BA 3rd Year 5th Sem Course Title: Economic Growth and Development (All Units)

Unit-I

Syllabus

Meaning and measurement of economic growth and development- measuring development and development
gap, GDP, GNP, per capita income, factors affecting economic growth and development

1) Difference between Economic Growth and Economic Development

Basis Economic Growth Economic Development
1 Definition Economic growth refers specifically to Economic development is a broader
the increase in a country's production of concept that encompasses improvements in
goods and services, usually measured by various aspects of a country's well-being,
an increase in Gross Domestic Product including social, political, and economic
(GDP). It focuses on the quantitative factors. It involves qualitative
expansion of the economy. improvements in the standard of living,
quality of life, and overall well-being of a
population.

2 Focus The primary focus of economic growth is Economic development takes a more
on increasing the output of goods and holistic approach, considering not only
services. It measures the expansion of the economic factors but also social, political,
economy's capacity to produce more. and environmental dimensions. It aims to
improve the overall quality of life for the
population.

3 Indicators The main indicator of economic growth is Indicators of economic development are
an increase in GDP. Other indicators may more comprehensive and include factors
include employment rates, industrial such as poverty rates, literacy rates, life
production, and investment levels. expectancy, access to healthcare and
education, income distribution, and
environmental sustainability.

4 Time It is usually measured over relatively It is a long-term process and involves

Frame short periods, such as quarters or years, to sustained improvements in various
assess the immediate performance of the dimensions of well-being over extended
economy. periods of time, often spanning decades.

5 Causes Factors contributing to economic growth It is influenced by a combination of factors

include increased investments, including economic growth, social policies,
technological advancements, higher political stability, education and skill
productivity, increased consumer development, healthcare, infrastructure
spending, and expanded international development, and environmental
trade. sustainability.

2) GDP, GNP and per capita income

These are important economic indicators used to measure the economic performance of a country:

1. Gross Domestic Product (GDP):

- Definition: GDP is the total monetary value of all goods and services produced within a country's borders
over a specific period of time, usually annually or quarterly. It measures the economic output of a country.

- Components:

- Consumption I: Spending by households on goods and services.

- Investment (I): Spending by businesses on capital goods and construction.

- Government Spending (G): Spending by the government on goods and services.

- Net Exports (X – M): The value of a country’s exports minus its imports.

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 BA 3rd Year 5th Sem Course Title: Economic Growth and Development (All Units)

- Importance: GDP provides an overview of a country’s economic activity and is used to compare the
economic performance of different nations. It helps in making policy decisions and assessing the standard of
living.

2. Gross National Product (GNP):

- Definition: GNP measures the total monetary value of all goods and services produced by a country’s
residents, both domestically and abroad, over a specific period of time. It includes the income earned by citizens
from overseas investments and subtracts income earned by foreign residents within the country.

- Calculation: GNP = GDP + Net income earned from abroad

- Importance: GNP provides a broader view of a country’s economic performance by including income from
foreign sources. It helps in assessing the economic contribution of a country’s residents globally.

3. Per Capita Income:

- Definition: Per capita income is the average income earned by each individual in a specific country over a
specific period. It is calculated by dividing the total income (usually GDP or GNP) by the total population.

- Formula: Per Capita Income = Total Income (GDP or GNP) / Total Population

- Importance: Per capita income provides a measure of the average standard of living within a country. It helps
in comparing the economic well-being of different countries and assessing changes in living standards over
time.

- Limitations: Per capita income doesn’t provide information about income distribution within a country. A
high per capita income may not necessarily mean that all individuals have a high standard of living, as income
inequality can exist.

3) Factors affecting Economic Growth and Development

Several factors can significantly impact a country's economic growth and development. These factors can be
complex and interrelated. Here are some of the key factors:

1. Investment in Physical Capital

- Adequate investment in infrastructure, machinery, technology, and other physical assets can increase
productivity and efficiency in production processes.

2. Human Capital:

- Education, skills, and healthcare contribute to a skilled and healthy workforce, which is essential for
innovation, productivity, and economic growth.

3. Technological Advancements:

- Access to and adoption of advanced technologies can lead to increased productivity, innovation, and
competitiveness.

4. Natural Resources:

- Abundant and well-managed natural resources, such as minerals, energy sources, and arable land, can be
significant drivers of economic growth.

5. Institutional Framework:

- Strong and transparent institutions, including legal systems, property rights protection, and effective
governance, create an environment conducive to economic growth.

D.N. (P.G.) College, Gulaothi E-Content (Bhavnit Singh Batra, Dept. of Economics)|2
 BA 3rd Year 5th Sem Course Title: Economic Growth and Development (All Units)

6. Macroeconomic Stability:

- Low inflation rates, stable exchange rates, and manageable levels of public debt contribute to a stable
economic environment, fostering investment and growth.

7. Access to Financial Services:

- A well-functioning financial system provides access to credit, encourages savings, and facilitates investment
in businesses and infrastructure.

8. Market Efficiency:

- Competitive markets, where goods and services can be freely exchanged, encourage efficiency, innovation,
and the allocation of resources to their most productive uses.

9. Trade and Globalization:

- Participation in international trade can lead to specialization, economies of scale, and access to larger
markets, boosting economic growth.

10. Political Stability and Security:

- A stable political environment reduces uncertainty, encourages investment, and allows for long-term
planning.

11. Access to Basic Services:

- Availability of healthcare, education, clean water, and sanitation improves human capital and labour
productivity.

12. Income Distribution:

- A more equitable distribution of income can lead to increased consumer spending and stimulate economic
activity.

13. Innovation and Research & Development (R&D):

- Investment in research, development, and innovation leads to technological advancements and increased
productivity.

14. Entrepreneurship and Business Environment:

- A favorable business climate, with low barriers to entry, fosters entrepreneurship and the growth of small
and medium-sized enterprises.

15. Environmental Sustainability:

- Responsible resource management and sustainable environmental policies are crucial for long-term
economic development

16. Social and Cultural Factors:

- Social cohesion, cultural attitudes toward work and entrepreneurship, and social stability can influence
economic development

17. Government Policies and Regulations:

- Effective policies related to taxation, trade, labour, and industry can either promote or hinder economic
growth and development.

18. Geopolitical Factors:

- Regional stability, geopolitical relationships, and international agreements can impact a country's economic
prospects.

D.N. (P.G.) College, Gulaothi E-Content (Bhavnit Singh Batra, Dept. of Economics)|3