Economic_trends Bus Env

8/3/2019 Economic_trends Bus Env

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AN INTRODUCTION TO ECONOMICS OF

GROWTH & DEVELOPMENT

1. MEANING OF ECONOMIC GROWTH

2. MEANING OF ECONOMIC DEVELOPMENT

3. DISTINCTION BETWEEN GROWTH ANDDEVELOPMENT

4. MEASURES OF ECONOMIC GROWTH

5. MEASURES OF ECONOMIC DEVELOPMENT


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ECONOMIC DEVELOPMENT

GROWTH

+

PROGRESSIVE

CHANGES

IN

CRUCIAL VARIABLES

WHICH DETERMINE

THE WELL BEING OF

THE PEOPLE


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TWO APPROACHES TO THE CONCEPT OF

ECONOMIC DEVELOPMENT

TRADITIONAL

APPROACH

DEVELOPMENT

MEANS

INCREASE IN GNP

BIAS TOWARDS

INDUSTRIALIA-

SATION

AT THE COST OF

AGRICULTURE

REDEFINED

APPROACH

IMPROVEMENTS

IN

MATERIAL WELFARE

ERADICATION OF

POVERTY

FOCUS ON INDUSTRY

& AGRICULTURE

EMPLOYMENT


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DISTINCTION BETWEEN GROWTH AND

DEVELOPMENT

ECONOMIC

GROWTH

REFERS TO

INCREASE IN OUTPUT

OF GOODS AND

SERVICES

ECONOMIC

DEVELOPMENT

IMPLIES

CHANGE IN

SOCIO-ECONOMIC

STRUCTURE OF

A COUNTRY


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MEASURES OF ECONOMIC GROWTH

1. RISE IN GNP OR GDP

2. RISE IN PER CAPITA PRODUCT


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MEASURES OF ECONOMIC DEVELOPMENT

1.COMPOSIE INDEX OF DEVELOPMENT

1.CHANGE IN QUALITY OF LIFE


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INTRODUCTION


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ECONOMIC ENVIRONMENT

Institutional Framework Physical Framework

Economic Policy Statement

Economic Plan Documents

Economic Controls&Regulations

Define the role of & status

of: Private sector

Public sector

Multinationals Co-

Income

Price

EmploymentOutput

Investments

Trade

Labour supply


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TRENDS STRUCTURAL CHANGES

Define long term

perspective

Outline the dynamics

underlying the economy

A knowledge of these help the business firms

to plan out corporate strategy and policy tocope with short run and long run challenges of

business environment


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Computing,

collecting, and

analyzing data

Picture of major

economic trends &

structural changes

in the economy

Enable us to make a

quantitative assessment

of the economic

environment of business

To outline strategiespolicies and

responsibilities

The Process


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ECONOMIC GROWTH (Trends)


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Economic growth is defined as a sustained and substantial rise in

product per capita. Accordingly:

(i) Economic growth is an upward trend

(ii) It is an upward trend in per capita income

(iii) The upward trend has to be significantly large and sustained over

a long period


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Economic growth is a relative concept. It makes sense only in the

context of comparisons, both intertemporal and international

INTERTEMPORALCOMPARISION

INTERNATIONALCOMPARISON

Evaluation of

economy over time

Level of national

income at the

beginning & end ofthe plan

Using time series data

Evaluation of

one economy with another

It is comparison over space

Using cross-section data


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ECONOMIC DEVELOPMENT (Structural Changes)


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As a concept, Economic Development is much broader than

Economic Growth

As and when the economies grow in terms of total and per capita

income levels, certain structural changes accompany the process ofgrowth.

SO

Trends in

income

Structural

changes

Constitute Economic Development

Together


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Upward trend in

per capita real

income

Rise in product per

worker

Changes in

production

function of theeconomy

Technological

advancement

Innovations of new

idea, new process,

new product,new

market

Inventions give

shape to

innovations

Inventions are

adopted and

spread from one

line of activity to

another

Change in science

& technology

Need for changesin production &

productivity

Societys wants &

preferences


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Change in the

structure ofnational output

Change in factorproportion

Change in structureof occupations

Change in structure

of productivity

Change in the

structure of capital

formation

Change in the

structure ofconsumption

Change in the

structure offoreign trade

Economic Development (Structural Changes)

Ch i h f i l


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Change in the structure of national output

As economy grows

Level of national

income changes

Composition of

national income

changes

Contribution of

Agriculture to GDP

declines

Contribution

Industry & services

to GDP increases

Reflects positive

income elasticity of

demand for non

agricultural output

Labour productivity

increases in both

sectors

Labour

productivity inmanufacturing,

mining &

services sector

Ch i f t ti


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Change in factor proportion

Increase in output

per worker in both

sectors

Increase in

mechanization &

capital intensity

Capital-labour ratio

of different sectors

shows significant

changes

Change in factor

proportions is the

outcome of

technology progress

With increase in

productivity income

grows

Percentage

expenditure on fooddeclines

Expenditure on

industrial goods &

material servicesincreases

Mechanization maybe extensively used

more in in non-

agriculture than in

agriculture so labour

productivity growthin secondary &

tertiary sectors may

be faster than

primary sector

The demand of non-food to food consumption

increases. It is this change in the structure of demand

which lies at the root of change in structure ofou u

Ch i t t f ti


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Change in structure of occupations

Economic growth is associated with change in structure of

occupations

Level of per capita

income grows up

Percentage

distribution of labour

force changes

Percentage contribution of

primary sector declines

Percentage contribution of

secondary & tertiary sectorsincreases

The shift in occupational pattern runs parallel to shift in output pattern because

the same factor, positive income elasticity of demand for non- primary goods &

services, underlies the process of economic growth

Ch i t t f d ti it


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Change in structure of productivity

As an economy experiences changes in structure of output and

occupation simultaneously there comes the Change in structure of

productivityinstantaneously

Better management

Rapid capital formation

Skill formation

Flight of labour from

agriculture

Change in the structure

of output per labour

Proportion of non-agriculture to agriculture

output changes

Ch i th t t f it l f ti


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Change in the structure of capital formation

A Change in the structure of capital formationis another

develoment during the process of economic growth.

With industrialization &

consequent urbanization

Structure of industries

changes

Producer goods

industries growin importance

Consumer goods

industries declinein

importanceThe ratio of fixed

investment to working

capital increases

Investment in Human capital,

Infrastructure, Construction,

Foreign capital



Foreign capital



Foreign capital



Foreign capital



Foreign capital

Initial stages capital requirement is

high.capital-output ratio is high

As the economy progresses the

capital base becomes strong

productivity of other factors is highthe output coefficient shows an

increase

Ch i th t t f ti


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Change in the structure of consumption

The upward trend in per capita income directly brings about a

Change in the structure of consumption

---- Income changes

---- Change in the pattern of

income distribution

---- Change in relative price

structure

---- Change in terms of trade

between agriculture & non-

agriculture

Interaction of these

factors cause change in

structure of consumption,

standard of living

Reflecting change in social

values, beliefs & preferences

Change in the str ct re of foreign trade


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Change in the structure of foreign trade

With changes in the structure of employment, production,

distribution and consumption there comes naturallyChange in the

structure of foreign trade

During development

Import of metals &

machineries for

modernization

Financed through

export surplus of

agricultural goods &

traditional items

As economy grows

Export of

manufactured goods

& intermediaries

Various trading &

commercial

organizations assist

trade transactions

The structure of

money & capitalmarket also

changes in line

with requirements

of changing

composition of

foreign trade &

payments


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STAGES OF ECONOMIC GROWTH & DEVELOPMENT


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According to Rostow there are five stages of economic growth

(i) The traditional society

(ii) Preconditions for take off

(iii)The take off

(iv) The drive to maturity

(v) The age of high mass consumption


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The traditional

society

1. It is a low level equilibrium economy

2. The social structure is

hierarchical 3. Value system

is geared to long run fatalism 4.Low output per head because of backward

technology

Preconditions

for take off

Non-economic changes

1. Felt need for economic modernization

2. Mobilization of savings3. Undertaking innovational

risks

Economic changes

1. Rise in rate of capitalaccumulation above the rate of population

growth 2.

Exploitation of existing innovational

opportunities & creation of new ones 3.

Training labour for specialized large scale


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The take off

(20 years) It involves the following stages (Rostow)

1. The rate of net investment rises from 5 per

cent or less to 10 per cent of national income

2. One or more new, substantial and rapidly

growing manufacturing industries arise

Crucial stage

Resistance to steady growth is overcome

Growth becomes a normal

condition Growth

process becomes institutionalized in the

society


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The drive to

maturity(40

years)

During this period

. Modern technology spreads beyond the

leading sectors

. It has the technological &

entrepreneurial skill to produce anything it

chooses to produce

The age of

high massconsumption

The leading sectors shift towards

production of durable consumer goods &

services

Income rises to levels where basic food,shelter & clothing are no longer the main

consumption objectives

The economy allocates resources to socialelfare & securit


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LONG RUN STRATEGY & POLICY ISSUES

DEVELOPMENTAL POLICY


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DEVELOPMENTAL POLICY

All Out

Selective

.Large scale investment

programmes.Simultaneous investment in

different lines

.Balanced growth

.Capital and profit

interdependence among differentinvestment projects

.External economies

.Particular industries & sectors in

which massive investment efforts will

pay high dividends

.Minimizes the need for investment

resources

. Need for a development plan

GENERAL

APPROACH


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SECTORAL

Agriculture

Industry

Social Capital

. Provides maximum employment .

Max contribution

. Productivity is low

.Needs reforms, supplyof inputs, credit, transport,

techniques etc.

.Industry expansion required for

growth.Industry growth to be stimulated by:

1. Import substitution 2. Industrial mix

& commercial policies

.Government intervention intransportation, communication,

irrigation, public health, education etc.

.Efficient production in these sectors

can contribute substantially to

d l f h i