Unit I - Economic Development

1.1 Meaning and Definition of Underdevelopment

Underdevelopment is a low level of development characterized by low real per capita income, widespread poverty, lower level of literacy, low life expectancy and underutilisation of resources etc. The state is the underdeveloped economy fails to provide acceptable levels of living to a large fraction of its population, thus resulting in misery and material deprivations. We need to note here that underdevelopment is a relative concept but it sustains absolute poverty. The original meaning of the term indicated that existing resources had not been exploited. The word is now close in meaning to ‘poverty’, although some oil-rich underdeveloped countries have high incomes which are enjoyed by the few. Indicators of underdevelopment include high birth rates, high infant mortality, undernourishment, a large agricultural and small industrial sector, low per capita GDP, high levels of illiteracy, and low life expectancy.

1.2 Economic development:

Economic development is the process by which emerging economies become advanced economies. In other words, the process by which countries with low living standards become nations with high living standards. Economic development also refers to the process by which the overall health, well-being, and academic level the general population improves. During the development, there is a population shift from agriculture to industry, and then to services. A longer average life expectancy, for example, is one of the results of economic development. Improved productivity, higher literacy rates, and better public education are also consequences.

“The process in which an economy grows or changes and becomes more advanced, especially when both economic and social conditions are improved.”

Development, on the other hand, looks at a much wider range of statistic than simply GDP or GDP per capita. GDP per capita is population. Economic development looks at how the citizens of a country are affected. Apart from their living standards, it also looks at the freedom they have to enjoy those living standards.

The the criterion for Classifying Economies as Developed and Underdeveloped Economies cannot be classified as developed and underdeveloped economies based on their natural resources, population and sectoral dependency. However, there is a set of common characteristics of underdeveloped economies such as low per capita income, low levels of living, high rate of population growth, illiteracy, technical backwardness, capital deficiency, dependence on backward agriculture, high level of unemployment, unfavourable institutions and so on. It is on the basis of these characteristics that we draw a line of distinction between developed and underdeveloped economies.

1.3 Economic growth:

Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross National Product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used…

Economic Growth is of Three Kinds:

i) Progressive Growth: In Progressive Economic Growth, the Rate of Increase in Income is greater than the Rate of Increase in population and per Capita Income "increases'.

ii) Digressive Growth: In Digressive Economic Growth the Rate of Increase in the population is greater than the rate of Increase in Income and Per Capita Income 'diminish e.

iii) Constant Economic Growth: In constant Economic Growth the Rate of Increase in Income and the rate of increase in the population are 'equal' and as a result per Capita Income remains "Constant'.

1.4 Economic Development V/S Economic Growth

Economic growth is the increase in goods & services produced by an economy or nation, considered for a specific period of time. The rise in the country’s output of goods and services is steady and constant and may be caused by an improvement in the quality of education, improvements in technology or in any way if there is value addition in goods and services which is produced by every sector of the economy. It can be measured as a percentage increase in real gross domestic product. Where a gross domestic product (GDP) is adjusted by inflation. GDP is the market value of final goods & services which is produced in an economy or nation. Economic Development is the process focusing on both qualitative and quantitative growth of the economy. It measures all the aspects which include people in a country become wealthier, healthier, better educated, and have greater access to good quality housing. Economic Development can create more opportunities in the sectors of education, healthcare, employment and the conservation of the environment. It indicates an increase in the per capita income of every citizen. The standard of living includes various things like safe drinking water, improve sanitation systems, medical facilities, the spread of primary education to improve literacy rate, eradication of poverty, balanced transport networks, increase in employment opportunities etc. Quality of living standard is the major indicator of economic development. Therefore, an increase in economic development is more necessary for an economy to achieve the status of a Developed Nation. I can be measured by the Human Development Index, which considers the literacy rates & life expectancy which affect productivity and could lead to Economic Growth.

The differentiating points between a developed and the underdeveloped economy is summarised in the following table:

Basis of Difference	Developed Economy	Underdeveloped Economy
Per Capita Income	Per capita income is high.	Per capita income is low.
Standard of Living	Standard of living is high.	Standard of living is low.
Economic Inequality	Distribution of income is less skewed (unequal).	Distribution of income is highly skewed.
Capital Formation	Rate of capital formation is high.	Rate of capital formation is low. It is between 10% and 20% barring a few exceptions.
Agriculture	Dependence on agriculture is very low. Yet, agriculture is developed and advanced.	Dependence on agriculture is very high. Yet, agriculture is backward and undeveloped.
Foreign Trade and International Stability	Terms of trade are generally favourable. Finished products are exported and agricultural products or raw materials are imported. The high degree of international stability.	Terms of trade are generally unfavourable. Agricultural products or raw materials are exported and finished products are imported. The high degree of international vulnerability.
Growth Rate of Population	The growth rate of population is generally low. The overall size of the population is small.	The growth rate of population is generally high. The overall size of the population is very large.
Human Capital	High rate of human capital formation. Good health of the people. 90 per cent of people are literate. Trained and skilled labour constitutes a high percentage of the total labour force. High productivity is an obvious consequence.	Low rate of human capital formation. Most of people are unhealthy and unskilled. Skilled labour is a low percentage of the total labour force. Low productivity is an obvious consequence.
Unemployment	Less unemployment. It is by and large frictional and structural in nature. Accordingly, it is cyclical, not chronic.	Large-scale unemployment. Disguised unemployment is widely prevalent. It is chronic in nature.
Production Technique	The production technique is developed and advanced. More possibilities of research and innovations.	The production technique is backward. Little possibilities of research and innovations.
Capital Markets	Capital markets are developed, conducive to savings, and therefore industrial expansion.	Capital markets are underdeveloped or undeveloped, hindering productive use of savings and therefore industrial expansion.
Cultural Environment	Cultural environment is materialistic. The dignity of labour is high. Outlook is progressive.	The cultural environment is largely spiritualistic. The dignity of labour is low. The outlook is traditional and backward.

  

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