Economic Growth & Development Section/ Rita Hanna/ 2024
Economic Growth & Development
Section (1) – Summary
Introduction to Economic Growth and Economic development
The meaning of Economic Development:
• Economic development is a process whereby an economy’s real national income as well
as per capita income increases over a long period of time.
• The process of economic development implies changes in:
o resource supplies
o the rate of capital formation
o demographic composition
o technology
o skills and efficiency
o institutional and organizational set-up
• It also implies respective changes in:
o the structure of demand for goods
o the level and pattern of income distribution
o size and composition of population,
o consumption habits and living standards
o the pattern of social relationships and ideas
Economic development is a process consisting of a long chain of inter-related changes in
fundamental factors of supply and in the structure of demand, leading to a rise in the net
national product of a country in the long run.
• Economic development, generally includes development of:
o Agriculture
o Industry
o Trade
o Transport
o Means of irrigation
o Power resources
The sectoral improvement is a part of the process of economic development.
Characteristics of Developed Economies:
• A developed economy is generally characterized by:
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Economic Growth & Development Section/ Rita Hanna/ 2024
oIncrease in capital resources
oImprovement in efficiency of labor
oBetter organization of production in all spheres
oDevelopment of means of transport and communication
oGrowth of banks and other financial institutions
oUrbanization and a rise in the level of living
oImprovement in the standards of education and expectation of life
oGreater leisure and more recreation facilities and the widening of the mental horizon of
the people.
Economic development must break the poverty barrier or the vicious circle and bring into
being a self generating economy so that economic growth becomes self sustained.
• The main characteristics of developed countries are as follows:
o Significance of industrial sector
o High rate of capital formation
o Use of high production techniques and skills
o Low growth of population
Distinction Between Developed and Underdeveloped Economies:
We may now distinguish between the features of an underdeveloped economy from that of
developed one as follows:
o Underdeveloped economies are distinguished from developed economies on the basis
of per capita income. Those countries which have real per capita incomes less than a
quarter of the per capita income of the United States, or roughly less than 5000 dollars
per year, are categorized as under-developed countries.
o An underdeveloped economy, compared with an advanced economy, is under-equipped
with capital in relation to its population and natural resources.
o High rate of growth of population is an important characteristic of most of the
underdeveloped economies.
o In an underdeveloped economy, the fundamental problem is that of low productivity,
low income and a poor standard of living.
o The central problem of underdeveloped economies is the prevalence of mass poverty
which is the cause as well as the consequence of their low level of development.
o Capital deficiency is the main cause of poverty of a poor country.
o In an underdeveloped economy, the problem of unemployment is more important.
o Poor countries are poor in technology; advanced countries are advanced in technology.
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Difference between Economic Growth and Economic Development:
The differences between economic growth and economic development are:
o Economic Growth is quantitative while economic development is qualitative.
o Economic growth is comparatively a narrow concept and development is much more
comprehensive.
o Economic growth refers to increase in the total output of final goods and services in a
country over a certain period of time. In contrast, economic development refers to
progressive change in the socio-economic structure of the country.
o Economic growth is easy to realize as only monetary aspect is involved. But, it is very
difficult to attain the goal of development as it involves many socio-economic-political
aspects.
o Economic growth can easily be estimated by real GDP or Real Per Capital income. But it
is very difficult to measure development as it has some aspects that can’t be quantified.
Economic development however is indicated by Human Development Index.
o Economic growth can take place without Economic development; however, economic
development can’t take place without economic growth.
Comparison of Economic Growth and Economic Development:
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Factors Affecting Economic Growth:
• The process of economic growth is a highly complex phenomenon and is influenced by
economic factors such as:
o Natural resources
o Capital formation: capital formation is cumulative and self-feeding and includes three
interrelated stages:
a) the existence of real savings and rise in them;
b) the existence of credit and financial institutions to mobilize savings and to divert them
in desired channels;
c) to use these savings for investment in capital goods.
o Technological progress
o Human resources
o Population growth
o Social overheads
o Organization
o Transformation of Traditional Agricultural Society
• In addition to numerous and varied factors such as:
o Political factors
o Social and Psychological Factors
o Cultural factors
o Urbanization
o Religious factors
Obstacles to Economic Development:
• Economic factors such as:
o Vicious cycle of poverty
o Deficiency of capital
o Market imperfections
o International forces
o Difficulty of adoption western technology
o Low agricultural productivity
o Lack of entrepreneurs
• Non-Economic factors such as:
o Underdeveloped human resources
o Political instability
o Socio-cultural constraints
o Religious factors
