ECONOMIC DEVELOPMENT

Economic development is a process of economic transition involving structural transformation of

an economy through industrialization, raising gross national product and per capita income.
According, to Prof. Arthur Lewis, economic development means increase in the output per head.
Professor Michael Todaro in his book Economic Development has said that Economic
development must be conceived of as a multi-dimensional process involving major changes in
social structures, popular attitudes, national institutions, and acceleration of economic growth
and reduction of inequality. In short economic development means economic growth coupled
with the structural changes in the economy for obtaining a better life. It is a process, which
results in the change in supply of factors as well as in the nature of demand of goods & services.
According to Prof. Kindleberger Economic development means increase in output of goods and
services in an economy. Economic development is more important than economic growth
because economic development is wider and more comprehensive process than economic
growth. Economic growth is a quantitative term because it represents quantitative increase in
production of goods, services and the factors of production in an economy, whereas economic
development is a qualitative terms because it indicates continuous increase in the real national
income and structural changes in the economy of a country.

OBJECTIVES OF ECONOMIC DEVELOPMENT

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Increase of supply of food, clothing, health, and education facilities.

Increase in standard of living of the people.
Increase in leisure, political freedom & equal opportunities of life.
Increase in capital formation (new buildings and industries.

ECONOMIC GROWTH
According to Prof Michael Todaro, economic growth is a steady process by which the productive
capacity of an economy increases overtime to bring about rising levels of national output and
income. Economic growth is the name of more production. Growth is measured in terms of an
increase in real gross national product (GNP or GDP) over time or an increase in per capita
income.

FACTORS / ELEMENTS OF GROWTH

The ability of an economy to produce more goods and services is dependent on the following
factors:
1. An increase in stock and quality of its capital goods.
2. An increase in quantity and quality of its labor force.
3. An increase in quantity and quality of its natural resources.
4. An efficient use of factor inputs so as to maximize their contribution to the expansion of
output, through improved productivity.

5. Development and introduction of innovative techniques and new products i.e.

technological progressiveness.
The achievement of a high rate of economic growth is one of the main objectives of
macroeconomic policy. The significance of economic growth lies in its contribution to the
general prosperity of the community. Growth is desirable because it enables the community to
consume more goods and services and it also contributes to the provision of a greater quantity of
social goods and services such as health and education, thereby improving real standards of
living of the people.
Government can stimulate growth process by increasing current spending in the economy
through tax cuts by adopting fiscal policy and by increasing the money supply and reducing
interest rates by monetary policy.

MEASUREMENT OF ECONOMIC GROWTH

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Increase in the real gross national product.

Increase in the real per capita income.
Increase in the general welfare of the masses.
Increase in social, economic and human development.

DIFFERENCE BETWEEN ECONOMIC DEVELOPMENT &

GROWTH
Economic development means increase in output of goods and services in an economy.
Economic development is more important than economic growth because economic development
is wider and more comprehensive process than economic growth. Economic development is a
process of economic transition involving structural transformation of an economy through
industrialization, raising gross national product and per capita income. Economic development is
a qualitative terms because it indicates continuous increase in the real national income and
structural changes in the economy of a country.
Economic growth is a quantitative term because it represents quantitative increase in
production of goods and services in an economy. Economic Growth is a steady process by which
the productive capacity of an economy increases overtime to bring about rising levels of national
output and income. Economic growth is the name of more production. Growth is measured in
terms of an increase in real gross national product (GNP or GDP) over time or an increase in per
capita income.

PROCESS OF ECONOMIC GROWTH:

1. Long term process:
Economic growth is a long term process involving a period of decades. A short term in
increase in national income for a few years is not considered an economic growth.

2. Increase in real per capita income:

When the growth rate of real national income of a country is greater than the growth rate
of population, real per capita income will increase. This is an essential pre-requisite for economic
growth to take place.

3. Rise in productivity:
Economic growth is always associated with substantial rise in productive capacity of the
economy. The rise in real output can be achieved by proper utilization of natural and human
resources and better techniques of production in all sectors of the economy.

PROCESS OF ECONOMIC DEVELOPMENT

Economic development is a process in which there is rise in real national income (the physical
quantity of goods and services) and per capita income (average income per person i.e. National
income /population) along with the following structural changes in the economy.
1. Changes in occupational structure:
In the process of economic development, there appears a change in the structure of
occupation. As the level of economic development rises, the percentage share of labor working in
primary sector (forming, fishing, mining etc) begins to decline. Whereas, the percentage of share
of working population in secondary sector (manufacturing sector) increases.
2. Changing in sect oral sector:
In response of economic development, the share of primary sector in national output falls
and the share of secondary sectors gradually go up.
3. Changing structure of industrial production:With the economic development the economy transforms itself from agrarian to highly
industrialized economy.
4. Technological progress:
In the development process, there is a technical breakthrough in agriculture, transport,
industries, communication and other sectors of the economy.
5. Social and institutional changes:
With the development of an economy there is general urbanization and the adoption of modern
methods of thinking, acting, producing and consuming. There are changes in behavioral, institutional and
organizational factors.

REQUIREMENTS OR ECONOMIC FACTORS FOR

DEVELOPMENT
1. NATURAL RESOURCES
Natural resources are one of the three main factors of production the other two are labor
and capital. Natural resources include area of land, forests, rivers, climate and mines. If a country
is rich in better quality of all natural resources, it will develop economically at a fast speed.

2. CAPITAL FORMATION
It is the process of adding net physical capital stock of an economy. Capital formation
creates productive potential for future production. Capital formation has three stages namely (1)
savings, (2) financial institutions and capital market for mobilization of savings and (3) act of
investment in machinery and buildings
3. SPECIALIZATION
Output is greater as a result of specialization. Specialization enables an economy to use
its scarce resources more efficiently, thereby producing a larger volume of goods and services. It
increases the rate of economic development of a country.
4. TECHNOLOGY
Inventions and innovations reduce the manufacturing and distribution costs.
Technological progressiveness serves to change cost conditions in the long run; thus
technological changes play an important role in economic development.
5. TRANSPORT AND COMMUNICATION
Efficient communication facilities increase the production capacity of all the sectors of
the economy. It reduces cost of production, increases mobility of goods within & outside the
country.
6. ENTREPRENEURSHIP
If an entrepreneur is capable, skillful and trained then output of his organization will be
greater. Entrepreneurship results in the introduction of new type of output, new techniques and
new sources of supply of inputs for business and industry.

REQUIREMENTS OR NON- ECONOMIC FACTORS FOR

DEVELOPMENT
1. SOCIAL VALUES & ATTITUDES
It includes culture, religion, and life style of people of a society. Some societies are
orthodox and do not like materials approach of life. Religion does not allow them to keep busy
day in and day out for their material prosperity. Most societies believe in festivals and different
cultural ceremonies. They do not prefer to save money; hence savings rate reduces too much. In
such societies material gains are not appreciated. Prof. Myrdal in his book Asian Drama has
said that Asian countries should modernize their values for rapid economic development and
progress in their countries.
2. POLITICAL STABILITY
Strong and stable Governments can prepare five-year development plans, can enforce
monetary and fiscal policies and change social attitudes and institutions, which may be
progressive one. The frequent changes in Government setup results in the lack of concrete
economic policy decisions.

3. ADMINISTRATIVE EFFICIENCY
Educated, trained, skillful, and hardworking Government officers can push the
development of a country at a very fast speed, whereas weak and untrained administration of a
country retards the economic growth.
4. ECONOMIC FREEDOM
Private ownership of resources and maximum freedom to deploy these resources in line
with profit signals create strong incentives to work hard. If everybody is allowed to participate in
economic activity then due to competition the rate of economic development will increase.
5. RIGHT OF PRIVATE PROPERTY
Private ownership of the means of production results in the increase in supply of goods
and services. In order to own and accumulate profit and property, people work hard, thus trade
and business activity flourishes.

ECONOMIC OBSTACLES
1. Lack of capital
2. Underutilization of natural resources
3. Rapid population growth
4. Shortage of modern technology
5. Dependence on agriculture
6. Lack of infrastructure
7. Inefficient banking and financial sector
SOCIAL OBSTACLES
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Caste system
Heavy consumptions
People are conservative
High illiteracy rate
Non-materialistic approach of life
No economic participation of Women

POLITICAL OBSTACLES
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Political instability
Lack of continuity in economic policies
Negative role of bureaucracy
Corruption in government departments
Lack of professional efficiency

SUGGESTIONS
There are many other obstacles also in economic development of underdeveloped
countries like Pakistan. The obstacles have been divided into three major groups, which have
mentioned above. It is therefore suggested that the above obstacles should be removed from
developing countries like Pakistan.