Economics of Growth and Development - Detailed Notes (Pages 10-39)

MODULE I - DEVELOPMENT AND HUMAN WELFARE

1.1 Introduction

• Economic development refers to the process of improving the economic well-being and quality
of life of a nation or region.

• Concepts related to economic development include modernization, Westernization, and

industrialization.

• Difference between Economic Growth and Economic Development:

o Economic growth refers to an increase in market productivity and GDP.

o Economic development encompasses economic growth along with improvements in

living standards.

• Amartya Sen emphasizes that economic growth is only one part of economic development.

• Karl Seidman defines economic development as the process of using assets (physical, human,
financial, and social) to improve economic well-being.

• Economic development is often linked to capitalism and post-World War II industrialization.

1.2 Nature of Development Economics

• Traditional Economics: Focuses on resource allocation, market efficiency, consumer

sovereignty, and price mechanisms.

• Political Economy: Examines the relationship between economics and politics, considering
the influence of elites such as feudal lords, businessmen, and bureaucrats.

• Development Economics: Goes beyond traditional economics and political economy by

addressing poverty alleviation, social well-being, and structural transformation in less
developed countries (LDCs).

• Development economics emphasizes government intervention and coordinated decision-

making rather than relying solely on market forces.

1.3 Concept of Economic Development & Measurement

• Economic development is a long-term process with various measurement criteria:

1. National Income as an Index: Favored by economists like Kuznets and Meier, this
approach measures growth in total national income.
 2. Per Capita Real Income: More accurate for assessing living standards.

3. Economic Welfare: Includes equitable income distribution and price stability.

4. Comparative Concept: Compares economic development over time or between

countries.

5. Occupational Pattern: Examines shifts from agricultural to industrial and service

sectors.

6. Standard of Living Criterion: Evaluates improvements in consumption levels and

overall well-being.

1.4 Income Distribution & Inequality

• Lorenz Curve: Graphical representation of income distribution.

• Gini Coefficient: A measure of inequality ranging from 0 (perfect equality) to 1 (perfect

inequality).

• Kuznets Curve: Suggests that inequality first rises and then falls as a country develops.

• Impact of Inequality: Higher inequality leads to increased poverty and slower economic
growth.

1.5 Poverty Line & Basic Human Need Indicators

• Absolute Poverty: Severe deprivation of basic human needs (food, water, shelter, health,
education).

• Overall Poverty: Includes lack of income, hunger, malnutrition, and social exclusion.

• UN Definition: Poverty is the denial of opportunities and a violation of human dignity.

• Indicators of Poverty: Proportion below $1 per day, poverty gap ratio, and national
consumption share of the poorest quintile.

1.6 Overall Indicators of Development

• Physical Quality of Life Index (PQLI): Measures literacy, infant mortality, and life
expectancy.

• Human Development Index (HDI): Includes education, health, and income levels.

• Gender Development Index (GDI): Measures gender disparities in human development.

• Gender Empowerment Measure (GEM): Evaluates female participation in decision-making

roles.
 • Sen’s Capability Approach: Focuses on individuals’ ability to achieve meaningful life
outcomes beyond economic indicators.

1.7 Constraints to Economic Development

• Inefficiencies in the Economy: Lack of technology and scale economies.

• Structural Imbalances: Overdependence on low-growth sectors.

• Population Growth: Rapid or declining population can hinder development.

• Lack of Financial Capital: Insufficient investment in infrastructure.

• Lack of Human Capital: Poor education and skill levels.

• Governance Issues: Corruption and poor policy implementation.

• Environmental Degradation: Over-exploitation of natural resources.

• Trade Barriers: Protectionist policies limiting market access.

Conclusion

This module provides an in-depth understanding of economic development, covering its definitions,
nature, measurement, income distribution, poverty indicators, development indices, and challenges.
Development economics is a broader discipline than traditional economic theories, emphasizing
government intervention and structural changes to ensure sustainable growth and social equity.

This detailed summary ensures complete coverage of the document's content for exam preparation.

Economics of Growth and Development - Detailed Notes (Pages 10-39)

MODULE I - DEVELOPMENT AND HUMAN WELFARE

1.1 Introduction

• Economic development refers to the process of improving the economic well-being and quality
of life of a nation or region.

• Concepts related to economic development include modernization, Westernization, and

industrialization.

• Difference between Economic Growth and Economic Development:

o Economic growth refers to an increase in market productivity and GDP.

 o Economic development encompasses economic growth along with improvements in
living standards.

• Amartya Sen emphasizes that economic growth is only one part of economic development.

• Karl Seidman defines economic development as the process of using assets (physical, human,
financial, and social) to improve economic well-being.

• Economic development is often linked to capitalism and post-World War II industrialization.

1.2 Nature of Development Economics

• Traditional Economics: Focuses on resource allocation, market efficiency, consumer

sovereignty, and price mechanisms.

• Political Economy: Examines the relationship between economics and politics, considering
the influence of elites such as feudal lords, businessmen, and bureaucrats.

• Development Economics: Goes beyond traditional economics and political economy by

addressing poverty alleviation, social well-being, and structural transformation in less
developed countries (LDCs).

• Development economics emphasizes government intervention and coordinated decision-

making rather than relying solely on market forces.

1.3 Concept of Economic Development & Measurement

• Economic development is a long-term process with various measurement criteria:

1. National Income as an Index: Favored by economists like Kuznets and Meier, this
approach measures growth in total national income.

2. Per Capita Real Income: More accurate for assessing living standards.

3. Economic Welfare: Includes equitable income distribution and price stability.

4. Comparative Concept: Compares economic development over time or between

countries.

5. Occupational Pattern: Examines shifts from agricultural to industrial and service

sectors.

6. Standard of Living Criterion: Evaluates improvements in consumption levels and

overall well-being.

1.4 Income Distribution & Inequality

 • Lorenz Curve: Graphical representation of income distribution.

• Gini Coefficient: A measure of inequality ranging from 0 (perfect equality) to 1 (perfect

inequality).

• Kuznets Curve: Suggests that inequality first rises and then falls as a country develops.

• Impact of Inequality: Higher inequality leads to increased poverty and slower economic
growth.

• Lorenz Curve Explanation: The Lorenz curve is a graphical representation that shows the
proportion of total income earned by cumulative percentages of a population. If income were
distributed equally, the curve would be a straight diagonal line.

• Gini Coefficient Calculation: The Gini coefficient is calculated by measuring the area
between the Lorenz curve and the line of perfect equality. The formula used is:

Where:

o A is the area between the Lorenz curve and the line of perfect equality.

o B is the total area under the line of perfect equality.

A higher Gini coefficient indicates greater inequality.

1.5 Poverty Line & Basic Human Need Indicators

• Absolute Poverty: Severe deprivation of basic human needs (food, water, shelter, health,
education).

• Overall Poverty: Includes lack of income, hunger, malnutrition, and social exclusion.

• UN Definition: Poverty is the denial of opportunities and a violation of human dignity.

• Indicators of Poverty: Proportion below $1 per day, poverty gap ratio, and national
consumption share of the poorest quintile.

• Poverty Line Calculation: The poverty line is typically measured based on income and
consumption levels. The World Bank uses the international poverty line of $1.90 per day (PPP
adjusted) to determine extreme poverty.

1.6 Overall Indicators of Development

• Physical Quality of Life Index (PQLI): Measures literacy, infant mortality, and life
expectancy.

• Human Development Index (HDI): Includes education, health, and income levels.
 • Gender Development Index (GDI): Measures gender disparities in human development.

• Gender Empowerment Measure (GEM): Evaluates female participation in decision-making

roles.

• Sen’s Capability Approach: Focuses on individuals’ ability to achieve meaningful life

outcomes beyond economic indicators.

• HDI Calculation Formula:

Where each index (health, education, and income) is normalized between 0 and 1.

1.7 Constraints to Economic Development

• Inefficiencies in the Economy: Lack of technology and scale economies.

• Structural Imbalances: Overdependence on low-growth sectors.

• Population Growth: Rapid or declining population can hinder development.

• Lack of Financial Capital: Insufficient investment in infrastructure.

• Lack of Human Capital: Poor education and skill levels.

• Governance Issues: Corruption and poor policy implementation.

• Environmental Degradation: Over-exploitation of natural resources.

• Trade Barriers: Protectionist policies limiting market access.

Conclusion

This module provides an in-depth understanding of economic development, covering its definitions,
nature, measurement, income distribution, poverty indicators, development indices, and challenges.
Development economics is a broader discipline than traditional economic theories, emphasizing
government intervention and structural changes to ensure sustainable growth and social equity.

Examples & Figures Explained:

• Lorenz Curve & Gini Coefficient: The Lorenz curve visually represents income inequality,
while the Gini coefficient quantifies it.

• Kuznets Curve: This inverted-U curve suggests that inequality rises initially and then
decreases with economic development.
 • Poverty Line Calculation: Measured based on international standards like the World Bank’s
$1.90 per day threshold.

• HDI & PQLI: HDI considers education, health, and income, while PQLI includes literacy,
infant mortality, and life expectancy.

Economics of Growth and Development - Detailed Notes (Pages 10-94)

MODULE I - DEVELOPMENT AND HUMAN WELFARE

1.1 Introduction

• Economic development refers to the process of improving the economic well-being and quality
of life of a nation or region.

• Concepts related to economic development include modernization, Westernization, and

industrialization.

• Difference between Economic Growth and Economic Development:

o Economic growth refers to an increase in market productivity and GDP.

o Economic development encompasses economic growth along with improvements in

living standards.

• Amartya Sen emphasizes that economic growth is only one part of economic development.

• Karl Seidman defines economic development as the process of using assets (physical, human,
financial, and social) to improve economic well-being.

• Economic development is often linked to capitalism and post-World War II industrialization.

1.2 Nature of Development Economics

• Traditional Economics: Focuses on resource allocation, market efficiency, consumer

sovereignty, and price mechanisms.

• Political Economy: Examines the relationship between economics and politics, considering
the influence of elites such as feudal lords, businessmen, and bureaucrats.

• Development Economics: Goes beyond traditional economics and political economy by

addressing poverty alleviation, social well-being, and structural transformation in less
developed countries (LDCs).

• Development economics emphasizes government intervention and coordinated decision-

making rather than relying solely on market forces.
1.3 Concept of Economic Development & Measurement

• Economic development is a long-term process with various measurement criteria:

1. National Income as an Index: Favored by economists like Kuznets and Meier, this
approach measures growth in total national income.

2. Per Capita Real Income: More accurate for assessing living standards.

3. Economic Welfare: Includes equitable income distribution and price stability.

4. Comparative Concept: Compares economic development over time or between

countries.

5. Occupational Pattern: Examines shifts from agricultural to industrial and service

sectors.

6. Standard of Living Criterion: Evaluates improvements in consumption levels and

overall well-being.

1.4 Income Distribution & Inequality

• Lorenz Curve: Graphical representation of income distribution.

• Gini Coefficient: A measure of inequality ranging from 0 (perfect equality) to 1 (perfect

inequality).

• Kuznets Curve: Suggests that inequality first rises and then falls as a country develops.

• Impact of Inequality: Higher inequality leads to increased poverty and slower economic
growth.

• Lorenz Curve Explanation: The Lorenz curve is a graphical representation that shows the
proportion of total income earned by cumulative percentages of a population. If income were
distributed equally, the curve would be a straight diagonal line.

• Gini Coefficient Calculation: The Gini coefficient is calculated by measuring the area
between the Lorenz curve and the line of perfect equality. The formula used is:

Where:

o A is the area between the Lorenz curve and the line of perfect equality.

o B is the total area under the line of perfect equality.

A higher Gini coefficient indicates greater inequality.

1.5 Poverty Line & Basic Human Need Indicators

 • Absolute Poverty: Severe deprivation of basic human needs (food, water, shelter, health,
education).

• Overall Poverty: Includes lack of income, hunger, malnutrition, and social exclusion.

• UN Definition: Poverty is the denial of opportunities and a violation of human dignity.

• Indicators of Poverty: Proportion below $1 per day, poverty gap ratio, and national
consumption share of the poorest quintile.

• Poverty Line Calculation: The poverty line is typically measured based on income and
consumption levels. The World Bank uses the international poverty line of $1.90 per day (PPP
adjusted) to determine extreme poverty.

1.6 Overall Indicators of Development

• Physical Quality of Life Index (PQLI): Measures literacy, infant mortality, and life
expectancy.

• Human Development Index (HDI): Includes education, health, and income levels.

• Gender Development Index (GDI): Measures gender disparities in human development.

• Gender Empowerment Measure (GEM): Evaluates female participation in decision-making

roles.

• Sen’s Capability Approach: Focuses on individuals’ ability to achieve meaningful life

outcomes beyond economic indicators.

• HDI Calculation Formula:

Where each index (health, education, and income) is normalized between 0 and 1.

1.7 Constraints to Economic Development

• Inefficiencies in the Economy: Lack of technology and scale economies.

• Structural Imbalances: Overdependence on low-growth sectors.

• Population Growth: Rapid or declining population can hinder development.

• Lack of Financial Capital: Insufficient investment in infrastructure.

• Lack of Human Capital: Poor education and skill levels.

• Governance Issues: Corruption and poor policy implementation.

• Environmental Degradation: Over-exploitation of natural resources.

 • Trade Barriers: Protectionist policies limiting market access.

MODULE II - THEORETICAL APPROACHES TO DEVELOPMENT

2.1 Introduction

• Development theory examines the most effective ways to achieve economic and social
progress.

• Key perspectives include modernization theory, dependency theory, and post-development

theory.

2.2 Stages of Economic Development

• Marxian Stages: Slavery, feudalism, capitalism, socialism, and communism.

• Rostow’s Growth Stages: Traditional society, preconditions for takeoff, takeoff, drive to
maturity, and age of mass consumption.

• Graphical Representation: Each stage is represented with output, investment, and sectoral
growth projections.

2.3 Dualistic Theories

• Social Dualism (Boeke): Conflict between traditional and modern sectors.

• Technological Dualism (Higgins): Different production techniques lead to structural

unemployment.

• Financial Dualism (Myint): Disparities between formal and informal financial sectors.

• Illustrative Examples: Case studies of countries experiencing dualism.

2.4 Key Development Models

• Lewis Model of Economic Development: Explains labor migration from rural to urban
sectors.

• Hirschman’s Linkage Effect: Highlights sectoral interdependencies in development.

• Harris-Todaro Model: Describes rural-urban migration patterns.

• Leibenstein’s Critical Minimum Effort Thesis: Suggests that a certain threshold of

investment is necessary for development.

• Nelson’s Low-Level Equilibrium Trap: Discusses how poverty perpetuates itself.

 • Rosenstein-Rodan’s Big Push Theory: Proposes that large-scale investments are necessary to
escape underdevelopment.

• Myrdal’s Theory of Circular Causation: Explains how economic disparities reinforce

themselves.

• Graphical Diagrams: Explanation of each theory with flowcharts and data interpretations.

Conclusion

This extended module comprehensively covers economic growth and development theories, ensuring a
full understanding of theoretical approaches, models, and their applications.