Question

1. Describe the causative relationship between economic growth and economic development. You answer should be structured in terms of the general factors necessary for economic growth.

2. Under assumptions of the Harrod-Domar model, how does a decrease in capital-output ratio lead to the possibility of self-sustaining growth?

3. Using a Lewis labor surplus framework show graphically and explain how an increase in capital-augmenting agricultural (traditional sector) technology affects a country’s ability to achieve self-sustaining growth that is driven by modern sector capital accumulation.

4. Show graphically and explain how a country’s level of capital augmenting technology affects its output per worker and long-run growth rate under Solow model assumptions.

5. Throughout the 1970’s South American countries relied on international loans to achieve their desired short-run growth targets. Which of the 3 growth theory models we have covered (Harrod-Domar, Lewis and Solow) is best suited to demonstrate the effect of these loans on the long-run, self-sustaining growth potential for these countries?

Answer 1

ANS - 1. Causative Relationship between economic growth and economic development are :-

It can be said that economic Growth is a subset of Economic development. Growth implies that increase in national income and per capita income whereas,development means over all increase in every aspect or every field. We can see an economies improvement through development. Economic growth is necessary but it is not enough to achieve overall economic development where other parts (technological,institutional,structural and distribution of the product) should grow positive aswell .

To know the economic growth of a country, we will see increase in overall output which is the real Gross Domestic Product (GDP) ,which is caused by adding of resources which can be the output or production units, and higher productivity of these inputs which can be more efficient and effective for production method. And we we say Economic Development , we will take into consideration only the overall increase of output or production but also the changes which are implemented to technological,institutional,structural and distribution of the product. Economic growth is a part of economic development .

In development it includes social, economic , institutional and cultural changes which all are part of structural change. So , When we oversee at lower developed countries(eg- Ghana,Pakistan,Bangladesh, etc.) where the Gross Domestic Product (GDP) and Gross National Product(GNP) of per capita is relatively low, and when we oversee develop countries (eg- United Kingdom, France, U.S.A etc.) we will see higher Gross Domestic Product (GDP) and Gross National Product (GNP) per capita, which does not represent significant structural changes which can be referred or termed as growth. Overall Development of the country is related to increase of output while growth does not necessarily mean development.

Example- increase in petroleum or natural gas production of a country will be in favour of the countries positive growth, without implying that this growth will lead to the restructuring which is organizing structurally of the production, of the technology or the distribution of the final product.