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Economic Growth - Lecture Slides - Document's extract

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Post: December 13th, 2012
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Economic Growth in Developing and Transitional Economies

36

Macroeconomics by Case and Fair

Docsity.com Dr. Rizwana Atif 1 of 23

Growth versus Development
• • Economic growth may be one aspect of economic development but is not the same Economic growth:

– A measure of the value of output of goods and services within a time period
• Economic Development:

– A measure of the welfare of humans in a society The factors determining economic growth were initially discussed by Adam Smith and other classical economists. In 1936 keynes explained the true nature of depression and economic fluctuation.but keynes theory explains income and employment determination in only short run, whereas development is a long run process. A small proportion of the population can own a large amount of the wealth in a country. The level of human welfare for the majority could therefore be very limited.
Macroeconomics by Case and Fair

Docsity.com Dr. Rizwana Atif

Characteristics of Under-Developed Economies

•Deficiency of capital: The rate of capital formation is very slow. •Excessive dependence on agriculture: Purely agricultural country is likely
to be unprogressive even in agriculture.

•Inequalities of income and wealth:In these countries there is concentration
of income in few hands and is usually spent on non-economic activities. Such as jewellery.

•Dualistic economy: These represent sharp contrast in all walks of life.There is
rich and poor, developed and under developed, educated and illiterate side by side.

•Lack of entrepreneurial ability and skilled labour: No training &
technical know how.

Macroeconomics by Case and Fair

Docsity.com Dr. Rizwana Atif

Characteristics of Under-Developed Economies
• • • • • • Inadequate infrastructure: The means of transport & communication, power, banking educational and medical facilities are inadequate. Foreign trade orientation: Traditionally underdeveloped counties export raw material and import consu
mer goods and machinery. Rapid population growth and disguised unemployment:Increased output is swallowed up by the increased population. Low land-labour and capital-labour ratio must result in underemployment and disguised unemployment in agriculture. Underutilization of natural resources: these countries are usually full of natural resources but which can’t be accessed due to shortage of capital and technique. Economic backwardness of people: The quality of people as productive agents is low due to limited specialization. Poor consumption pattern of people: Low level of earning represent low level of living. They are too poor to afford luxuries.

Macroeconomics by Case and Fair

Docsity.com Dr. Rizwana Atif

Economic Growth in Developing and Transitional Economies

All economic analysis deals with the problem of making choices under conditions of scarcity, and the problem of satisfying people’s wants and needs is as real for Somalia as it is for the United States, Germany, and Japan. The universality of scarcity is what makes economic analysis relevant to all nations, regardless of their level of material well-being or ruling political ideology. Even though economic problems and the policy instruments available to tackle them vary across nations, economic thinking about these problems can be transferred easily from one setting to another.

Macroeconomics by Case and Fair

Docsity.com Dr. Rizwana Atif

5 of 23

Life in the Developing Nations: Population and Poverty

TABLE 36.1 Indicators of Economic Development Gross National Income per Capita, 2006 (dollars) 510 1,580 Infant Mortality, 2006 (deaths Internet before age 5 Users per per 1,000 1,000 people, births) 2005 122.0 42.0 30 47

Country Group Low-income Lower middleincome Upper middleincome High-income

Population, 2006 2.3 billion 2.4 billion

Literacy Rate (percent over 15 years of age) 29 75

575.9 million

4,770

243

29.7

72

1.0 billion

32,040

2,977

7.0

76

Source: World Bank,

Macroeconomic
s by Case and Fair

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6 of 23

Life in the Developing Nations: Population and Poverty

While the developed nations account for only about one quarter of the world’s population, they are estimated to consume threequarters of the world’s output. This leaves the developing countries with about three-fourths of the world’s people but only one-fourth of the world’s income. The simple result is that most of our planet’s population is poor.

Macroeconomics by Case and Fair

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7 of 23

Economic Development: Sources and Strategies
The Sources of Economic Development Capital Formation vicious-circle-of-poverty hypothesis Suggests that poverty is self-perpetuating because poor nations are unable to save and invest enough to accumulate the capital stock that would help them grow. capital flight The tendency for both human capital and financial capital to leave developing countries in search of higher expected rates of return elsewhere with less risk.

Macroeconomics by Case and Fair

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8 of 23

Economic Development: Sources and Strategies
The Sources of Economic Development Human Resources and Entrepreneurial Ability brain drain The tendency for talented people from developing countries to become educated in a developed country and remain there after graduation. Social Overhead Capital social overhead capital Basic infrastructure projects such as roads, power generation, and irrigation systems.

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9 of 23

Economic Development: Sources and Strategies
The Sources of Economic Development Social Overhead Capital

Corruption
The following chart shows the World Bank’s rating of corruption levels in a number of countries around the world. The countries are ranked from those with the strongest controls on corruption— Germany and France—to those with the lowest controls—Pakistan and Nigeria. Indonesia, as you can see, is
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