ECONOMIC DEVELOPMENT KEY TO POVERTY REDUCTION

INTRODUCTION

It is not easy to give any precise and clear definition of economic development. The term development means different things to different people. Before 1970, the traditional measure of economic development was the rise in the real national income and per capita income of a country. The rise in real national income must occur a long period of time. In the words of Mari and Baldwin, Economic development is the process whereby an economys real national income increases over a long period of time and if the rate of development is greater than the rate of growth of population, than per capita real income will increase In 1980, the real national income or real per capita income as a measure of development was discarded .The problems of wide spread poverty, unemployment and unequal distribution of income came to the forefront. And the term economic development was redefined in terms of the reduction of poverty, inequality in income and unemployment. The common slogan of economic development was redistribution of income from growth. In 1990s there is again a change in the meaning given to terms of development. It is the development of people rather than the development of things. The challenge of development is to improve the quality of life .the quality of life generally calls for higher incomes and also involves better education, higher standards of health, less poverty, a clear environment, more equality of opportunity, greater individual freedom and a richer cultural life. According to Michael Todaro Development must be conceived of as a multi dimensional process involving major changes in social structures, popular attitudes and national institutions as well as the acceleration of economic growth, the reduction of inequality and the eradication of poverty So in brief, economic development means economic growth coupled with the structural changes in the economy for obtaining a better life.

MEASUREMENT OF ECONOMIC DEVELOPMENT

There are various measures, which have been used to assess the level of development in a country at a particular time. The most important of them are: 1. National Income as a Traditional Measure of Development: National income before 1970s was considered the most important indicator of economic development. There is no doubt that if national income increase over a long period of time, the economic conditions of people improves. But we cannot ignore here the rate of economic development, which is the important factor in the determination of economic growth. It is therefore suggested that while estimating the economic growth in a country, the level of income and the rate of increase in national income should both be taken into consideration. These will indicate approximate level of development. As there are certain difficulties in using national income as an index of development. For instances There are statistical problem in measuring national income and its rate of change Statistics available of national income are generally not accurate. There is also problem of valuation of goods. 2.Per Capita Income as a Measure of Development: Per capita income was considered a better measure of economic development. And it is calculated by dividing national income by population of the country (GNP/Population). If the per capita income increases over time, it will indicate that the country is moving towards higher standard of living and is achieving economic goals. 3.Human Development Index: The modern economist is not satisfied with GNP, Per capita or national income as the principal measure of economic progress. According to them, the issue is not only how much growth but also what kind of growth. The stress is on human development. The human development is defined as a process of enlarging the range of peoples choices, increasing their opportunities for education, health care, income and employment and covering the full range of human choices from physical environment to economic and political freedoms.

POVERTY
There exist different definitions of poverty, such as poverty as the lack of resources or opportunities to meet the basic current needs of households or individuals or poverty as complete absence of choice or possibilities to have a normal living standard or all those whose rights and human dignity have been violated are considered poor . Human needs can be classified into three relative groups: Biological, Social Spiritual-cultural. It might be better to define poverty using all the three together, as minimum relief will not result in the expansion of social opportunities. Currently, the assessment of the poverty level is based on the estimates of the two lines: The poverty food line The general/absolute poverty line. They are constructed based on the actual expenses on food by households. The level of minimum food consumption is a ratio of 2100 calories daily, and the minimum consumption basket is the amount of resources required for that much food. By recalculating the minimum food basket using the coefficient of the cost of goods and services we get the consumption basket or the general/absolute poverty line. Poverty is the biggest curse. It is the biggest hurdle in the way of economic development. As Ranger Nurkse says that vicious circle of is the basic cause of under-development of poor countries. According to him less developed countries remain poor due to domestic obstacles. These obstacles act and react upon one another in such a way that they form a vicious circle. They keep the country in a perpetual low level of development. Or the deficiency of resources is the root cause of under development in a less developed country. The vicious circle operates both on the demand and supply side, which in brief, is explained as under:

Demand side of a vicious circle: In less developed countries people have low real income which means a low purchasing power. When the purchasing power of the people is low, the demand for the goods is bound to be small. In the small size of market, there is practically no inducement to invest. There is deficiency of capital also. When the rate of investment is low, the productivity is bound to below .low productivity leads to low income. Hence completing the vicious circle.

Supply Side of a Vicious Circle: The vicious circle of poverty on the supply side of capital operates in this manner. In a less developed country, people have low real income. When the income of the people is low, the saving is low. The low level of saving leads to low investment and to deficiency of capital, the deficiency of capital in turn leads to low level of productivity. The productivity per worker being low, the real income is obviously low

and so there is poverty. This is how the vicious circle is complete.

How to break this Vicious Circle of Poverty

The poverty barrier or the vicious circle can be broken in developing countries of the world (including Pakistan) by taking the following measures: 1. Efficient use of existing natural resources: The developing countries can achieve rapid economic growth by making the efficient use of its existing natural resources. 2. 3. 4. Raising the saving potential: The government should take steps to remove the Improvement of technology: The developing countries can speed up economic Reducing Population Growth: Many of developing countries (including financial and non-financial obstacles to investment in the country. progress by adopting appropriate advance technology in various sector of the economy. Pakistan) are facing problems of rapid growing population. The fast growth of population is one of the major obstacles to economic development. Effective measures should be taken for coming out of this dilemma

5.

Strategy of Balanced Growth: R,Nurkse recommended this strategy for the

break through of vicious circle of poverty. According to him if simultaneous investment in many sectors of the economy is made, it can provide a market and a source of supply for another. 6. Role of Government: Government plays a very important role in breaking this vicious circle of poverty. If law and order is established in the country, it brings peace, unity and rapid rate of economic growth. 7. Role of Advanced countries: the developed countries can also help the LDS in coming out of the poverty trap. They can expand the volume of trade with them. The writing off or voluntary reducing of loans both publics both public and private can also play a crucial role in breaking the circle of poverty.

CONCLUSION
The economic development of the developing nations in the region is important to the achievement of the goal, therefore, "making the pie bigger is the key" to the reduction of poverty. For example China has scored great achievements in economic and social development since 1980s. The number of its rural poor was reduced from over 200 million in 1978 to 29 million in 2003 measured with its own poverty line. So "The rapid economic growth provides a fundamental guarantee for its poverty reduction" in the country with a population of 1.3 billion people. As the Chinese government has mapped out a concept of comprehensive, coordinative and sustainable development that puts people first, a concept that highlights a balanced development between the urban and rural areas, among different regions, between the economic and social progress, man and nature, and domestic growth. So the sustainable development strategy provides a sound policy environment and institutional guarantee for the domestic poverty reduction. 6

Asia's stable economic growth offers a favorable condition for developing countries to achieve poverty reduction, but as two-thirds of the world's poor live in the AsiaPacific region, the regional members should keep closer relations with the ADB and other international financial institutions to confront such a formidable challenge. After years of study and practice, the ADB has transformed its development philosophy, renewing its attention to the core role of economic growth in poverty reduction. Facing the challenge of poverty reduction, the ADB should further adjust its assistance strategy and actively support the infrastructure and pro-poor projects.