ECONOMIC DEVELOPMENT &

CHANGES IN POLITICAL
ECONOMY
WEEK 5

WHAT IS ECONOMIC DEVELOPMENT

Economic developmentis the development of
economic wealth of countries, regions or
communities for the well-being of their
inhabitants.
From a policy perspective, economic development
can be defined as efforts that seek to improve the
economic well-being and quality of life for a
community by creating and/or retaining jobs and
supporting or growing incomes and the tax base.

DETERMINING ECONOMIC
DEVELOPMENT
Gross National Income
Gross national income (GNI) per person measures
the total annual income received by residents of a
nation
Example - Japan, Sweden, Switzerland, and the
U.S. have high GNI, whereas China and India
have low GNI
GNI can be misleading because it does not
consider differences in the cost of living

DETERMINING ECONOMIC
DEVELOPMENT
Purchasing Power Parities
The alternative to using market exchange rates is to use
purchasing power parities (PPPs). The purchasing power of a
currency refers to the quantity of the currency needed to
purchase a given unit of a good, or common basket of goods and
services.
Purchasing power is clearly determined by the relative cost of
living and inflation rates in different countries. Purchasing
powerparitymeans equalising the purchasing power of two
currencies by taking into account these cost of living and inflation
differences.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
The term economic growth is associated with economic progress and
advancement.
Economic growth can be defined as an increase in the capacity of an
economy to produce goods and services within a specific period of time.
Seven (7) factors affecting economic development
a) Human Resource
b) Natural Resource
c) Capital Formation
d) Social & Political Factor
e) Technological Development
f) Geographic Factor
g) Education

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Human Resource
Refers to one of the most important determinant of economic growth
of a country. The quality and quantity of available human resource can
directly affect the growth of an economy.
The quality of human resource is dependent on its skills, creative
abilities, training, and education. If the human resource of a country is
well skilled and trained then the output would also be of high quality.
On the other hand, a shortage of skilled labour hampers the growth of
an economy, whereas surplus of labour is of lesser significance to
economic growth.
Example Canada migrating thousands of high level managers in-order
to develop their economy.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Natural Resource
Affect the economic growth of a country to a large extent. Natural resources
involve resources that are produced by nature either on the land or beneath
the land. The resources on land include plants, water resources and landscape.
The resources beneath the land or underground resources include oil, natural
gas, metals, non-metals, and minerals. The natural resources of a country
depend on the climatic and environmental conditions. Countries having plenty
of natural resources enjoy good growth than countries with small amount of
natural resources.
The efficient utilization or exploitation of natural resources depends on the
skills and abilities of human resource, technology used and availability of
funds. A country having skilled and educated workforce with rich natural
resources takes the economy on the growth path.
Example - There are countries that have few natural resources, but high per
capita income, such as Saudi Arabia, therefore, their economic growth is very
high.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Capital Formation
Involves land, building, machinery, power,
transportation, and medium of communication.
Producing and acquiring all these manmade products
is termed as capital formation.
Capital formation increases the availability of capital
per worker, which further increases capital/labour
ratio. Consequently, the productivity of labour
increases, which ultimately results in the increase in
output and growth of the economy.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Social and Political Factors
Play a crucial role in economic growth of a country. Social
factors involve customs, traditions, values and beliefs,
which contribute to the growth of an economy to a
considerable extent.
For example, a society with conventional beliefs and
superstitions resists the adoption of modern ways of
living. In such a case, achieving becomes difficult. Apart
from this, political factors, such as participation of
government in formulating and implementing various
policies, have a major part in economic growth.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Technological Development
Refers to one of the important factors that affect the growth of an
economy. Technology involves application of scientific methods and
production techniques. In other words, technology can be defined as nature
and type of technical instruments used by a certain amount of labour.
Technological development helps in increasing productivity with the limited
amount of resources. Countries that have worked in the field of
technological development grow rapidly as compared to countries that
have less focus on technological development. The selection of right
technology also plays an role for the growth of an economy. On the
contrary, an inappropriate technology- results in high cost of production.
Example - Japan has a small geographical area and few natural resources,
but achieves high growth rate due to its efficient human resource and
advanced technology.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Geographic factors
a) Climate One of the most important factors in development is

geography, where the country is in the world, and climate. Its no

coincidence that the poorest countries are in the tropics, where it is hot,
the land is less fertile, water is more scarce, where diseases flourish.
b) Location geographical location plays a part in access to markets. All the

great empires have been based around trade routes, and these are
almost always maritime.
c) Resources - every country has been dealt a hand in natural resources. It

takes infrastructure to capitalise on these, but some places have a

distinct advantage over others.
d) environmental stability can be a factor in development. Some countries

are more stable than others.

FACTORS AFFECTING ECONOMIC

DEVELOPMENT
Education
Countries that invest in education have higher
growth rates because the workforce is more
productive
Example - countries in Southeast Asia have offset their
geographical disadvantages by investing in education;
Bangladesh, India, Indonesia, Malaysia, and Singapore

CHANGES IN POLITICAL ECONOMY

Since the late 1980s, two trends have emerged
Democratic revolution (late 1980s and early 1990s)

democratically elected governments replaced

totalitarian regimes
more committed to free market capitalism
A move away from centrally planned and mixed economies

more countries have shifted toward the market-based

model

CHANGES IN POLITICAL ECONOMY

Trend 1
Democracy has spread over the last two decades
many totalitarian regimes failed to deliver economic
progress to the vast bulk of their populations
new information and communication technologies have
broken down the ability of the state to control access
to uncensored information
economic advances of the last 25 years have led to
increasingly prosperous middle and working classes
who have pushed for democratic reforms

CHANGES IN POLITICAL ECONOMY

Trend 2
The spread of market-based systems
more countries have moved away from
centrally planned and mixed economies toward
the market-based model
Command and mixed economies failed to deliver
the sustained economic growth achieved in
market-based countries

CHANGES IN POLITICAL ECONOMY

The shift toward a market-based system involves
a) Deregulation removing legal restrictions to the

free play of markets, the establishment of private

enterprises, and the manner in which private
enterprises operate
b) Privatization - transfers the ownership of state
property into the hands of private investors
c) The creation of a legal system to safeguard
property rights