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ECONOMIC GROWTH AND DEVELOPMENT

  • Economic growth is the quantitative increase in national income produced in an economy.OR Economic growth is the increase in the market value of the goods and services produced by an economy over time.It is conventionally measured as the percent rate of increase of real gross domestic product, or real GDP.
  • Economic concerned with increase in size of national income / growth National product (GNP, Therefore economic growth concerned with increase in level of output produced in an economic without considering social and political aspects of the economic.
DETERMINANT OF ECONOMIC GROWTH
The level of economic growth may determined by various factor. There are:-
  1. Availability of Natural resources (Natural endowment )
Natural resources may include all natural endowment such as soil, forests, minerals resources, climatic situation and so on. Therefore if country endowed with that resources and well used in production size of output will increase (economic growth) and if not available will course low level of economic growth.
  1. Human factor / availability of quantity and quality labor force -country which has strange number of labor force and high quality(skilled labor), these labor may engage in production activities and make effective utilization of Natural resources which lead to high economic growth , While unavailability of skilled and unskilled labor course low rate of economic growth.
  2. Technology progress /state of technology. -Improvement in state of technology may cause people to use modern tools in production process which cause large production and economic growth while low level of technology also may lead to lower economic growth.
  3. Availability of capital and capital accumulation. -Country with high level of capital and being able to accumulate capital will be able to produce more goods and services while country with less capital will produce less and lead to low level of economic growth.
  4. Political situation: – This includes political stability and instability, country with political and social stability create conducive environment for investment and production which lead to high rate of economic growth , while political and social instability discourage investment and production which cause low rate of economic growth.
  5. Investment and economic policies of government formula, conducive economic and investment policies such as low tax increase in subsidies, less documentation and procedure in investment may encourage investment and cause high rate of economic growth and poor policies may hinder economic growth, economic policies also includes improved economic infrastructure, economic stabilization policies etc.
  6. Availability of entrepreneur and entrepreneurial ability –country with large number of entrepreneurs and many people with entrepreneurial ability will be able to establish and run successful business unit that will produce more goods and services and high rate of economic growth while less number of entrepreneur reduce investment and economic growth in an economy.
EFFECTS OF ECONOMIC GROWTH IN AN ECONOMY
Economic growth in a country like Tanzania may have both positive and negative effects.
  1. POSITIVE EFFECTS OF ECONOMIC GROWTH
  1. Increase in per capital
Economic growth cause increase in output produced and National income (GNP) this may cause rise in per capital income which may be associated with improved living standards.
  1. High level of employment
Increase in production of goods and services cause increase in demand for factors of production which lead to the increase in employment level i.e. employment of labor
  1. Rapid industrialization
Economic growth facilitate increase in demand for industrial goods and increase in production will may cause increase in industrial activities in an economy
  1. Improvement in economic infrastructure
Population/ government may enjoy improved infrastructure due to their economic growth because government and private sector may improve road, railways, airways and communication system when economic growth occur.
  1. Diversification of an economy
When there is economic growth, country
may enjoy diversified economy. Because, economy may grow well if there is diversified economy i.e. economy composed of many sectors which are almost equally development.
  1. Increase in utilization of resources
High economic growth means resources are well utilized in production, therefore these may give effects of effective/high utilization of resources.
  1. Growth of town / urbanization
Due to economic growth of economic activities such as industrial and trading activities may cause growth of towns or urbanization in an economy.
NEGATIVE EFFECTS OF ECONOMIC GROWTH
Apart from positive effects economic growth may have Negative effects in an economy, these are:-
  1. Environmental degradation
Due to rapid economic growth and industrialization, environmental degradation such as pollution, deforestation, soil erosion may occur in a country.
  1. Over exploitation and wasteful utilization of resources.
Economic growth cause excessive demand for economic resources like soil, mineral, which then cause over exploitation and exhaustion of such resources.
  1. Income inequality and unequal development
Economic growth does not consider how income distributed among people in a nation and unequal distribution of industries and development in a country.
  1. Rural – urban irrigation
This may occur due to increase in economic activities in urban areas while rural area lag behind, this will attract many people to leave rural to urban so as to get employment and enjoying urban area, this reduce level of economic activities in rural areas.
ECONOMIC DEVELOPMENT
This is the quantitative and qualitative improvement in an economy it includes improvement in welfare of people.
Some of definitions by different economists.
According to Higgins
‘Economic development is a permanent rise in total and per capital income of a country, widely diffused throughout occupational income groups continuing at least for two generation and becoming cumulative’
According to Adleman who provide broads definition
“The process by which an economic development transferred from one whose rate of growth of per capital income is small or negative to one in which a significant self – sustained rate of increase of per capital income is a permanent long run feature.”
Therefore economic development measured by change in National income of an economy over a long period of time and changes in per capital income.
INDICATORS OF ECONOMIC DEVELOPMENT
The following are indicators of economic development.
    1. High per capital income
High per capital income is the indicator of improved economic development because developed co
untries produce more goods compare to rate of population growth which causes high per capital income. .
    1. Equal income distribution and development.
In order country to be considered as developed country there should be equal regional development and equal income distribution or fair income distribution in an economy.
    1. Low or Absence of Economic instability
Developed countries has low or no economic instability and has stable economic situations such as stable price level, stable budget, No deficit budget and favorable balance of payment.
    1. Social and political stability
Developing country has no social unrest and political instability such as war, conflicts of region, political parties or tribal’s and has improved social services.
    1. Decrease in illiteracy rate and increase in supply, of efficient labor.
    2. Low death rate and height life expectancy
Developed country has low death rate due to improved food supply and improved health services, this cause people to enjoy high improved health services, this cause people to enjoy life expectancy
    1. Urbanization and improved infrastructure.
    2. High level of investment and rapid industrialization in an economy.
INDICATORS OF DEVELOPING COUNTRIES
The indicators of developing countries like Tanzania are as follows:-
  1. Low per capital income
Developing countries still have low but growing per capital income. This may be due to high rate of population compare to increase in National income / economic growth.
  1. Population pressure and back ward population
Developing countries has high population pressure and slow process of economic development also large percent is illiteracy/literacy is too law (backward population).
  1. Low technology and industrial development
Backward technological advancement limits production efficiency which leads to low production and industrial development.
  1. Unfavorable Terms of trade and balance of payment.
  2. Increase in level of dependency
This means country depends on another Nations is achieving a desired goals or objectives
  1. Increase in burden of debts, most developing countries has many debts due to the increase in dependents abroad and development in one sector in a country.
  2. Under utilization of resources and labor unemployment
  3. Low level of national income (GNP) and living standards.
THEORIES OF ECONOMIC DEVELOPMENT
THEORY
These are statements or group of statements established by reasoned argument based on known facts intended to explain a particular fact or events.
Theories of social and economic development offer arguments that try to explain the process of social and economic development
In economic part of view theories of economic development are many but we will study only five theories of economic development these are:-
ROSTOW’S STAGES DEVELOPMENT THEORY
Rostow’s stage of development theory, is the theory used to explain about economic development, This theory developed by American Economic historian, W.W Rostow in his book called “The stages of Economic growth” in 1960, this theory create Rostow as a sole introduce of concept of stages of economic growth and development .
This is the second stage of gr
owth which brings society in the process sensitive i.e. the period when pre conditions for takeoff are developed. During this period society tries to adopt changes and tries to foregone traditional and leads towards take off main characteristics of this stage, is changes in altitude from accepting that economic environment is beyond control to altitude that people may control economic situation by systematic procedures which lead to economic growth. Main features of this stage is increased specialization generate surplus for trading, there are emergence transport infrastructures to support trade, income, saving and investment grow, entrepreneurs emerge, international trade occurs through concentrating on primary products, during this period people start to improve technology and science and industrialization start


EcoleBooks | ECONOMICS A LEVEL(FORM SIX) NOTES - ECONOMIC GROWTH AND DEVELOPMENT

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