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Economic Development
Definition of Economic Development
Economic development is a process of economic transition involving structural transformation of
an economy through industrialization, raising gross national product and per capital income.
According to Lewis,
Economic development means increase in output per head.
According to Micheal Todaro,
Economic growth is a steady process by which the productive capacity of an economy increases
overtime to bring rising levels of national output and income.
Objectives of Economic Development
1. Increase of supply of food, clothing, health and education facilities.
2. Increase in standard of living of the people.
3. Increase in leisure, political freedom and equal opportunities of life.
4. Increase in capital formation that is new buildings and industries.
Measurement
According to Prof. Micheal Todaro ,
The Human Development Index method, which is prepared by United Nations Development
Program is the best method, which should be adopted by the nations and organizations.
This method includes the opportunities for education, health, income, employment, environment
and economic freedom.
Measurement of Economic Growth
1. Increase in the real gross national product.
2. Increase in the real per capital income.
3. Increase in the general welfare of the masses.
4. Increase in social, economic and human development.
Factors Needed For Economic Growth
Ability of an economy to produce more goods and services depends 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.
6. An increase in level of demand to ensure full utilization of the increased productive
capabilities of the economy.
Achievement of a high rate of economic growth is one of the main objectives of macro economic
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. It also contributes to the provision of a greater quantity of social goods and services
such as health and education, thereby improving real standard of living of the people. Govt. can
stimulate growth process by increasing current spending in the economy through tax cuts by
Fiscal policy and by increasing money supply and reducing interest rates by adopting monetary
policy.
Difference between growth and development:
Growth Development
DEFINITION:
The term economic growth is only concerned
with rising income level.
DEFINITION:
The term economic growth is not only
concerned with rising income level but also
discuss to a process through which a country
improves the economic, social and political
condition of its people
SOCAIL CAHNGES:
No social changes appear in case of economic
growth and concerned with the income level of
the country.
SOCAIL CAHNGES:
Social changes appear incase of economic
development such as labor mobility, health,
improvement in life slandered remove
poverty and provide basic needs.
SCOPE:
Narrow scope because its only concerned with
economical change.
SCOPE:
Wider scope because it doesn’t only
concerned with economical change but also
discuss the improvement in life slandered
remove poverty and provide basic needs.
VARY FROM COUNTRY TO COUNTRY:
Economic growth is the problem of development
VARY FROM COUNTRY TO
COUNTRY:
countries. Economic development is the problem of
developing countries.
TIME PERIOD:
Sort term process because we can measure the
change in income of the country.
TIME PERIOD:
Long process because its take years to
change and make improvement at social,
political and economical institution setup.
INSTITUTIONAL CHANGES:
It doesn’t make institutional changes.
INSTITUTIONAL CHANGES:
It make strong and effective institutional
changes.
PRACTICAL SIGNIFICANCE:
1960’s growth rate is higher as compared to
1990’s.
PRACTICAL SIGNIFICANCE:
Compared to 1960’s to 1990’s Pakistan is
more developing country now we have more
roads, factories schools hospital etc.
AREA:
Economic growth relates to poor countries.
AREA:
Economic development relates to poor
countries.
INCOME LEVEL:
The rising of income level is called economic
growth in rich countries.
INCOME LEVEL:
The rising of income level is called
economic development in poor countries.
Economic Factors Needed For Economic Development :
Economic Factors
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 :
• savings
• financial institutions and capital market for mobilization of savings
• 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 larger volume of goods
and services. It increases the rate of economic development of a country.
4. Technology Inventions and innovations reduce manufacturing and distribution costs.
Technological progress serves to change cost conditions in the long run; thus technological
changes play an important role in the economic development.
5. Transport and Communication Efficient communication facilities increase the production
capacity of all sectors of the economy. It reduces cost of production, increases mobility of goods
within and outside the country.
6. Entrepreneurship If an entrepreneurship is capable, skillful and trained then out put of his
organization will be greater. Entrepreneurship results in the introduction of new types of output,
new techniques and new sources of supply of inputs for business and industry.
Non-Economic Factors :
1. Social Values and Attitudes: It includes culture, religion and life style of a society. Some
societies are orthodox and do not like material approach of life. Religion does not allow them to
keep themselves busy day in and day out for 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.
2. Political Stability Strong and stable Governments can prepare five-year development plans,
they can enforce monetary and fiscal policies and change social attitudes and institutions, which
may be progressive one. The frequent changes in Govt. setup results in the lack of concrete
economic policy decisions.
3. Administrative Efficiency Educated, trained, skillful and hardworking Govt. officers can
push development of a country at a very fast speed, whereas untrained administration of a
country retards the economic development.
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 every body 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.
Characteristics of Developing Countries According to Pakistan
Introduction
A developing country is a country with low to moderate income, limited industrialization, and
lower living standards compared to developed countries. Pakistan is considered a developing
country because it has many economic and social challenges.
Main Characteristics of Developing Countries (According to Pakistan)
1. Low Per Capita Income
Pakistan has a low average income per person compared to developed countries. Many people
cannot fulfill their basic needs properly. Low income results in poor living standards and limited
savings. This slows economic progress and investment.
2. High Population Growth
Pakistan’s population is increasing rapidly. Rapid population growth creates pressure on food,
housing, education, and healthcare facilities. It also increases unemployment and poverty.
Economic resources become insufficient for the growing population.
3. Unemployment and Underemployment
Many people in Pakistan do not have proper jobs. Some work in low-paying or part-time jobs
below their skills. Unemployment reduces income and increases poverty. It also creates social
and economic problems.
4. Dependence on Agriculture
A large part of Pakistan’s population depends on agriculture for livelihood. Agriculture often
uses traditional methods and has low productivity. The economy becomes vulnerable to floods,
droughts, and weather conditions. Industrial development remains limited.
5. Poverty
A significant portion of the population lives below the poverty line. Poor people lack proper
food, education, healthcare, and housing. Poverty reduces human productivity and economic
efficiency. It also creates inequality in society.
6. Low Level of Industrialization
Pakistan has limited industrial development compared to advanced countries. Many industries
use old technology and produce fewer goods. Low industrial growth limits exports and
employment opportunities. This slows economic development.
7. Illiteracy and Low Education Level
The literacy rate in Pakistan is lower than in developed countries. Many people do not receive
quality education or technical training. Lack of education reduces skilled labor and productivity.
It also limits technological progress.
8. Poor Healthcare Facilities
Healthcare services are inadequate in many areas of Pakistan. Diseases, malnutrition, and poor
sanitation affect public health. Unhealthy workers are less productive and increase economic
burden. Better healthcare is needed for development.
9. Unequal Distribution of Income
Wealth in Pakistan is unevenly distributed among people. A small group of people controls a
large share of resources and income. Many people remain poor while few become very rich.
Income inequality creates social and economic imbalance.
10. Lack of Infrastructure
Pakistan faces shortages of electricity, transport, roads, and clean water in many areas. Poor
infrastructure increases business costs and reduces industrial efficiency. It also discourages local
and foreign investment. Development projects become difficult to implement.
11. Political Instability
Frequent political changes and instability affect economic planning in Pakistan. Investors lose
confidence in uncertain political conditions. Development projects may be delayed or stopped.
Political stability is important for long-term growth.
12. Foreign Debt
Pakistan depends heavily on foreign loans and financial assistance. A large amount of national
income is spent on debt repayment. This reduces government spending on education, health, and
development projects. Heavy debt slows economic progress.
Poverty and Measures to Eliminate it:
Poverty is a condition, when a men not able to purchase
Definition:
In simple words: “Poverty means lack of sufficient income or resources to maintain a minimum
standard of living.”
According to World Bank: “People living on very low income and unable to meet basic needs
are considered poor.”
Poverty is a condition in which people are unable to fulfill their basic needs of life such as:
Food
Clothing
Shelter
Education
Healthcare
A person who does not have sufficient income to maintain a minimum standard of living is
considered poor.
Poverty in Pakistan
Pakistan faces a serious poverty problem due to:
Unemployment
Rapid population growth
Inflation
Lack of education
Unequal distribution of income
Political instability
Many people, especially in rural areas, lack proper healthcare, education, and employment
opportunities.
Measures to Eliminate Poverty in Pakistan
1. Increase Employment Opportunities
The government should promote industries, agriculture, and small businesses to create jobs.
Employment increases income and improves living standards. Skill development programs can
help unemployed youth find work.
2. Improve Education
Free and quality education should be provided to all citizens. Technical and vocational training
should also be promoted. Education increases skills, productivity, and income opportunities. It
helps break the cycle of poverty.
3. Control Population Growth
Family planning and public awareness programs can help control rapid population growth. A
balanced population reduces pressure on resources and public services. Smaller families can
enjoy better living standards.
4. Reduce Inflation
The government should control rising prices through effective economic policies. Stable prices
increase purchasing power and help poor people afford necessities. Inflation control improves
economic stability.
5. Promote Agriculture and Industry
Modern farming methods and industrial development can increase production and employment.
Better agriculture improves rural income. Industrial growth creates more job opportunities.
6. Fair Distribution of Income
The government should reduce the gap between rich and poor through fair taxation and welfare
programs. Equal opportunities help improve social justice and economic balance.
7. Eliminate Corruption
Strict action against corruption ensures proper use of national resources. Honest administration
improves development projects and poverty reduction programs.
8. Improve Healthcare Facilities
Affordable healthcare helps poor people stay healthy and productive. Healthy workers contribute
more effectively to the economy.
9. Social Welfare Programs
Government welfare programs such as financial assistance, food support, and housing schemes
help poor families meet basic needs. Programs like income support schemes can reduce poverty.
Conclusion:
Poverty is a major problem in Pakistan that affects economic and social development. It is
caused by unemployment, illiteracy, inflation, corruption, and rapid population growth. Poverty
can be reduced through education, employment opportunities, industrial growth, population
control, honest governance, and effective welfare policies. These measures can improve the
living standards of people and promote economic development in Pakistan.
Obstacles to Economic Development in Developing
Countries
Developing countries face many barriers that slow economic progress. These obstacles are
generally divided into economic, social, and political factors.
1. Economic Obstacles
Economic problems directly affect production, investment, employment, and income.
a) Poverty and Low Per Capita Income
Most people have very low incomes.
Low income means low savings and low purchasing power.
Because savings are low, investment in industries and infrastructure remains limited.
This creates a vicious cycle of poverty.
Example
Poor people cannot save money → low investment → low production → low income again.
b) Unemployment and Underemployment
Many people do not have jobs or work below their skill level.
In rural areas, several family members may work on small farms where fewer workers are
actually needed.
This reduces productivity and national income.
c) Lack of Capital Formation
Developing countries often lack sufficient money for factories, machinery, roads, and
technology.
Low savings and weak banking systems reduce investment opportunities.
d) Dependence on Agriculture
Many developing economies rely heavily on agriculture.
Agriculture is often traditional and less productive.
Dependence on rainfall, floods, droughts, and outdated farming methods limits growth.
e) Rapid Population Growth
Population increases faster than economic resources.
Governments must spend more on food, health, housing, and education.
This reduces funds available for development projects.
f) Poor Infrastructure
Infrastructure includes:
Roads
Railways
Electricity
Water supply
Internet and communication systems
Weak infrastructure discourages industries and foreign investment.
g) Technological Backwardness
Old production methods reduce efficiency and productivity.
Lack of research, innovation, and skilled labor slows modernization.
h) Foreign Debt and Trade Deficits
Many developing countries borrow heavily from international institutions.
Large debt repayments reduce funds for development.
Imports are often greater than exports, creating balance-of-payment problems.
2. Social Obstacles
Social conditions strongly influence economic progress.
a) Illiteracy and Poor Education
Low literacy rates reduce skilled labor.
Uneducated workers are less productive.
Lack of technical and vocational education limits industrial growth.
b) Poor Health and Malnutrition
Diseases and malnutrition reduce worker efficiency.
Weak healthcare systems increase mortality and reduce life expectancy.
c) Traditional Beliefs and Customs
Some societies resist modernization and technological change.
Practices such as gender discrimination and caste systems may restrict participation in economic
activities.
d) Gender Inequality
Women may have limited access to education, jobs, and property rights.
Half the population remains underutilized, reducing national productivity.
e) High Dependency Ratio
A large number of children and elderly people depend on a smaller working population.
This puts pressure on family and government resources.
f) Urbanization Problems
Rapid migration to cities creates:
o Slums
o Unemployment
o Pollution
o Crime
o Pressure on housing and transport
3. Political Obstacles
Political instability and weak governance can seriously damage development.
a) Political Instability
Frequent changes in government discourage investment.
Civil unrest, protests, and conflicts disrupt economic activities.
b) Corruption
Public funds may be misused for personal gain.
Corruption increases project costs and reduces efficiency.
Investors lose confidence in corrupt systems.
c) Weak Institutions
Weak:
Courts
Police
Administrative systems
Regulatory agencies
make it difficult to enforce laws and support business growth.
d) Poor Economic Policies
Wrong taxation, trade, or monetary policies may discourage investment and production.
Excessive government control can reduce competition and efficiency.
e) Lack of National Unity
Ethnic, religious, or regional conflicts divide society.
Resources are spent on conflict management rather than development.
f) External Political Influence
Powerful countries or international organizations may influence domestic policies.
Dependence on foreign aid can limit independent economic planning.
Conclusion
Economic development in developing countries is slowed by a combination of:
Economic problems like poverty, unemployment, and weak infrastructure,
Social problems like illiteracy, poor health, and inequality,
Political problems like corruption and instability.
For successful development, countries need:
Better education and healthcare,
Stable governments,
Strong institutions,
