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Measurement of Economic Development
Measurement of Economic Development
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History of Economic Development
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We suppose that there are countries like A and B. The country A is a rich country having the per capita income of $1000, while country B is a poor country having the per capita income of $100. If the per capita income of these countries increases at the rate of 2% (Which is not possible) the per capita incomer of country A will move to $1020 while that of B will move to $102. As a result, the basic gap which was of $900 has gone up $918. This shows that if the poor country wishes to remove this gap there should be a 20% increase in its per capita income. But the poor countries fail to divert their resources to capital formation. Moreover, in the backward countries, there is heavy population pressure, and population increases at an alarming rate. The per capita income growth rate is hardly 3% in UDCs. Accordingly, the poor countries remained backward
If we analyze Meir and Baldwin's definition we find the following important features of economic development: (i) Process, (ii) Increase in Real NI and (iii) Long Period of Time. (i) Process: The process indicates the interaction of different technical and administrative forces which result in increase of production and changes on demand side as well as on supply side. The changes on supply side are as: (a) Discovery of new Resources, (b) Capital Accumulation, (c) Changes in Population, (d) Introduction of Better Techniques of Production, (e) Improvement in Skill, (e) Social and Institutional Changes. The changes on demand side are as: (a) Changes in Size and Nature of Tastes of the People, (b) Changes in the Level and Distribution of NI, (c) Changes in Tastes of the people, (d) Changes in Social and Institutional life. (ii) Increase in Real Gross National Product (GNP): Economic development will take place when the real GNP of a country increases. To get the real GNP of the country, the GNP must be corrected by some index number. Sometimes it happens that the GNP of a country increases due to inflation, such will not represent economic development. Therefore, to know development we will have to deduct the price rise from the increase in GNP. Moreover, we will have to deduct depreciation allowance from GNP to get NI. (iii) Long Period of Time: To assess economic development, a period of 25 years must be kept in view. That is, if real GNP rises till the period of 25 years it will be accorded as economic development.
Development is a wider concept and it goes beyond the changes in the structure of output and allocation of inputs". In the early stage, any economy that grows is likely to develop and that which develops is likely to attain growth. But the countries who have already developed as US, UK, Germany, France and Australia etc., are desirous to keep on growing. While in the case of UDCs which have low incomes, growth and development go side by side. Thus we conclude that economic development means a sustained, secular improvement in material well-being which may be reflected in an increasing flow of goods and services. As the definition of development has been presented in material terms. Thus it includes social, cultural, political, moral and economic factors which contribute to material progress. Thus economic development is economic growth because it aims at growing of the production of material commodities and services. It is social because it implies institutional changes in the society. It is moral because the idea of equality and social justice is involved in it. It is cultural because development policies imply a profound revolution. Thus we say that Economic Development is wider than Economic Growth.
(iv) The criterion of increase in real national income is also important for Developed Countries (DCs). It is because that these countries have already attained high per capita income levels. But they want to increase national income so that full employment could be maintained without inflation and deflation.
(i) Primarily the criterion of GNP per capita is adopted to measure economic development. It is so because that the information regarding national income, price level and population are mostly available in each country. (ii) On the basis of statistics of GNP and population the per capita GNP can easily be calculated. (iii) On the basis of GNP and the real GNP the international comparisons between countries can easily be made, i.e., the country with higher GNP or GNP per capita would be a developed country as compared with the country having low GNP or low per capita income. (iv) The measure of GNP per capita reflects the social and economic structure of societies.
and producers. In such situation, the statistics are not accurate in case of developing countries. In such state of affairs, how the comparison regarding per capita incomes of the poor and rich countries can be made. (b) The national income statistics obtained with and without the inclusion of self-services will yield different results. As in certain countries such services are included while in certain other countries they are not included. Thus in such state of affairs, the international comparisons will be doubtful. (iv) Dual Economy: The economy where a few developed cities go side by side along with the majority of the backward villages; unemployment along with capital intensive technology; and mass poverty along with a few rich families is given the name of dual economy. Accordingly, if in any country, per capita income rises along with the existence of a dual economy, it will be the economic growth not the economic development because the rise in per capita income could not bring changes in the socio-economic life of the society. (v) Social Opportunity Costs: As rise in per capita income is accorded as economic development, but during such rise in GNP or GNP per capita, a common man has to suffer; there may be the distortions in the family life; there may be the tensions and tortures; there may be the mass environmental pollution and traffic noises etc. This shows that the rise in per capita income is furnished with a deterioration in the quality of life. In other words, the society will have to bear the greater opportunity costs of rise in GNP per capita. Thus in such phenomenon the economic growth will be taking place instead of economic development. (vi) Nature of Output Produced: The criterion of rise in per capita income does not consider the nature of output produced which has led to enhance the GNP per capita. As if in a country the GNP rises due to the greater production of military hardware; more production of alcohol; and a greater production of palacious houses it will not represent economic development. Because the plenty and abundance has not benefited a common man. The rich segment of the society has gone more rich while the poor section of the society has further gone poor. (vii) Practical Failure: The period of 1960s was accorded as a period of "Development Decade" whereby it was conceived that for the sake of development, GNP must be increased by 6% annually. Accordingly, a ruthless craze developed amongst the countries to attain a 6% rise in GNP. But during such craze the problems of poverty, unemployment and income distribution were ignored. Then the economists and policy makers emphasized upon "Dethronement of GNP", Despite the rise in GNP by 6% per annum the unemployment, diseases, environmental pollution could not be removed. The income distribution could not be made fairer; the infant mortality rates could not be decreased; the water supply and water sanitation facilities could not be enhanced; the illiteracy could not be decreased; and social injustice could not be removed in majority of the developing countries despite rise in GNP and GNP per capita. Dr. Mahbub-Ul-Haq who once said, "First make the cake and then divide it" brought the change in his thinking when he wrote an article "Employment and Income Distribution in 1970s". He said, The economic development should launch a big war against worst type of poverty. The developmental goals should be expressed in the removal of poverty, diseases, malnutrition, unemployment and illiteracy etc. We were taught to take care of GNP and it will take care of poverty, But now it should be reversed. We should have an eye on poverty because it will take care of GNP. In other words, we should be worried of components of GNP, rather growth rate of GNP. Accordingly, in 70s a change in emphasis occurred amongst economists and policy makers, "The Redistribution from Growth" where it was considered that along with increase in GNP per capita, the economic welfare should also be entertained. As the economists like Gunner Myrdal and Lebinstein etc., are of the view that, to measure economic development the criterion of economic welfare be employed.
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