Economic Development & Economic Planning

Economic Development & Economic Planning BY: Azhar. Ali (Азхар)

Economic Development Development means change and development refers to the desirable changes taking place in economic life of the people or we may also say that economic development is the process of improvement in living standard of the people. According to Watson: Economic development is the process of production and consumption faster than population growth because of steadily higher productivity of resources and combinations of resources. BY: Azhar. Ali (Азхар)

Economic Development Measurement Economists have suggested different methods to measure economic development. The following three are the most important. • Growth of GNP: this is a simple and commonly used measure of economic development. The increase in the country’s real gross national product is taken as a measure of development. A country whose GNP is raising faster is said to be developing at a higher rate. BY: Azhar. Ali (Азхар)

Conti 2. Rise in per Capita income: Some economists prefer to measure economic development through increase in per capita income. They feel that only if people’s living standard improve, we should say that economics development is taking place. 3. Improvement in quality of life: Now a days economic development is viewed in broader sense. It is considered as a comprehensive improvement in human living conditions. Therefore, to judge how economic life of the people has been affected by economic development, economist use social indicators which relate condition about health, food, education, employment, housing, communication, social security. BY: Azhar. Ali (Азхар)

Factors Influencing Economic Development Economic development is a complex and lengthy process. Many economic and non economic factors are included in economic development: Economic Factors: 1. Natural Resources: the basic factor affecting development is the quantity and quality of natural resources of a country. These include land, forests, minerals, water and power resources. Like the high rate of growth of Arab countries are due to their minerals wealth. BY: Azhar. Ali (Азхар)

Conti 2. Capital Accumulation: Capital means the stock of minerals, machines, equipment, buildings and social overheads like roads, canals, power house, gas and telephone lines. Capital accumulation leads to expansion in industry, agriculture, commerce, transport and energy. 3. Technology: improvement in technology makes human labor and capital more productive. For example, invention of engine brought industrial revolution. Tractor revolutionized agriculture and computer is multiplying the efficiency of human activities in all spheres of life. Like Japan successfully use new technology to achieve high rate of economic development. BY: Azhar. Ali (Азхар)

Conti 4. Human Resource: it is human beings who are the basic cause and source of all economic activity. Material or physical resources of a country are helpful only if the population of a country has the necessary skills and technical knowledge to use it. There are many countries that they have a lot of natural resources but they lake skillful labor due to which they remain underdeveloped. BY: Azhar. Ali (Азхар)

Conti Social and Culture Factors: Socio-culture factors have deep influence on the rate of economic development. Every society has a certain social set up, a particular family system, occupational structure, habits, customs and culture patterns. These things determine their thinking about work, saving, consumption, working of women and family planning. If these factors are favorable in a country, it can develop rapidly. If in a society people believe in merit, dignity of labor and proper reward for work. It will have a higher rate of development. Caste system,nepotism(Favouritism), corruption, ignorance and immobility of labor are the things which retard development. BY: Azhar. Ali (Азхар)

Conti Political factors: Economic development can take place only in an atmosphere of peace and political stability. if the political system is dominated by big landlords, industrialist, development will be slow. Because these people do not like the prosperity of common people as it decrease their influence. BY: Azhar. Ali (Азхар)

Underdevelopment In common meaning, underdevelopment of a country stand for its poverty. But economist take a different view, according to them, underdevelopment refers to a situation where a country is not making full use of its potential resources. Its natural and human resources are not properly used and exploited. In this sense of term, we can say that Afghanistan is an underdeveloped country. Afghanistan has huge natural and human resources which, if utilized fully, can make us prosperous and rich. BY: Azhar. Ali (Азхар)

Conti In modern economic view, underdeveloped, developing or less developed countries (LDC) mean the same thing. Sometime all the developing countries together are called ‘third world countries’. The developed countries of Europe, America and Japan are called ‘first world countries’. BY: Azhar. Ali (Азхар)

Problems of Underdevelopment • General poverty and low level of living: this is the most important feature of underdeveloped countries. Most people do not get even the basic necessities of life. They spend large part of their income on food. They have poor health facilities, lack of education. • Rapidly rising population: In third world countries population are increasing rapidly as compare to their production due to which the major portion of their income spend on basic needs and nothing remain for saving. • Underutilization of natural resources: this is the major problem face by developing countries that they can not utilize their resources properly even they have. Their resources remain unutilized or underutilized. BY: Azhar. Ali (Азхар)

Conti 4. Shortage of capital: Shortage of capital limits productivity of labor and the ability of a country to produce more goods. In developing countries number of vehicles, buildings, roads and machinery per head of population is low. 5. Poor technology: developing countries use old methods of production. Application of machinery and modern technology is limited. Due to which the quality of industrial product is poor and unsatisfactory. Such goods can not compete in the world market. 6. Unemployment: high rate of population growth and slow rate of economic development create unemployment and underdevelopment. Enough job opportunities are not available. BY: Azhar. Ali (Азхар)

Conti 7. Unfavorable balance of payments and foreign debt: most of UDC’s have small amount of goods for export. Quality of their product is so poor which can not compete in international market. They export raw material or semi finished goods which have low price and import manufactured goods at high prices. to cover deficit balance of payment most of the time they take huge loan from foreign countries and repay with interest, which create another problem for them. 8. Insufficient and corrupt administration: people ignorance and poverty in developing countries provide opportunities for corruption. Selection of government officials is not on merit. Political pressure and nepotism do not allow clean administration. BY: Azhar. Ali (Азхар)

Conti 9. Shortage of social overhead capital: Developing economies are shortage of social overhead capital or infrastructure in the form of railways, roads, drainage system, electricity supply, training institution and research institutes. BY: Azhar. Ali (Азхар)

Economic Planning Planning refers to estimation and use of one’s resources for some specific and determine objectives in an organized and systematic manner. The resources include land, property, money, materials and human abilities. Planning is the essence (core) of all human activities. Planning is applied in social, political, religious, educational and of course economic fields. BY: Azhar. Ali (Азхар)

Need for Economic Planning In 21st century when more and more human activities are being computerized, it is generally agreed that every country must adopt some form of planning. An unplanned economy is just like a rudderless ship, which has no clear direction to go. Following reasons to show the need of planning: 1. To remove imperfections of free market economy: In an unplanned economy, monopolies are established which interfere with free working of prices system. Human and material resources of the country may be used against common interest of people. Shortage of essential commodities are created. BY: Azhar. Ali (Азхар)

Conti 2. To keep balance of Economic power: economic planning are needed to keep balance in economic power and achieve equitable distribution of income. Unplanned economy and free market system reward people according to resource that they possess. Which favor the rich only. 3. Economic Stability: working of an unplanned economy creates business fluctuations. For example, if industrial output drops, the govt can give concession in taxes, provide loans to firms and increase its own expenditure on various projects. BY: Azhar. Ali (Азхар)

Conti 4. Elimination of wasteful competition: Planning can be used to eliminate wasteful competition and save national resources. For example, huge funds are wasted on advertisements. There are excessive varieties of a good just because one firm wants to remain different from others. This raise the cost of production. 5. Coordination: in an unplanned economy, millions of producers are working independently with little coordination. Each entrepreneur looks to his own profit and no body cares for the economy as whole. This may result in unnecessary duplication in working of firms. When chance look better, all firms expand out put and there may be over production. Planning can be used to coordinate the efforts of individual firms. BY: Azhar. Ali (Азхар)

Conti 6. Optimum Utilization of Resources: Private enterprise is guided solely by profit motives. To earn higher profits, the firms may produce useless luxuries for the rich whereas a lot of people are deprived from basic necessities. Through planning, such situation can be avoided and resources of the country can be diverted to essential commodities. BY: Azhar. Ali (Азхар)

Objectives of Economic Planning Planning is always adopted to achieve certain objectives. These objectives are not the same for all countries and nor even the same for a country at all time. They are determined in the light of prevailing economic situation and are changed according to new problems arising from time to time. The important objectives commonly found in plans of different countries are the following: BY: Azhar. Ali (Азхар)

Conti • Increase in National Income: low national income or per capita income is supposed to be a key of underdevelopment. So almost all underdeveloped countries include this objective in their national plans. • Rapid industrialization: the standard of living can not be raised unless through industrialization their incomes are raised and abundant quantity of consumer goods is made available to them. The fact that all developed countries are industrialized shows the importance of this objective. • Economic equality and social justice: Economic development will fail in its purpose, if its fruits are not fairly distributed over the whole population. Inequalities of income, wealth and economic opportunities are not acceptable to modern democratic mind. Planning can help to change this situation and establish social justice. BY: Azhar. Ali (Азхар)

Conti 4. Development of backward region: with the help of proper economic planning we can develop backward areas of the countries. Because with out the development of backward region of the country economic development. 5. Balanced economy: Economic development of a country can continue only if all sector of the economy grow simultaneously. If industry grows faster while agriculture decline than the pace of development will soon slow down. If transport or energy sector lags (delay) behind, it effects industrial and agriculture output. Planning is used to achieve balance in development of various sector. BY: Azhar. Ali (Азхар)

Conti 6. Achievement of full employment: Achievement of full employment is an important aim of planning. Unemployment not only mean wastage of resources but also create social and political problems. Like murder, robberies, car lifting are the social problems that arise mostly because of unemployment. 7. Self Reliance: Dependence on foreign countries for investment funds, foods and essential raw materials can create trouble at any time and make the economy unstable. Thus planning can be used to avoid such a situation. BY: Azhar. Ali (Азхар)

Conti 8. Correction of balance of payment: many developing countries do not export sufficient quantity of goods and services and so have to face persistent deficit in their balance of payment. Through planning they aim to promote export on the one hand and control imports on the other hand. BY: Azhar. Ali (Азхар)

Economic Development & Economic Planning