The Growth and Development

Economic Growth
Economic growth can be defined as an increase in the value of goods and
services produced in an economy over a period of time. This value calculation is
done in terms of % increase in GDP or Gross Domestic Product.
Economic Development
Economic development is a broader concept that encompasses economic
growth but also includes improvements in living standards, reduction of poverty, and
enhanced quality of life.

Classification of Countries

How are countries classified on the basis of economic status?

Countries are classified as developed or developing countries based on their
gross domestic product (GDP) or gross national income (GNI) per capita, level of
industrialization, the general standard of living, and technological infrastructure.

Three Major Classification of Countries

1. Developed Countries: These countries are characterized by high levels of

income, advanced technological infrastructure, and a high standard of living.
Examples: USA, UK, France, Sweden, Norway, Switzerland, Iceland,
Australia and Germany
2. Developing Countries: These countries are in the process of
industrialization. They have lower levels of income compared to developed
countries and less advanced infrastructure. Examples: Armenia, South
Sudan, Poland, Georgia, Moldova, Albania, and Mali
3. Least Developed Countries: These countries face significant challenges,
including extreme poverty, limited access to basic services, and vulnerability
to external shocks. Examples: Ethiopia, Gambia, Afghanistan, Guinea, and
Eritrea
 Problem and Comparing Development and Developing Countries

Problems of Developed Countries

1. Income inequality: Developed countries often struggle with significant

income inequalities, with a small portion of the population holding a majority
of the wealth while others face poverty and limited opportunities.
2. Access to affordable healthcare: Even in developed countries, access to
affordable healthcare remains a persistent problem. Many individuals struggle
with high healthcare costs and limited access to essential medical services.
3. Aging populations: Developed countries often have aging populations,
which can present challenges in terms of healthcare costs, social security
systems, and the overall labor force.
4. Environmental sustainability: Environmental concerns, such as climate
change and pollution, are significant challenges faced by developed
countries. These nations must find ways to balance economic growth with
environmental protection.
5. Mental health challenges: Mental health issues, including depression,
anxiety, and suicide rates, are prevalent in developed countries and require
adequate resources and support systems to address effectively.
6. Social integration of marginalized groups: Developed countries often
struggle with social integration and inclusion of marginalized groups such as
immigrants, refugees, and ethnic minorities. Discrimination and inequalities
can hinder social cohesion and economic opportunities.

Problems of Developing Countries

1. Poverty: Developing countries often struggle with high levels of poverty,

which can lead to a lack of access to basic necessities such as food, clean
water, and healthcare.
2. Inadequate infrastructure: Many developing nations have limited
infrastructure, including roads, bridges, and public transportation systems.
This can hinder economic development and make it challenging for people to
access essential services.
 3. Lack of basic resources: Developing countries often face a scarcity of basic
resources, such as electricity, clean water, and sanitation. This can impact the
health and well-being of the population and limit economic growth.
4. Default and inflation: Default and inflation can be significant issues in
developing countries, as they can lead to economic instability and hinder
foreign investment and trade.
5. Limited fiscal space: Developing countries often operate within a limited
fiscal space, meaning they have limited financial resources available to
address their various economic and social challenges.
6. Soaring debt: Many developing nations struggle with high levels of debt,
which can limit their ability to invest in infrastructure, education, and other
critical sectors necessary for development.
7. Export marginalization: Developing countries often face challenges in
accessing global markets and exporting their goods and services. This can
hinder their economic growth and exacerbate poverty and inequality.
8. Energy poverty: Lack of access to affordable and reliable energy sources is
a significant problem faced by developing countries. This limits productivity,
economic growth, and the overall quality of life for populations in these
nations.
9. Climate vulnerability: Developing countries are often more vulnerable to the
adverse effects of climate change, such as extreme weather events, rising
sea levels, and droughts. Climate change can disrupt agricultural practices,
lead to food scarcity, and impact overall economic development.

Comparing the Development and Developing Countries

DEVELOPED COUNTRIES DEVELOPING COUNTRIES

High GDP per capita Low GDP per capita
High literacy rate Lower literacy rates
Advanced infrastructure Less developed infrastructure
High life expectancy Lower life expectancy
Low population growth rate High population growth rate
High Human Development Index (HDI) Low Human Development Index (HDI)
 Strong and stable political structures Often unstable political structures
Diversified economy Economy largely dependent on a few
sectors
Greater emphasis on tertiary and quaternary Emphasis on primary and secondary
sectors sectors
Advanced technology and innovation Lag in technology and innovation

Purchasing Power Parity

Purchasing power parity (PPP)

Purchasing power parity (PPP) is a way to measure the price of goods and
services across countries, which is used to calculate global poverty lines.

How does PPP work?

 PPPs are exchange rates that adjust for price differences between countries.

 PPPs are calculated by comparing the price of a basket of goods in one

country to the price of the same basket in another country.

 PPPs are used to compare the standards of living and growth across
countries.

PPPs affects the poverty measurement

 PPPs are used to set global poverty lines.

 PPPs make it easier to compare income and consumption levels across

countries.

 PPPs can make poorer countries appear richer because they tend to have
lower price levels.
PPPs’ Importance
PPPs are important because they help to understand how standards of living
and growth compare across countries. PPPs can help to identify countries that are
struggling with poverty.

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