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Chapter 1 - Meaning and Measures of Economic Development

The document discusses various methods for measuring economic development: 1. National income and per capita income are commonly used indexes, as they capture aggregate output and standard of living improvements. 2. Economic welfare, accounting for equal income distribution and price stability, also indicates development levels. 3. Comparisons within and between countries over time can show development progress. 4. Shifts in occupational patterns from primary to secondary and tertiary sectors demonstrate increased development as economies modernize. 5. While useful, no single measure fully captures development; gross national product per capita remains the most widely accepted indicator despite some limitations.

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Alzen Marie Delvo
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195 views

Chapter 1 - Meaning and Measures of Economic Development

The document discusses various methods for measuring economic development: 1. National income and per capita income are commonly used indexes, as they capture aggregate output and standard of living improvements. 2. Economic welfare, accounting for equal income distribution and price stability, also indicates development levels. 3. Comparisons within and between countries over time can show development progress. 4. Shifts in occupational patterns from primary to secondary and tertiary sectors demonstrate increased development as economies modernize. 5. While useful, no single measure fully captures development; gross national product per capita remains the most widely accepted indicator despite some limitations.

Uploaded by

Alzen Marie Delvo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 1

PRINCIPLES AND CONCEPTS OF DEVELOPMENT

A. Abbreviations:

ASEAN Association of Southeast Asian Nations


DCs Developed (high-income) Countries
E.U. European Union
FAO Food and Agriculture Organization of the United Nations
G7 Group of Seven, meeting of the seven major DCs: the United States,
Canada, Japan, the United Kingdom, Germany, France, and Italy
(EU representative also attends)
G8 Group of Eight, meeting of G7 plus Russia
GATT General Agreements on Tariffs and Trade, the predecessor to the WTO
GDP Gross domestic product
GNI Gross national income (same as GNP)
GNP Gross national product
HDI Human Development Index, UNDP’s measure of development
ILO International Labour Organization
IMF International Monetary Fund
LDCs Less-developed (developing) countries
LICs Low-income countries
LLDCs Least-developed countries
MDGs Millennium Development Goals (U.N., 2000)
MNCs Multinational (transnational) corporations
NGOs Nongovernmental (nonprofit) organizations
NICs Newly industrializing countries
NNP Net national product
OECD Organization for Economic Cooperation and Development, comprising
high-income countries (including Republic of Korea) plus Czech
Republic, Hungary, Mexico, Poland, Slovak Republic, and Turkey
PQLI Physical Quality of Life Index
PRI Partido Revolucionario Institucional (Institutional Revolutionary Party),
Mexico
U.N. United Nations
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Program
xvii
xviii Abbreviations and Measures
UNICEF United Nations Children’s Fund
URL Uniform Resource Locator, the address of documents and other resources
on the World Wide Web
WTO World Trade Organization, established in 1995, to administer rules of
conduct in international trade

B. THE MEANING AND MEASUREMENT OF ECONOMIC DEVELOPMENT

Economic Development

Economic Development is programs, policies or activities that seek to


improve the economic well-being and quality of life for a community. Economic
development is a process of targeted activities and programs that work to improve the
economic wellbeing and quality of life of a community by building local wealth, diversifying
the economy, creating and retaining jobs, and building the local tax base.

Though economic development priorities vary, economic development


strategies often aim for common, positive results, such as:

 Creating more jobs and more job variety


 Keeping businesses and getting new ones
 A better quality of life
 More people and businesses paying taxes
 More productive use of property
 Promoting your community’s assets
 Making and selling more local products
 Getting more skilled workers living in your community

https://www2.gov.bc.ca/gov/content/employment-business/economic-
development/plan-and-measure/economic-development-basics

MEASURES OF DEVELOPMENT

1. National Income as an Index of Development

There is a group of certain economists which maintains the growth of national


income should be considered most suitable index of economic development. They
are Simon Kuznets, Meier and Baldwin, Hicks D. Samuelson, Pigon and Kuznets
who favored this method as a basis for measuring economic development. For this
purpose, net national product (NNP) is preferred to gross national product (GNP) as
it gives a better idea about the progress of a nation.

2. Per Capita Real Income

Some economists believe that economic growth is meaningless if it does not


improve the standard of living of the common masses. Thus, they say that the
meaning of economic development is to increase aggregate output. Such a view
holds that economic development be defined as a process by which the real per
capita income increases over a long period time. Harvey Leibenstein, Rostow,
Baran, Buchanan and many others favour the use of per capita output as an index
of economic development.

3. Economic Welfare as an Index of Economic Development

Keeping in view the drawbacks of real national income and real per capita
measures of economic development, some economists like Coline Clark,
Kindleberger, D. Bright Singh, Hersick etc. suggested economic welfare as the
measure of economic development.

The term economic welfare can be understood in two ways:

(a) When there is equal distribution of national income among all the sections of
the society. It raises economic welfare.

(b) When the purchasing power of money goes up, even then there is an increase in
the level of economic welfare. The purchasing power of money can go up when with
the increase in national income there is also increase in the prices of goods. That
means economic welfare can increase if price stability is ensured.

Thus economic welfare can boost with equal distribution of income and price
stability. Higher the level of economic welfare, higher will be extent of economic
development and vice-versa.
4. Comparative Concept:

Economic development is a comparative concept and it can easily be understood


and measured. In a simple way, from comparative concept, we can ascertain how
much the economic development has been attained in a country.

The comparison can be made by two methods over time period:

(а) Comparison within the country.


(b) Comparison with other countries.

5. Measurement through Occupational Pattern:

The distribution of working population in different occupations is also regarded as


a criteria for the measurement of economic development. Some economists regard
the changes in the occupational structure as a source for measuring the nature of
economic development. According to Colin Clark there is deep relation between the
occupational structure and economic development. He has divided the occupational
structure in three sectors.

(1) Primary Sector:

It includes agriculture, fisheries, forestry, mining etc.

(2) Secondary Sector:

It consists of manufacturing, trade, construction etc.

(3) Tertiary Sector:

It includes services, banking, transport, etc. In under-developed countries, majority


of the working population in engaged in primary sector. On the contrary, in
developed countries the majority of the working population works in tertiary sector.

A shift in occupational distribution of population from primary sector to secondary


and territory sectors shows the movement towards economic development when a
country makes economic progress, its working population begins to shift from
primary sector to secondary and tertiary sectors. Thus, with economic development
the percentage of population engaged in primary sector declines, while the
percentage of population working in secondary and tertiary sectors increases.

Here we should note that the measurement of economic development through


occupational patterns is not considered as satisfactory on following grounds:

(i) It is not possible to clearly classify the occupations in an underdeveloped


economy in three distinct categories

(ii) Secondly, in the early stages of development, the activities of tertiary sector like
transport, communications, trade etc. are inadequate and insufficient.
Consequently the chances of employment in these activities are very restricted.

6. Standard of Living Criterion:


Another method to measure economic development is the standard of living.
According to this view, standard of living and not rise in per capita income or
national income should be considered an indicator of economic development. The
very objective of development is to provide better life to its people through
improvement or upliftment of the standard of living. In other words, it refers to
increase in average consumption level of the individual. But, this criteria is not
practicably true.

Let us suppose, national income and per capita both increase but the government
mops up this income with the way of heavy dose of taxation or compulsory deposit
scheme or any other method, in such a situation, there is no possibility to raise to
average consumption level i.e., standard of living.

Moreover, in poor countries, propensity to consume is already high and stern


efforts are made to reduce superfluous consumption in order to encourage savings
and capital formation. Again ‘standard of living’ is also subjective which cannot be
determined with objective criterion.

Which is the Best Measure of Economic Development?

After studying all the above methods of measurement of economic development we


are likely to be confused and the question might arise as to which of the above
measures of economic development is the best. Answer depends on the objective of
measuring economic development. However, after considering form different point
of view it may be concluded that GNP or per capita is the best method of measuring
economic development.

In the words of Prof. R.G. Lipsey, “Whatsoever changes there may be in future in
the measurement of economic development they cannot fully replace gross national
product (GNP).” Economists and U.N. Organisations use GNP per capita as the
measurement of economic development.

https://www.economicsdiscussion.net/economics-2/measurement-of-economic-
development/4437

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