Concept of Economic

Development

Dr. Lekhnath Bhattarai

Professor of Economics
 Concepts
• What is the real meaning of
development?
• How can one apply economic
concepts and theories to gain a better
understanding of development
process?
• Why do some countries develop and
others remain poor?
• What are the sources of development
and
• how do we measure development?
What do we mean Development?
• The term ‘Development’ may mean
different things to different people.
• For almost every writer a different
definition of development exists
• Important to first distinguish between:
– a. Development as a state or
condition-static concept
– b. Development as a process or
course of change- dynamic concept
 Traditional Definitions
• Traditionally development has defined in strictly
economic terms.
• Prior to the 1970’s, development was nearly
always seen as an economic phenomenon in
which gains in overall and per capita GNP growth
would either ‘trickle down’ to the masses in the
form of jobs and other economic opportunities or
create the necessary conditions for the wider
distribution of the economic and social benefits
of growth
• Poverty, discrimination, exclusion,
unemployment and inequality in income and
wealth were of secondary importance to ‘getting
the growth job done’.
 Cont…
• Meier and Baldwin-
– “Economic Development is a process whereby
real GNP/GDP of a country increases over a
long period of time.”
• Gerald M. Meier-
– Economic Development is a process whereby
the real per capita income of a country
increased over a long period of time, subject to
the stipulations that the number below absolute
poverty line does not increase and the
distribution of income does not become more
unequal.
 Cont….
• These definitions highlight the following facts:
– It is a process
– Increase in real GNP/ GDP or Per capita income is
the sign of development.
– A long term phenomenon-sustaining over a long
period of time.
• But it has weaknesses due to the fact that:
– It regard development as only economic
phenomenon of increasing GDP/GNP or Per Capita
income
– It ignore the distributive justice- inequality and
Poverty
– It ignore the composition of production
 Definition of Economic Development: 1970s

• Dethronement of GNP in the 1970s and

increasing emphasis on “redistribution with
growth”
• Increasing emphasis on non-economic social
indicators
• Economic development consists of the reduction
or elimination of poverty, inequality and
unemployment within the context of a growing
economy.
 New Economic view
• Dudley Sears posed the basic question
about the meaning of development stressing:
– “The questions to ask about a country’s
development are therefore: what has been
happening to poverty? What has been
happening to Unemployment? What has been
happening to inequality? If all three of these
have declined from high levels, then beyond
doubt this has been a period of development for
a country. If one or two of these have been
growing worse, especially if all three have, it
would be strange to call the result development
even if per capita income doubled.”
 Sen’s “Capabilities” Approach

• Economic growth is not an end in itself and has to

enhance the lives people lead and the freedoms that
they enjoy
• Capability to function is what matters for status as
a poor/non-poor person and it goes beyond
availability of commodities
• Capabilities: “freedom that a person has in terms of
the choice of his functioning,…”
• Functioning is what a person does with
commodities of given characteristics that they
possess/control
• The concept of functioning reflects the various things
a person may value doing
 Cont..
• Therefore, development cannot focus only on
income, but we also need to look at other
factors impacting a person’s capability to
function.
• Amartya Sen traced five sources of disparity
between real incomes and actual advantages:
– Personal heterogeneities
– Environmental diversities
– Social climate variations
– Differences in relational perspectives
– Distribution within family
 Definition of Economic Development:
1990s
• World Bank in its 1991 WDR asserted that the
“challenge of development is to improve the
quality of life.”
• The improved quality of life involves higher
incomes, better education, higher standards
of health and nutrition, less poverty, a cleaner
environment, more equality of opportunities,
greater individual freedom, and a richer
cultural life.
 Conclusion on Definition :
Michael P. Todaro
Todaro terms development as a multidimensional
process of change.
He says- “Development must be conceived as a
multidimensional process involving major changes in
social structure, popular attitudes, and national
institutions, as well as the acceleration of economic
growth, the reduction of inequality and the eradication
of poverty.”
He highlights that development must represent the
whole ranges of change by which an entire social
system turned to the diverse basic needs and desires
of individual and social groups within that system,
moves away from a condition of life widely perceived
as unsatisfactory towards a situation or condition of
life regarded as materially and spiritually better.
 Three core values of Development: Denis Gaulet
• Development is both a physical reality and a state
of mind for attaining a better life.
• Three basic core values as a practical guideline
for understanding development
– Life sustenance- the ability of the country to fulfill basic
needs. Life sustaining basic needs include food shelter, health
and protection.
– Self-esteem- to be a person: sense of worth and self respect of
not being used as a tool by others for their own need.
– Freedom- to be able to choose. Freedom here is to be
understood in the sense of emancipation from alienating
material conditions of life and from social servitude and
dogmatic beliefs. Freedom involves an expanded range of
choices for societies and their members together with a
minimization of external constraints in the pursuit of some
social goals.
Three Objectives of Development
• Increase availability and distribution
of basic goods
• Raise levels of living
• Expand range of social and economic
choices available to individuals
 Concept of Economic Growth
• Economic growth refers to rise in a country’s real
national income over time.
• According to Kuznets, “ Economic growth is a
long term rise in capacity to supply increasingly
diverse economic goods to its population, this
growing capacity based on advancing technology
and the institutional and ideological adjustments
that it demands.
• Three components:
– The sustained rise in national output
– Advancing technology provides the basis of this
– To realize the potential for growth
Kuznets six characteristics of modern
Economic Growth
• High rates of growth of per capita output and
population
• High rates of increase in total factor productivity
• High rates of structural transformation of the
economy
• High social and ideological transformation
• Reach out the rest of the world for markets and
raw materials
• Limited spread of this economic growth to only
one third of the world’s population
 Economic Welfare
• Economic welfare refers to the distribution of
the per capita real income.
• According to Prof. Meier, “ Per capita real
income is only a partial index of economic
welfare because the question of economic
welfare also involves a judgment about the
desirability of income distribution.”
• Determinants of Economic Welfare:
a) Rise in National income, b) Leisure c) Non-marketed
transaction, d) Distribution of income e) Composition
of output, f) quality of life.
 Factors of Development
• Economic factors
– capital
– Labor
– Natural resources
– technology
– established markets (labour, financial, goods)
• Non-economic factors (institutional, social, values)
– attitudes toward life and work
– public and private structures
– cultural traditions
– systems of land tenure, property rights
– integrity of government agencies