ISSUE DATE: AUGUST 12, 2013 UPDATED: AUGUST 10, 2013 07:12 I,

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 COUNTRY
 a high ratio of unskilled workers in the labor force
 a small stock of physical capital
 a low gross national product
 a high rate of return on human capital and
 a corresponding large wage differential between
skilled and unskilled workers
 plagued by a serious lack of infrastructure
 Not equipped to deal with natural disasters
 Economies consist primarily of subsistence farming
 Health and education services suffer from a serious
lack in funding
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 COUNTRY
 an industrialized country—
 has a mature and sophisticated economy,
 usually measured by gross domestic
product and/or
 average income per resident.
 advanced technological infrastructure and
 have diverse industrial and service sectors.
 Their citizens typically enjoy access to quality
health care and higher education.

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 STATE “Y”
 Approximately 50% of the population– one of India’s most
resource-rich states with forests, minerals and surface water– is
below the poverty line.
 Being below the poverty line in rural areas means one earns less
than INR 27 a day. 
 The state has several prominent industries such as steel,
aluminum and power.
 over 15% of India’s total steel production.
 Around 80% of the state’s population resides in rural areas and
relies on agriculture as a primary source of income.
 Around 41% covered in forests.
 The poorest areas of the state are the ones near the forest areas.
 This is because they’re geographically isolated and are
disconnected from the rest of the country.
 With limited access to resources (an irony) and poor
connectivity, the people of Chhattisgarh struggle with having a
reliable source of income.
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 STATE “Z”
 Recognized as the financial capital of the country
 Certainly the most developed state in India as far
as economic parameters are concerned.
 With a Gross Domestic Product (GDP) of US$450
billion
 This state in western India has experienced
comprehensive development across all its sectors
 Be it agriculture, industry or service, it has
continually experienced high economic growth
 In fact as the state that contributes the largest
14% to the national income of India

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 ECONOMIC GROWTH
AND
ECONOMIC DEVELOPMENT

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 UNIT -1 1ST TOPIC
 Economic growth and Economic development
 Paradigm shift in development
 DEFINITIONS OF ECONOMIC GROWTH AND
DEVELOPMENT
 Human Resource Development & Human
Development
 SUSTAINABLE & SOCIAL DEVELOPMENT
 Differences between Economic growth and
economic development
 DETERMINANTS OF ECONOMIC DEVELOPMENT
 Measuring Social and Economic Development

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 PARADIGM SHIFT IN DEVELOPMENT


EFFICIENCY

SOCIAL DEV.

 SUSTAINABLE DEV.
HUMAN DEV.

H.R.D.

ECONOMIC DEV.

ECONOMIC GROWTH
EQUITY

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 DEFINITIONS OF ECONOMIC GROWTH
AND DEVELOPMENT
 Economic Growth is the increase in the
real output of goods and services(GNP) is
called economic growth. (Adam Smith)
 Economic Development is the overall
progress of the country with institutional
and technical changes is known as
economic development. Economic
development implies progressive changes
in socio-economic structure of the
country. (Samuelson)
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 H.R.D &H.D.
Human Resource Development is aiming at the development of
skills of human resources that achieves faster economic growth. It
includes training an individual after he/she is first hired, providing
opportunities to learn new skills, distributing resources that are
beneficial for the employees tasks, and any other developmental
activities. (Easterlin)

Human Development: HRD is aiming at improving skills of the

people but not people’s welfare. People are used as instruments for
further growth. The Human Development Index (commonly
abbreviated HDI) is a summary of human development around the
world and implies whether a country is developed, still developing,
or underdeveloped based on factors such as life expectancy,
education, literacy, gross domestic product per capita. The results
of the HDI are published in the Human Development Report, which
is commissioned by the United Nations Development Program(UNDP)
(Huq and Amartya Sen)

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 SUSTAINABLE & SOCIAL DEVELOPMENT

 SUSTAINABLE DEVELOPMENT is development that

meets the needs of the present without
compromising the ability of future to meet their
own needs. (Brundtland)

 SOCIAL DEVELOPMENT is a process of social change

through increasing awareness about their rights
and improving organisation in physical, social,
mental, and psychological aspects. (world bank)

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14
Basis Economic Development Economic Growth
Economic development implies Economic growth
changes in income, savings and refers to an increase
investment along with progressive in the real output of
changes in socio-economic goods and services
structure of country (institutional in the country.
and technological changes).

Growth relates to a
gradual increase in
Development relates to growth of one of the
human capital indexes, a decrease components of Gross
Factors: in inequality figures, and structural Domestic Product:
changes that improve the general consumption,
population's quality of life. government spending,
investment, net
exports.
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Basis Economic Economic Growth
Development

Qualitative.
HDI (Human Development
Index), gender- related
Quantitative.
Measurement: index (GDI), Human
Increase in real GDP.
poverty index (HPI),
infant mortality, literacy
rate etc.

Narrower concept
Concept: Normative concept than economic
development
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Basis Economic Economic
Development Growth

Brings qualitative and Brings quantitative

Effect: quantitative changes in changes in the
the economy economy

Economic growth is a
more relevant metric
Economic
for progress in
development is more
developed countries.
relevant to measure
Relevance: But it's widely used in
progress and quality of
all countries because
life in developing
growth is a necessary
nations.
condition for
development.
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 DETERMINANTS OF ECONOMIC
DEVELOPMENT
1. Natural resources
2. Human resources
3. Institutional factors (democracy,
freedom and human rights)
4. Capital and technological progress
5. Managerial skills
6. Foreign Trade and Investment
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 1.NATURAL RESOURCES
 Boumol and Lewis attached great importance to
natural endowments of a country for its
development.
 Availability of fertile soil with abundant supply of
water for irrigation purposes provides favorable
conditions for agricultural development.
 Availability of coal, petroleum, minerals like iron
ore, copper and tin in plenty can induce the
process of industrialization.
 Many countries which are presently under
developed are poor in terms of natural
resources.
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 2. HUMAN RESOURCES
 Population is an important factor in economic
development . Man provides labor for production
and if a country possess efficient labor with
appropriate skills its capacity to grow will be high.
 If a country can manage to use its manpower
properly, it will certainly add to the real
economic development.
 In case, human resources remain either unutilized
or manpower management remains inefficient and
inappropriate, the same people who would have
made a positive contribution to growth activity
prove to be a burden on the economy.

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 3. INSTITUTIONAL FACTORS
 Economic Development is influenced by variety of
institutional factors- political, economic, social,
cultural and religious factors in a society.
 Freedom of individual, right to property and role
of government determine the pace of
development.
 Experiences from number of countries show that
whenever there is a defective social organization,
only some people grab the benefits of growth.
Under such circumstances, it is futile to hope that
masses will enjoy the benefits of development
activities undertaken by the State.

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4. CAPITAL AND TECHNICAL PROGRESS
 Capital accumulation enlarges a country’s capacity to
produce goods. Investment is a crucial factor in
economic development.
 Capital accumulation helps the formation of sound
infrastructure.
 The basic needs of an economy such as transport,
communication, power, irrigation etc. are known as
infrastructure.
 Capital accumulation is the main vehicle for the
introduction of technical progress in the productive
system.
 Technical progress increases the production
tremendously and brings a change in social atmosphere
too.
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 5.MANAGERIAL SKILLS
 Enterprise is the bedrock on which the structure of
development is raised. Schumpeter has emphasized
the role of entrepreneurship in economic
development.
 Management is one aspect of entrepreneurship
though these terms are sometimes used
synonymously.
 Organizational abilities and managerial skills of a
nation decide the developmental process.
 Education and technical progress increase an
entrepreneurial ability.
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 6.FOREIGN TRADE AND INVESTMENT
 Foreign trade enlarges the market for goods
and services and provides greater scope for
division of labor and specialization.
 Trade has been described as an engine of
growth. The gains from trade may be divided
into static and dynamic gains.
 The static gains are those which accrue from
international specialization.
 The dynamic gains are economies of scale,
international investment and spread of
technical knowledge etc.
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 MEASURING SOCIAL AND
ECONOMIC DEVELOPMENT

A Look at the Human Development Index (HDI)

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 Indicators of economic development
 What is Economic development?
 Economic development is the process of improving
economic welfare in an economy.
 Economic development can involve a stronger
economy enabling a greater range of social services
that improve a nation’s welfare.
 For example, an undeveloped economy will be
primarily based on agriculture and very limited social
services such as health care and education.
 Economic development involves an increase in real
incomes, higher life expectancy, lower poverty and a
greater provision of basic amenities.

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 Indicators of economic development
 Real GDP per capita – gross domestic product. The nation’s total
economic output which is the same as a nation’s income.
 GDP at purchasing power parity (PPP) takes into account the
local purchasing power of the currency and is a better guide to
actual living standards.
 Levels of absolute poverty, e.g. % of population with income
less than minimum necessary to meet basic necessities of life.
 Malnutrition levels. Percentage of population with insufficient
food – levels of malnutrition.
 Access to safe water. Percentage of population with access to
safe water supply and
 sanitation,
 noise from airports and
 congestion in cities.

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 Literacy rate – The percentage of a population that can read
and write. Also consider gender discrepancy.
 Mean years of education – Length of education gives indication
on deeper education standards.
 Number of doctors per 1,000 of population.
 Average life expectancy. Life expectancy generally rises with
economic development.
 Openness of economy to international trade. Also, levels of
foreign direct investment.
 Quality of nation’s infrastructure – quantity and quality of
roads, railways and airports.
 Share of agriculture in economy. Over 90% indicates an
undeveloped economy. Less than 10% of economy in agriculture
suggests more developed economy.
 Political stability and security.
 Wildlife Diversity

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 Specific Measures of economic development
 1. Human Development Index (HDI)
 Life Expectancy Index. Average life expectancy compared to a
global expected life expectancy.
 Education Index
 mean years of schooling
 expected years of schooling
 Income Index (GNI at PPP)

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 2. Index of Human Poverty HPI
 The human poverty index (HPI) was introduced by UN
Development Programme (UNDP)
 To measure rates of economic development for low-income
countries it examines education, life expectancy, rates of
absolute poverty and access to health care and safe drinking
water.
 (HPI-1) It involves combining
 Probability at birth of not surviving to age 40 (times 100)
 Adult illiteracy rate
 Arithmetic average of these three characteristics:
 The percentage of the population without access to safe water.
 The percentage of population without access to health services.
 The percentage of malnourished children under five.

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 3. Genuine Progress Indicator (GPI)
 The GPI seeks to take a more accurate account of a nation’s well
being than just GDP (gross domestic product).
 GPI starts with GDP as its base
 but also takes into account environmental and social factors
such as-
 Pollution
 Poverty rates
 Health standards
 Inequality rates
 Crime rates
 Cost of pollution abatement
 Cost of commuting
 Cost of road accidents
 Value of education
 Value of housework and parenting

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 The GPI Suggests that-
 as economies gain increased GDP, economic
welfare generally increases,
 however, there comes a point where GPI starts
to grow more slowly and eventually stagnate.

 In other words, higher GDP does not

automatically lead to economic development
because the costs of growth become as high as
the benefits.
 GDP vs Genuine Progress Indicator (GPI) in US
(1950-2004) CC SA  – Trinifar Evaluation

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 Some indicators of economic development are fairly
straightforward
 Poverty reduction
 Increased levels of education
 Increased provision of health care
 Increased life expectancy.

 However, some measures may be more controversial.

 For example, building an airport would generally be
seen as economic development, however, if GPI is
used to measure, the benefits of air travel may be
offset by carbon emission

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 HDI MEASUREMENT
 In the year 1990 the United Nations
Development Programme in its first
Human Development Report introduced
the concept of Human Development
Index.
 It is the cumulative measurement of:

(a) Longevity
(b) Knowledge
(c) Decent Standard of Living.
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 HDI MEASUREMENT
 (a) Longevity: It shows the life expectancy. It is a choice to
live long and healthy life.
 (b) Knowledge: It is a choice to acquire literacy,
education, information, etc. It is measured by the literate
percentage in ratio with the total population. The literacy
rate may be compared in the primary, secondary and
tertiary levels.
 (c) Decent standard of life: It is a joy to enjoy a quality
and standard life. It depends upon the purchasing power of
the people and the per capita income of the people etc.
The rank of a country is determined by the overall
developments in these three basic dimensions of human
developments. UNDP ranks countries, in relation to each
other to tell them how for a country has travelled and how
for yet it has to travel in the part of Human Development
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NUMERICAL ILLUSTRATION OF HDI
• This activity introduces you to the calculations involved
in the HDI. Data for Kuwait are used to illustrate the
calculations.

• Then you are asked to perform the calculations using

Brazil’s data.

• For Kuwait, the life expectancy at birth is 77.1years, the

adult literacy rate is 93.3%, the education enrollment
ratio is 73%, and the gross domestic product is $19,384.

• For Brazil, the life expectancy at birth is 70.8years, the

adult literacy rate is 88.6%, the education enrollment
ratio is 86%, and the gross domestic product is $8,195.
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 EDUCATION PERCENTAGE(EP)
• Before making any calculations, how do you think these two
countries will compare if we use these measures to come up with
a single HDI for each country?
• To calculate the HDI, first combine the two measures of
education using a weighted average, with a two-thirds weight for
the adult literacy rate (ALR) and a one-third weight for the
education enrollment ratio (EER).
• The formula for the weighted average to give the education
percentage (EP) as a measure of education is
• EP = 2/ 3 * ALR + 1 /3 *EER.
• Kuwait’s EP is
• EPKuwait = 2/ 3 *93.3% + 1/ 3 * 73% =86.5%.
• Use the formula to find the EP for Brazil.
• To calculate a single numerical measure of human development,
the HDI, we want to combine the measure of health, which is in
years, with the measure of education we just found, which is
given as a percentage, with the measure of economic well-being,
which is given in U.S. dollars.
• Explain why we cannot combine these values directly with
different units (like years, percent, and dollars) into a single
measure. 37
 LIFE EXPECTANCY INDEX(LEI)
•One way to combine these values is to convert each of them to an
index number with no units associated with it. We can then average
these three numbers to obtain the HDI.
•To convert life expectancy values to a life expectancy index
number, we first identify a reasonable minimum and maximum for
each of these values.

•Each measure is converted as follows:

(actual value – minimum value)/(maximum – minimum)
•The United Nations uses 25 as the minimum and 85 as the maximum.
Then the life expectancy value (LEV) is converted to a life
expectancy index (LEI) using the equation
LEI = LEV -25/ 85 - 25
•Explain why an index number defined this way will be between 0
and 1 and will not have any units (like years) associated with it.

•For Kuwait, with life expectancy of 77.1 years,

LEI Kuwait = 77.1-25/ 85 – 25= 0.868
• Find the life expectancy index for Brazil.
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 EDUCATION INDEX
•In fact, a value given in any units can be converted to an
index using this same approach:
•First identify a reasonable minimum (min) and maximum
(max) for these values and then convert the value to an
index using the equation Index = Value -min /max-min .
•The result is an index with no units associated with it.
•In a similar way, the education percentage (the weighted
average of the adult literacy rate and the education
enrollment ratio you computed in question 1) is
converted to an index value by using a minimum of 0
(percent) and a maximum of 100 (percent).
•This gives the education index (EI) in terms of the
education percentage (EP) as
•EI = EP -0/ 100 -0 = EP/100.
• Kuwait’s EI is EI Kuwait = 86.5 - 0 100 - 0 = 86.5 /100 =
0.865.
• Find the EI for Brazil.
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 GDP INDEX

•For the final conversion to an index value, we convert the gross

domestic product per capita in US$ (GDP) to an index value.

•This is done a bit differently than the previous conversions. Here

base-ten logarithms are used so that the effect of a larger GDP
value is diminished. (Natural logs may be used as well.)

•The minimum and maximum values used by the United Nations for
the GDP are 100 and 40,000, respectively, and the equation to
calculate the GDP index value (GDPI) from the GDP is

GDPI = log(GDP)-log(100) /log(40,000)-log(100).

•Kuwait’s GDPI is GDPI Kuwait = log(19,384)- log(100)/ log(40,000)-

log(100) = 0.879

• Find Brazil’s GDPI.

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 HDI FOR KUWAIT
•That is, we add them and then divide by 3.
•Kuwait’s HDI is
HDI Kuwait = (0.868 + 0.865 + 0.879)/ 3 = 0.871.

•Find Brazil’s HDI and compare it to Kuwait’s HDI.

•Was your prediction in question 1 correct?

• What other values (other than life expectancy at birth,

adult literacy rate, education enrollment ratio, and
gross domestic product) might be appropriate to include
in an index designed to measure the wellbeing of
people?
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