 28.5% in 2000-01 and per capita income has risen to Rs. 16,486 in
2000.
42
11. Sign of Higher Standard of Living and Social Change:
A country cannot produce goods and services of high quality in order to attain
decent living standard without the progress of industrial sector.
Relationship between Agriculture and Industry
Industry is not the substitute of agriculture, rather they are complementary to

one another. Both these sectors are so attached with each other that it is not
possible to increase the growth of one sector sector without the improvement of
the other sector. If agriculture is considered as the ‘heart’ of the country, then
obviously industry must be consider as the ‘brain’.
The interdependence of these sectors are listed below:
(A) Impact of Agriculture on Industry:
Agriculture has huge positive impacts on the industrial development, such as:
(a) It regularly supplies raw materials like sugarcane , jute cotton, oilseeds, tea,
spices, wheat; paddy etc. to the consumer goods industries.
(b) It supplies cereals, vegetables and other food items to the industrial labourer
and fodders for the domestic animals in the dairy industries on a regular basis.
(c) Farmer-households used to save their money in the bank and other financial
institutions which ultimately is used by the industry owners in the form of
investment.
(d) Both for consumer and capital goods Industries agriculture sector gives a
ready market for the finished products.
(e) It regularly supplies manpower to the industries
(B) Impact of Industry on Agriculture:
This is needless to mention the impact of industry on agriculture.
43
The impact of industry on agriculture as follows:
(a) It regularly supplies scientific tools and equipment’s like tractors, harvesters,
pump-sets chemical fertilizers etc. to agriculture increase the per hectare
production.
(b)To increase the market for finished agricultural goods some infrastructural
development like roads, railway, storage etc. are very essential. In this connection
industry plays a vital role.
(c) Industries provide huge employment opportunities and therefore help to

absorb all the surplus labour in our agriculture. This lea to more industrial
development.
(d) Agricultural sector itself is a huge market for the different finished products of
Industries. Farmers buy several industrial products like bi-cycle, torch, radio etc.
All these flourishment of industries.
Thus in nutshell, we can say that bath agricultural and industry are
complementary to each other. The operate hand to hand. The development of
one sector depends on the growth and performance of the other sector.
Industrialization strategy
What is the meaning of industrialization?

DEFINITION of 'Industrialization' the process in which a society or country (or
world) transforms itself from a primarily agricultural society into one based on the
manufacturing of goods and services. Individual manual labor is often replaced by
mechanized mass production and craftsmen are replaced by assembly lines. The
strategy that works for industrialization is called IS strategy.
Arguments in favor of IS
Self sufficiency: is strategy enabling an economy to produce sufficient goods
through mass production ways for the countrymen.
44
Historical proof: history shows that industrialization has played a tremendous role
in the development of the countries.
The greater demand for industrial imports: as the population of the countries
increases thus the demand for good production also increases
Industrialization in economic condition marked by an increase in the importance

of industry to an economy. During the process of industrialization per capita
income increases and productivity levels increase
The more advantages of industrialization strategy are as follows:
1. employment opportunity
2. affordable price
3. development of skills
4. utilization of resources
5. earning of foreign currency
Explanation:
1. Employment opportunity: - Industries have provided employment to people. As

we know an industry requires skilled, semi skilled and unskilled manpower. so
people having different abilities are employed
In the context of our country “Nepal” industrialization has been of great

importance in reducing unemployment. According to the data it is found that
even now 48% of total population of Nepal is unemployed. So an industry can be
of great help in reducing unemployment.
45
2. affordable price:- An industry produces goods in large quantities so the
production cost is reduced and the price becomes affordable like for example a
computer is a demand of people it is imported from other countries the costing is
definitely very high but if the same computer is started to be produced in own
country the price will be reduced and it will be affordable to everybody.
3. Development of skills:- An industry develops skills and ability in an individual,

so we can say industry is a factor which is responsible to built up a country’s
manpower. It makes a person specialize in a particular field. For example a person
is employed in a noodle factory he/she can learn the skills to manufacture
noodles and he/she can start own noodle business. so an industry is of great
importance in developing individual skills
4. Utilization of resources: Industry utilizes the resources present in country, and

produce finished products which are of affordable and best quality. For example
there is sufficient sugar cane present in the” Terai” side of Nepal so it can be used
to produce sugar in the sugar industry.
5. Earning foreign currency: - If the goods are produced in bulk quantities then the
goods can even be used for export purpose which will help in earning foreign
currency. Our country Nepal is specialized in production of carpets and pashmina
shawls so it exports the products in order to earn high foreign currency.
6. Protection to infant industries should be given by the state in order to motivate

them to strengthen their feet.
46

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Economic Development

By: Taj Mohammad Tamkeen

1. Governments working on big economic objectives such as creating jobs or

Economic development is the sustained, concerted actions of policy makers and

Scope of economic development policy

 Economic growth means an increase in real national income / national

Economic growth in the UK

Economic growth measures an increase in Real GDP (real output). GDP is a

Measures of economic development will look at:

 Real income per head – GDP per capita

Economic growth without development

Economic policy as a part of general policy

Macroeconomic stability would involve a commitment to low inflation. Low

 Effective monetary policy. E.g. given a Central Bank independence to

A potential problem of macroeconomic stability is that in the pursuit of low

It depends on the economic situation; some countries may be in a situation where

Macroeconomic stabilization may involve policies to reduce government budget

Economic policy experiments

Besides experiments in the laboratory, Resource Economics professors also use

Experimental economics could be useful in many policy debates. We might, for

To make your goal S.M.A.R.T., it needs to conform to the following criteria:

S.M.A.R.T. goal setting: Specific

 What exactly do I want to achieve?

S.M.A.R.T. goal setting: Measurable

S.M.A.R.T. goal setting: Attainable

S.M.A.R.T. goal setting: Relevant

S.M.A.R.T. goal setting: Timely

Economic development policy ideology

Like all ideologies, Development promises a comprehensive final answer to all of

The power of Developmentalism is disheartening, because the failure of all the

Economic development policy systems

3) To Increase the Per Capita Income

8) To Correct the Balance of Payment

9) To Remove the Deficiency of Capital

Following are the demographic objectives of economic development:

A. CULTURAL & POLITICAL OBJECTIVES

Following are the cultural & political objectives of economic development:

B. TECHNOLOGICAL & MISCELLANEOUS OBJECTIVES

Following are the technological and miscellaneous objectives of economic

26) To Reduce the Dependence

Increase in population means development (totally wrong)

Explicit vs. implicit policies

Population control policy sample (India)

However, the family planning programme in India cannot be ignored. Let us

History of Family Planning in India

Family Planning / Family Welfare Programme (FWP) by the Government in India

 FWP is integrated with other health services.

Importance of Family Planning in India

Family planning is not confined to only birth control or contraception. It is

The barren lands should be given to people to cultivate them.

The vast technological gap between the levels of agricultural productivity

New deal for the self-employed

Action Plan to Stimulate Employment in Developing Countries

Employment generation is a product of multiple factors that combine together.

Utilize agriculture as a source of economic growth and job creation by a shift to

Promote small enterprises

Promote small enterprises by policies to make technology, training, credit, and

Absorbing new technology, raising productivity, improving the quality and

Significant improvements in the competitiveness and growth of businesses in

Extend basic education