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Development
Economics
Chapter outline:
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Indicators of Development
Pre-Requisite of Development
Indicators of Development:
Economic Growth:
Economic Growth:
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Using measures of economic performance in terms of the
value of income, expenditure and output
GDP – Gross Domestic Product
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GNP – Gross National Product
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The value of output produced within a country plus net
property income from abroad
Real GDP/GNP
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The value of output produced within a country during a time
period
Accounts for differences in price levels in different countries
GDP/GNP per capita
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Takes account of the size of the population
Economic Development:
Development:
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Development incorporates the notion
of a measure/measures of human
welfare
What should it include?
Development:
includes:
 Poverty?
 Political freedoms?
 Sustainable development?
 Self esteem?
 Proportion of activity in different sectors
of the economy:
Primary Sector
 Secondary Sector

Development:
Human Development Index (HDI)
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HDI – A socio-economic measure
Focus on three dimensions of human
welfare:
 Longevity – Life expectancy
 Knowledge – Access to education,
literacy rates
 Standard of living – GDP per capita:
Purchasing Power Parity (PPP)
Other Measures:
Pre-Requisites of Economic Development
Economic development is a complex process. It is influenced
by a number of factors. All the factors having strong bearing
on economic growth are divided into two categories.
1. Economic Factors
2. Non- Economic Factors
We discuss these determinants or factors of economic
development in detail.
Requisites of Economic Development
(A) ECONOMIC FACTORS:
Economic factors play a very important role in the
development of a country. The aggregate output rises or falls
mainly due to changes to them. The main economic
determinants are:
1. Natural Resources:
The natural resources is the principal factor which affects
the development of an economy. If a country is rich in
natural resources, it is then able to make rapid progress in
growth. In case a country is deficient in forest wealth,
mineral resources, water supply, fertility of land etc. it is
then normally not in a position to develop rapidly.
Requisites of Economic Development
2. Capital Formation:
Capital formation is an important factor in the economic
growth of a country. Capital formation refers to the
process of adding to the stock of capital over time.
3. Capital market:
The capital market consists of financial institutions like
development banks, stock exchanges and investment
banks. In low income countries, the capital market is less
developed.
Requisites of Economic Development
4. Human Resources:
human resources of a country is an important factor in
economic development. If the population of a country is
educated, efficient, patriot, skilled, healthy, it makes
significant contribution to economic development.
On the other hand, if a country is overpopulated, labour
force is unemployed, uneducated, unskilled it can put
serious hurdles on the path of economic development.
5. Power:
power resources are the foundation of economic
development. It includes oil, gas, hydel, thermal electricity,
nuclear, animal power, fuel, wood, cowdung etc.
Requisites of Economic Development
6. The Means of Transport and Communication:
The means of transport and communication have an
important bearing on the economic growth of a country. If
a country is well connected with rail road, sea ports and
has a developed means of communication including
information technology, it then helps in improving the
productive capacity of the various sectors of the economy.
An efficient transport and communication network
contributes to improving the quantity and quality of goods
due to competition and reduction in production costs.
Requisites of Economic Development
6. Education and Training:
Education and training is a factor of considerable
importance to economic growth. The modern economists
are of the view that the expenditure on education and
training is most valuable of all the capital.
We now get the larger part of our industrial growth not
from more capital investment but from investment in men
and improvements brought about by improved man.
Requisites of Economic Development
(B) NON- ECONOMIC FACTORS:
Non-Economic factors are as much important as economic
factors in economic development. It is rightly pointed out by
Nurkse “Economic development has much to do with human
endowments, social attitudes, political conditions and
historical accidents.”
1. Social Factors:
• Social attitudes, values and institutions strongly influence
economic development of a country.
• People in LDCs are mostly conservative in their habits.
They feel pride in their native culture and are generally
not receptive to new methods of production.
Requisites of Economic Development
• The caste system functioning mostly in terms of occupation
(tailors, carpenters, gold smiths etc) is restricting the
occupational and geographical mobility. The occupational
classification which is mostly village centered is also
hampering the economic progress.
• The people in LDCs are mostly influenced by traditional
customs. The unnecessary expenditure on marriages, death,
births, litigations, class pride etc has reduced domestic
savings and has adversely affected economic growth.
• About half of the population comprises women folk. The
social taboos and customs prevent them from working with
men and so improving their standard of living.
Requisites of Economic Development
2. Political Factors:
Political factor is an important variable in the economic
development of a country. If the government of a country
is stable, it can play an important role in encouraging
economic activity. The state, for instance, can bring
changes in the socio-cultural attitudes of the people for
economic uplift of the masses.
A stable government can develop means of
communication and transport for the expansion of the size
of the market in a planned manner. It can also adopt
approved monetary and fiscal policies for accelerating
economic development.
Requisites of Economic Development
2. Administrative Factors:
The administrative factor has an important bearing on the
economic progress of a country. If the administration of a
country is efficient, honest and strong, it can give a big
push to the economic development.
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