Economic Growth.
Economic growth has been defined as the quantitative increase in the volume of goods and services in the economy overtime. It is a positive change in the level of production of goods and services by a country over a certain period of time. It is often measured as a rate of change in the Growth Domestic Product (GDP) overtime. It can be viewed as either nominal or real economic growth.
Nominal growth can be defined as economic growth (GDP) including inflation. It just looks at the given period’s GDP figures without removing inflation.
Real growth is nominal growth minus inflation. It presents the real picture of the economy during a stated period of time. It presents the actual performance of the economy; without
inflation. It is real GDP that presents a good picture of economic performance.
Economic development
It refers the qualitative and quantitative increase in the level of goods and services in a country during a given period of time. It is a process whereby an economy’s real national income as well as per capita income increases over a long period of time.
It includes changes in resource supplies, in the rate of capital formation, in demographic composition, in technology, skills and efficiency, in institutional and organizational set-up. It also implies respective changes in the structure of demand for goods, in the level and pattern of income distribution, in size and composition of population, in consumption habits and living standards, and in the pattern of social relationships and religious dogmas, ideas and institutions.
Underdevelopment
We have already said that sustained and rapid economic growth enhances economic development. Developed countries went through long period of economic growth before they achieved economic development.
Underdevelopment refers to a situation where a country has not yet utilized its resources (natural, human, time, etc.) properly; and the country’s per capita is low but it is possible to increase it when resources are utilized properly (efficiently and effectively).
Underdeveloped countries are usually commonly referred to as least developed, third world, developing countries, or low income countries. Two-thirds of the world’s least developed countries are found in Africa.
Human Development Index (HDI)
Human Development Index (HDI)
To overcome the deficiencies of GDP as a measure of welfare, the United Nations has developed the Human Development Index (HDI) – that combines data on life expectancy, years of schooling, and income per capita in order to give a broader measure of a country’s development.
Prosperity index
The prosperity index looks at such variables as entrepreneurship, health, security, freedom, and governance. See Helliwell, J., Layard, R., and Sachs, J., (2013). World Happiness Index 2013; and Legatum Institute (2014). The Legatum 2014 Prosperity Index; others
Main characteristics of developed countries
- High rate of capital formation
- The industrial sector is significant
- The services sector is also bigger than agriculture sector
- Low population growth rates
- Use of high production technologies and high skills
Characteristics of underdeveloped countries
- Experience a viscous cycle of poverty: persistent absolute poverty caused by low incomes that lead to low savings which too lead to low levels of investment and low levels capital accumulation resulting in low incomes.
- Low levels of living which are manifested quantitatively and qualitatively in the form of low income (poverty), inadequate housing, poor health, limited education, high infant mortality, low life expectancies.
- High rates of population growth causing high levels of dependency burden: More than five-sixths of the world’s population lives in less developed countries and less than one-sixth in developed nations.
- Low levels of productivity caused by, among others, the technology used, levels of education and skills, inadequate managerial competence, access to information, worker motivation, and institutional flexibility.
- Low levels of education and high illiteracy rates: Despite attempts by least developed countries to provide universal education to primary and post primary education, there are still levels of literacy in these countries. The drop-out rates are still high – and the drops cannot be described as literate.
- Most people in these countries depend substantially on agricultural production and primary products as exports. Agriculture is mainly subsistence – and not commercial farming. While only 27 percent of people in developed countries live in rural areas, in
LDCs this number is over 60 percent. Only 5 percent of people in developed countries depend on agriculture yet in LDCs is around 60 percent. - Less developed domestic markets with high levels of limited information. Due to lack of good roads, railways, and limited access to market information, most people in rural areas sell their produce – immediately after harvest – in local markets attracting low price.
- There is too much dependence and dominance by the donor countries which causes a lot of vulnerability in international relations. In most cases, policies and laws of the recipient countries are influenced (or ‘dictated’?) by the donors.
- Political instability: Most of these countries have experienced political turmoil, conflicts or war.
- High levels of underemployment and unemployment: Due to low levels of saving – and later investment – there are bound to be few enterprises without ample jobs. Even the government because of poor economic performance cannot absorb more people as
employees.
