Unit-1

Economic growth and development

1.1 Meaning of economic growth and development

What is Economic Growth?

When comparing one period of time to the next, economic growth is described as an increase in the output of economic goods and services. It can be expressed in nominal or actual (inflation-adjusted) terms. Although alternative metrics are often used, aggregate economic growth is traditionally calculated in terms of gross national product (GNP) or gross domestic product (GDP).

Understanding Economic Growth:

In its most basic form, economic growth refers to an increase in an economy's total production. Aggregate output gains are often, but not always, associated with higher average marginal productivity. As a result, incomes rise, encouraging consumers to open their wallets and spend more, resulting in a higher material quality of life or standard of living. Undefinable Physical resources, human capital, labour force, and technology are all widely used to model development in economics. Simply put, increasing the number or quality of working-age people, the resources they have at their disposal, and the recipes they have for combining labour, capital, and raw materials would result in increased economic production.

Economic development can be achieved in a variety of ways. The first is an improvement in the economy's stock of physical capital goods. Increasing the amount of capital in the economy appears to increase labour productivity. Workers can generate more production per time period with newer, cheaper, and more equipment. A fisherman with a net, for example, can catch more fish per hour than a fisherman with a pointy stick. However, there are two aspects that are crucial to this operation. Everyone in the economy must first save (give up current consumption) in order to free up money for the creation of new capital, and the new capital must be of the right kind, in the right position, at the right time for workers to use it productively.

Technological advancement is a second means of generating economic development. The invention of gasoline fuel is an example of this; prior to the discovery of gasoline's energy-generating capacity, the economic value of petroleum was comparatively poor. Gasoline became a more reliable and cost-effective way of moving goods in process and exporting finished goods. Improved technology enables workers to generate more production from the same amount of capital goods by integrating them in more efficient ways. Since savings and investment are needed to engage in research and development, the rate of technological growth is highly dependent on the rate of savings and investment, just as it is for capital growth.

Expanding the labour force is another way to boost economic growth. When all other factors are kept constant, more jobs produce more economic goods and services. A large influx of cheap, productive immigrant labour contributed to the United States' robust economic development in the nineteenth century. There are, however, some main conditions to this phase, just as there are for capital-driven development. Increasing the labour force inevitably increases the amount of produce that must be consumed to pay for the new workers' basic subsistence, so the new workers must be efficient enough to balance this and not be net consumers. In order to realise their productive potential, the right type of workers must flow to the right jobs in the right places in conjunction with the right types of complementary capital goods, just as it is with capital additions.

Increases in human resources are the final process. This means that labourers improve their craft skills and efficiency by skill training, trial and error, or simply more practise. The most reliable and easily managed approaches are savings, acquisition, and specialisation. In this context, human capital may also apply to social and institutional capital; behavioural tendencies toward greater social confidence and reciprocity, as well as political or economic innovations such as enhanced property rights safeguards, are both examples of human capital that can boost the economy's productivity.

Measured in Dollars, Not Goods and Services:

A more efficient or growing economy produces more products and offers more services than it did previously. Some products and services, on the other hand, are regarded as more expensive than others. A smartphone, for example, is valued higher than a pair of socks. Growth must be calculated in terms of the volume of goods and services, not just the quantity of such goods and services.

Another issue is that not everyone values the same goods and services equally. In Alaska, a heater is more useful than an air conditioner, while in Florida, an air conditioner is more valuable. Some people prefer steak to pork, and others prefer fish to steak. Since value is subjective, determining it for all people is difficult.

Using the current market value as an approximation is a standard practise. In the United States, this is calculated in US dollars and then added together to generate net production indicators such as Gross Domestic Product.

Economic Development:

Economic growth, on the other hand, is a phase in which the lives of all citizens of a country change. This includes not only the improvement of living conditions, such as increased access to goods and services (and the opportunity to purchase them), but also the enhancement of virtues such as self-esteem, integrity, and respect, as well as the expansion of people's right to choose and manage their own lives. While a country may grow richer therefore, through the growth of its real output, it does not necessarily mean that it will develop.

For a long time, industrial construction was thought to be a contributing factor to economic growth. Economic development was thought to occur when there was a high degree of industrialisation and economic growth; social factors like poverty and unemployment were thought to be less important. It was also thought that the material benefits of growth would filter down from the wealthy to the rest of the population, resulting in development. Many developed countries, on the other hand, have managed to attain high rates of economic growth while the majority of their citizens have seen little improvement in their living standards. As a result, it was realised that the concept of economic growth needed to be altered. "It would be odd to call the result 'growth' even if per capita income doubled," writes Dudley Seers, "if one or two of the central problems (poverty, unemployment, or inequality) have been growing worse, particularly if all three have" (from D.Seers, 'The sense of economic development').

Professor Michael Todaro believes that growth should have the following goals:

2.   To improve living standards, through the creation of more jobs, better education, and a greater focus on cultural and humanistic values, all of which would contribute to increased individual and national self-esteem in addition to increased material well-being.

3. To broaden the economic and social options open to individuals and nations by liberating them from servitude and dependency, not only in relation to other citizens and nation-states, but also in relation to powers of ignorance and human suffering."

Economic development is measured using a variety of indicators, including GNP/GDP per capita, population growth and structure, health, education, technology, jobs, rural/urban migration, women's rights, and poverty and income distribution. In terms of statistics, the best single indicator is GDP per capita, but composite indices of growth are also used. The Human Development Index (HDI), which includes GDP per capita, life expectancy, and literacy rates, is one such index.

Sustainability:

The environment's ability to withstand its use for economic purposes.

As a result, for economic growth to be sustainable, it must have a resource-neutral impact. Any energy used must be sustainable, and there must be no long-term environmental consequences. So, what is the significance of sustainable development? It is important, however, that growth is sustainable in order to ensure that it will last in the long run and is not based on the exploitation of natural resources that could become depleted in the future.

As a result, sustainable development necessitates-

Human Development:

Human development can be described as "a process of expanding people's choices," according to the United Nations Development Programme (UNDP). People's three basic choices at all stages of growth are to live a long and safe life, to gain better knowledge, and to have access to resources necessary for a decent standard of living. Many other opportunities to enhance one's quality of life would be unavailable if these basic options are not accessible. The acquisition of human skills and the use of these acquired capabilities for productive, leisure, and other purposes are two aspects of human growth. Since people are the very essence of human growth, the benefits of human development extend far beyond increased income and wealth accumulation. Economic growth is just one aspect of human development. Human development focuses on expanding all human choices, such as education, health, a safe climate, and material well-being, while economic growth focuses on improving one choice, such as income or commodity. Thus, the quality of economic growth in a broader sense influences the options available for improving people's lives, and the effect is not limited to quantitative aspects of such growth. In other words, economic growth must be viewed as a means of progress, albeit a significant one, rather than the end goal. If the gains of income are converted into more fulfilled human lives, it makes a significant contribution to human well-being in general. However, income growth is not a goal in and of itself. The quality of development, not just the amount, is critical for human well-being. As a result, as the primary objective of human endeavour, the philosophy of human development is primarily concerned with allowing people to live a better life. This aim cannot be accomplished exclusively by increases in income or material well-being, according to the author. Growth may be jobless, rather than job-creating; ruthless, rather than poverty-reducing; voiceless, rather than participatory; rootless, rather than culturally enshrined; and futureless, rather than environmentally friendly, as the 1996 Human Development Report put it. Jobless, merciless, voiceless, rootless, and futureless economic growth is not conducive to human development. Income poverty is only one form of human poverty; deprivation can also manifest itself in other ways, such as living a short and unhealthy life, becoming illiterate or unable to participate, feeling insecure, and so on. As a result, human poverty is greater than economic poverty.

Measuring human development: human development Index:

As previously mentioned, the three dimensions of Human Development are people's ability to live a long and safe life, gain information, and have access to services necessary for a reasonable standard of living. The Human Development Index measures the cumulative impact of different aspects of human development (HDI). The HDI has four components: life expectancy at birth, which represents the dimension of a long, safe life; adult literacy rate and combined enrolment rate at primary, secondary, and tertiary levels, which reflect the knowledge dimension; and real GDP per capita, which represents the resources required for a decent standard of livingTo measure a country's human development, the HDI considers not only GDP growth rate but also education, health, gender inequality, and income parameters. According to the United Nations Development Programme's (UNDP) latest available Human Development Report (HDR) 2013, India's HDI was 0.554 in 2012, with an overall global ranking of 156. Since 1980, India's HDI has increased by 1.7 percent per year.

Key takeaway :

1.2 Difference between growth and development

1.3 Factors of economic growth and development.

Economic growth is a dynamic phenomenon that is affected by a wide range of factors including economic, political, social, and cultural factors. Some economists believe that capital is the only necessity for growth, and thus place the greatest importance on capital accumulation in order to achieve economic development. However, this is incorrect. “Economic growth has much to do with human endowments, social behaviours, political circumstances, and historical accidents,” as Professor Nurkse correctly points out. Capital is a required condition for growth, but it is not sufficient.”

Various factors that influence economic growth and development include:

Natural Resource Supply;

Supply of Natural Resource:

Natural resources, both in quantity and quality, are critical to a country's economic growth. Land, minerals, and oil resources, as well as water, trees, and environment, are all important natural resources. The level of production of products that can be achieved is limited by the quality of natural resources available in a country.

There is no hope for sustainable growth without a minimum of natural capital. However, it should be noted that resource availability is not a requirement for economic development. India, for example, despite its natural resources, has remained impoverished and underdeveloped.

Since resources have not been completely used for constructive purposes, this is the case. As a result, an economy's growth is determined not only by the availability of natural resources, but also by the willingness to put them to use. Japan, on the other hand, has relatively little natural resources but has experienced rapid economic growth, making it one of the world's wealthiest nations.

How did Japan manage to pull off such a feat? Japan's ability to reach a higher growth rate is due to foreign trade. Many natural resources, such as mineral oil, are imported by Japan for use in the manufacture of manufactured goods. After that, it exports finished goods to countries with abundant natural resources. As a result, Japan's experience demonstrates that plentiful natural resources are not a prerequisite for economic development.

New discoveries of natural resources within a nation, as well as technological advancements that promote discoveries or turn previously useless materials into highly useful ones, can increase natural resource supplies. It should also be remembered that synthetic alternatives can be used to address the shortage of such natural resources.

Synthetic rubber, for example, is increasingly being used in advanced countries in place of natural rubber. Furthermore, nylon, a synthetic material, is increasingly being used in place of silk, a natural material. The use of natural resources and the role they play in economic development are influenced by a variety of factors, including the form of technology used. The relationship between resources and the type and degree of technology is complex.

It is not necessary to go back too far in history to find a time when an object as important as petroleum had little to no value. The numerous radioactive elements have only recently come to be recognised as important. There are undoubtedly mineral reserves in many developed economies that are not being exploited due to technical limitations.

Capital Formation:

To produce goods and services, labour and capital are combined. To work, workers need machinery, equipment, and factories. Jobs are more efficient when they have access to resources. More factories with machines and tools are being built, increasing the economy's productive potential.

As a result, many economists believe that capital accumulation is at the heart of economic growth. The mechanism of economic growth cannot be accelerated without capital accumulation, regardless of the form of economic system.

Productivity levels in the United States of America are extremely high, owing to the fact that American workers have access to more and better capital goods over the last few years. The lack or shortage of real physical resources in developing countries is primarily responsible for their low productivity and poverty.

Much economic development cannot be accelerated without the accumulation of various forms of capital goods, such as factories, machinery, tools, dams, bridges, highways, railways, ports, ships, irrigation works, fertilisers, and so on.

However, capital accumulation necessitates saving, or the foregoing of any existing use. Investment is the only way to improve capital goods stocks, and investment is only feasible if a portion of current income is saved. As a result, saving is essential for economic development.

“The central problem in the theory of economic growth is to understand the mechanism by which a society is transformed from a 5% saver to a 12% saver, with all the shifts in behaviours, structures, and techniques that follow this conversion,” says Professor Arthur Lewis. Underdeveloped countries save a small percentage of their national income, typically less than 5%.

Savings in India, for example, was around 6% of national income on the eve of independence. Rich nations, on the other hand, save 15 to 30% of their national income. Savings rates must be increased to over 15% of national income in order to achieve economic growth.

However, in developing countries, the rate of saving is poor because people's income is low and they live on a subsistence level. As a result, the lower the per capita income, the more difficult it is to refrain from purchasing current goods. People who live on or near the edge of subsistence find it difficult to reduce their current intake. This helps to understand why poor, developing countries have such low savings rates.

It should be noted that India's gross saving rate has risen to 24% of national income in 2001-02. However, it is projected that achieving an 8% rate of growth in GNP in the 10th plan period would necessitate a 32% rate of saving if the capital-output ratio remains constant at 4, as it was in the 9th plan period.

Savings, on the other hand, do not lead to economic development in and of themselves. Savings only lead to economic development when they are saved and put to good use. Savings in the form of gold or precious jewels, or savings used to purchase land, do not result in an increase in capital goods supplies and therefore do not contribute to economic development.

Studies that looked into the relationship between investment and growth in terms of GDP growth found that the two have a good correlation, but it isn't perfect. Countries that spend a greater percentage of their GDP, such as Japan and Singapore, have experienced rapid growth, whereas countries that invest a small percentage of their GDP, such as Bangladesh and Nepal, have experienced slow growth.

Foreign Capital: Foreign Aid and Foreign Investment:

Since domestic savings are insufficient to fund the required or desired accumulation of capital goods, borrowing from abroad may be appropriate. Professor A.J. Brown correctly states, "Development necessitates that people somewhere refrain from spending a portion of their incomes, enabling a portion of the world's productive resources to be used for capital goods accumulation." Those who can afford it the most are those who work in countries with a high average income. The countries with the lowest average incomes, on the other hand, are the ones where growth is most likely to alleviate poverty and foster healthcare There is a compelling argument for rich countries lending to developing countries.”

Almost every developing country received foreign aid to augment its limited savings in the early stages of growth. In the seventeenth and eighteenth centuries, England borrowed from Holland, and in the nineteenth and twentieth centuries, it lent to almost every other nation on the planet. The United States of America, now the world's richest nation, borrowed extensively in the nineteenth century and has since emerged as a major lender country in the twentieth, assisting developing countries in their efforts to achieve economic development.

It is important to remember that foreign capital does not only flow into developing countries in the form of assistance (i.e., low-interest loans), but also through direct investment by foreign companies. Foreign direct investment (FDI) is a critical component of a country's economic development.

Although foreign companies send profits back to their home countries, their investments in factories increase the rate of capital accumulation in developing countries, resulting in higher economic growth and labour productivity. Furthermore, foreign direct investment allows developing countries to learn about and adopt new advanced technologies developed and used in developed countries.

The need for foreign exchange in a developing world to buy imports emphasises the value of foreign capital. A developing country must import large amounts of capital goods, technological know-how, and necessary raw materials for industrial growth and infrastructure development, such as power plants, highways, irrigation facilities, ports, and telecommunications.

Foreign exchange is required for both of these, which can be obtained by lending it to developing economies or by foreign companies making direct investments in developing countries. If international aid is not provided in sufficient quantities, developing countries may face severe balance-of-payments problems. Rapid economic growth in developing countries would wreak havoc on their balance of payments unless they can borrow money from abroad or attract direct foreign investment.

Furthermore, developing countries face a lack of technological know-how, managerial capacity, and other resources in addition to a lack of savings. When foreign capital is invested in developing countries by foreign companies, especially multinational corporations (MNCs), it brings with it these complementary factors that are critical for growth.

Because of their negative experiences with colonialism in the past, developing countries were generally hostile to foreign capital, especially private foreign investment. Foreign investment and aid, on the other hand, are no longer a source of concern.

Furthermore, multilateral foreign aid is now available via the World Bank and the International Monetary Fund (IMF), which offer developing countries low-interest loans to help them accelerate their development. In terms of private foreign investment, developing countries (such as China and India) are competing with one another to entice private foreign investors.

The Indian government has set a goal of attracting $10 billion in foreign direct investment annually. International investment, it has now been realised, will not only augment domestic savings and thus increase the rate of investment, but will also offer better technology and managerial know-how, as well as alleviate the foreign exchange problem.

It would not only increase productivity but also create job opportunities by increasing investment rates and providing foreign exchange capital. Furthermore, foreign investment, like domestic investment, has a multiplier impact on production, wages, and jobs in developing countries.

China's extremely high rate of economic development, dubbed the "Chinese growth miracle," has been attributed to a higher inflow of foreign direct investment (FDI) than India over the last fifteen years. From 1990 to 2002, China received $53 billion in foreign direct investment, up from $3.5 billion in 1990.

FDI into India, on the other hand, began at a low of $0.4 billion in 1990 and increased to $5.5 billion in 2002. Furthermore, FDI has played a major role in China's rapid growth in manufacturing exports. FDI, on the other hand, has played a much smaller role in driving India's export growth, with the exception of information technology.

For increased inflows of foreign direct investment into China China has more business-oriented and FDI-friendly behaviours, its FDI procedures are simpler, and decisions are made more quickly, according to the World Investment Report 2003.

Furthermore, China has more flexible labour rules, a stronger labour market, and more efficient company entry and exit procedures. As a result, it is unsurprising that China has risen to the top in terms of attracting FDI. In contrast, India is currently ranked 15th in the world in terms of FDI destination (as of 2002).

Human Capital: Education and Health:

Until recently, economists regarded physical capital as the most significant determinant of economic growth, proposing that the rate of physical capital formation in developing countries be increased to speed up the process of economic growth and boost people's living standards.

However, economic analysis over the last three decades has shown the significance of education as a critical factor in economic growth. Education relates to the development of human skills and expertise in the labour force.

The secret to economic growth is not only the quantitative expansion of educational opportunities, but also the qualitative enhancement of the education provided to the workforce. Training has been referred to as human capital because of its important contribution to economic growth, and spending on people's education has been referred to as an investment in man or human capital.

When it comes to the value of education or human resources, Prof. Harbison expresses his thoughts as follows: Human beings are the active agents who accumulate wealth, exploit natural resources, create social, economic, and political organisations, and advance national growth. Clearly, a country that cannot improve its people's skills and expertise and successfully apply them in the national economy will be unable to develop anything else.”

Several empirical studies on the sources of growth, or, in other words, the contributions made by various factors such as physical capital, man-hours (i.e., physical labor), education, and so on, have shown that education or the development of human capital is a significant source of economic growth in developed countries, particularly the United States.

Professor Solow, one of the first economists to quantify the role of human capital in economic growth, calculated that between 1909 and 1949, the residual factor, which reflects the impact of technological progress and improvements in labour quality, primarily as a result of education, accounted for 57.5 percent of growth in production per man hour in the United States.

Another American economist, Denision, improved the estimation of different factors' contributions to economic development. Denision attempted to isolate and quantify the contributions of different ‘residual factor' factors.

Denson’s estimates for various sources of US growth during 1929-82 are given in Table One As can be seen from Table 1, During this time, the United States' Gross Domestic Product increased at a rate of 2.9 percent per year. The factors that influenced growth during this time period were divided into two categories.

As seen in the table, the increase in the quantity of labour accounted for 32% of the increase in GDP in the United States during this time span. The other category, which consists of various variables that influence labour productivity growth, has been divided into five categories. It's worth noting that during this time period, education per worker contributed 14% to output growth, while technological change contributed 28% to output growth.

Thus, over this time, growth in education per worker and technological progress together accounted for 42% of growth in production in the United States, while capital creation accounted for 19% of growth. This demonstrates the significance of education and technological change as economic growth determinants.

Another method for calculating education's contribution is to look at the relationship between educational spending and revenue. Schultz used this method to investigate the relationship between education spending and individual income as well as the relationship between education spending and physical capital accumulation in the United States from 1900 to 1956.

He discovered that “the money allocated to education increased about three and a half times (a) relative to consumer income in dollars, (b) relative to the total creation of physical capital in dollars” when calculated in constant dollars. This means that the demand for education had a “income elasticity” of about 3.5 over the era, or in other words, education as an investment was 3.5 times more appealing than physical capital investment. It should be noted, however, that Schultz's figures only represent the contribution of education to economic growth in a tangential way.

In our previous study, we clarified that education is regarded as an expenditure, and that, like physical capital, it increases labour productivity and thus contributes to national income growth. Some economists claim that schooling is critical not only because it increases individual worker productivity and therefore profits, but also because it generates positive externalities, or beneficial external results.

When a person's actions help others, this is known as a positive externality. An educated person, for example, may come up with new ideas that lead to better manufacturing methods. All can use and benefit from these ideas until they become part of society's pool of expertise (i.e. stock of human capital).

As a result, these proposals are external educational advantages. One issue confronting developing countries, especially India, is brain drain, or the migration of a large number of highly educated people (such as those trained by IITs, IIMs, and medical schools) to developed countries such as the United States in order to earn more money. If education has positive external consequences, then this brain drain would deprive the Indian economy of the benefits that these educated people would have brought to the country.

Technological Progress and Economic Growth :

Another important factor in economic development is technological advancement. The use of new manufacturing methods or technological advancement results in a substantial increase in per capita output. The term "technological progress" refers to the discovery of new and improved ways to do things, as well as improvements to existing methods.

The availability of natural resources may sometimes be increased as a result of technological advancements. However, technological advancement increases the efficiency or efficacy with which natural resources, money, and labour are used and employed to manufacture products in general. Because of technological advancements, it is now possible to generate more production with the same resources or the same amount of product with less resources.

However, the issue of how technical advancement is made arises. Technological advancement is achieved by discoveries and developments. The term "invention" refers to new scientific discoveries, while "innovation" refers to when such discoveries are put to use in actual manufacturing processes or for commercial purposes. It's possible that certain technologies aren't commercially viable for mass production.

It is common knowledge that technological advancements significantly enhance the efficiency with which natural resources are used. Increased use of mechanised power-driven farm machinery on land in the United States, for example, has significantly increased agricultural production per hectare.

It's also worth noting that certain technical advancements have improved the efficiency with which capital goods are used. However, as previously noted, technological progress typically leads to increased resource productivity.

Workers' efficiency is increased as a result of technological advancements such as improved machines, processes, and skills. Development in technology makes it possible to generate more production with the same resources or the same amount of output with less resources by increasing resource efficiency.

The change in production function is a sign of technological progress. As a result, comparing the location of the output feature at two points in time is a clear indicator of technological progress. The production role may be affected by technological change by various changes such as better machinery, better materials, and better organisational performance.

In addition, technological advancement may manifest itself in the availability of new products. It is now generally accepted that technological progress increases productivity and that continued technological change would enable the economy to avoid being stuck in a stagnant state or stagnation.

Classical economists such as Ricardo and J.S. Mill expressed concern that, due to the law of diminishing returns, a rise in the stock of capital would eventually bring the economy to a standstill, halting economic development.

Classical economists were fixated on the concept of a stationary state because they ignored technical advancements that could delay the occurrence of a stationary state and ensure continued economic development. Indeed, the demon of stationary state can be put off forever if technical development continues.

It's worth noting that Adam Smith saw technical advancement as an improvement in worker productivity as a result of increased division of labour and specialisation. Productivity growth contributes to increased national income. However, it was J.A. Schumpeter who emphasised the importance of technical advances in achieving economic development. He emphasised the importance of introducing technological advances in order to achieve economic growth.

The entrepreneur is the one who implements the technologies and better organises the production structure. Economic development is not a smooth and continuous process, according to Schumpeter, since developments occur in spurts rather than in a continuous flow. The speed at which economic progress is made is matched by the speed at which inventions are created. Prof. Rostow suggested five phases of economic growth.

These stages are :

(i)  Traditional society,

(ii) Takeoff Preconditions,

(iii) Takeoff into Self-Sustained Development,

(iv) Stage of high mass consumption and

(v) Drive to maturity.

It should be remembered. that the economic transition of a society from one stage to the next entails, among other things, a shift in the degree and nature of technology. The technology element underpins all major aspects of the modern productive apparatus, such as decision making, output programming, capability requirements, and business strategy, in this era of greater specialisation.

The quantity and efficiency of capital resources in which workers work determines their productivity. Instruments of production must be more technologically advanced and productive in order to increase efficiency. The input-mix of output is determined by the technical options available to an economy. Various technologies may be used to create a material.

The quantity and quality of capital, expertise, and other factors needed for production are directly proportional to the efficiency of the manufacturing technique employed. In addition, managerial and organisational skills must be in sync with production's technical requirements. As a result, technology is an important element of output at the current stage of economic growth.

This is the technological era. The need for developing countries to make significant technological changes in order to catch up to today's developed countries is obsessive. Improvements in technology are being made in agriculture, industry, hygiene, sanitation, education, and, in reality, all aspects of human life. Indeed, technology has come to be seen as a bulwark of national sovereignty and a status symbol in the international community by the newly developing nations.

The phase of technological advancement is inextricably related to the formation of capital. In reality, the two are intertwined. Without capital formation, technological development is almost impossible. Since the implementation of better or more effective methods necessitates the construction of new capital equipment that integrates new technologies, this is the case.

In other words, if new and superior technology is first expressed in new capital equipment, it can contribute to national product and development. As a result, new capital spending has been dubbed the engine for the economy's steady deployment of new technologies.

New advances and developments result in new and more effective manufacturing methods as well as new and improved goods. The cotton textile industry's inventions and developments, as is well known, were the catalysts for England's industrial revolution. In the past, technologies were the work of a few people, and private entrepreneurs brought technology into the manufacturing process.

Given the role of technological innovation in a country's economic growth, governments around the world spend a lot of money on "research and development" (R & D), which is carried out in various laboratories and institutes to encourage technological advancement.

Developing countries depend on technology imported from developed countries because they have not made sufficient technological progress or developed capital goods industries capable of producing capital goods incorporating advanced technology.

However, these underdeveloped countries' imitation and use of advanced country technology has resulted in one negative outcome. It's because advanced countries' technology isn't compatible with developed countries' factor endowments, because advanced countries have plenty of capital and developing countries have plenty of labour.

Large-scale enterprises that use imported technology have not provided enough job opportunities as a result of their use of capital-intensive technology. As a result, despite progress in the industrialization of the economy, unemployment in developing countries like India has been that.

In light of the unsatisfactory experience of developed countries like India in terms of creating jobs through industrial development, an eminent English economist, Prof. Schumacher, has proposed that developing countries like India use intermediate technology, also known as suitable technology. By intermediate or suitable technology, we mean technology that is labor-intensive yet highly efficient, resulting in a sufficient number of job opportunities and increased output. However, a significant amount of research and development (R & D) work is needed to discover this suitable technology for a variety of industries.

Another factor that influences the rate of economic growth is population growth. As the population grows, so does the number of people employed, or the labour force, assuming that everyone is absorbed into productive jobs.

We saw above that, according to Denison's calculations, an increase in the quantity of labour contributed 32 percent to production growth in the United States from 1929 to 1982. Additionally, as the population grows, so does the market for products.

As a result, an increasing population means a larger demand for products, which aids the development process. When a demand for commodities is expanded, it becomes possible to manufacture them on a large scale and enjoy the benefits of large-scale production economies. The economic history of the United States and European countries indicates that population growth played a significant role in increasing national output.

However, what has been true in the United States and Europe might not be true in today's developing countries. The size of the population determines whether or not population growth leads to economic growth the natural and capital resources that are accessible, as well as the current technology.

In the United States, where natural and capital resources are relatively plentiful, population growth boosts national productivity by growing the amount of labour available. In India, where other economic resources, especially capital equipment, are limited, population growth hinders rather than promotes economic growth.

To produce goods and services, labour and capital are combined. As a result, an increase in the labour force would lead to economic growth if the cooperating factor capital increases as well. To work in modern times, jobs need computers, equipment, and factories. Since a developing country like India has a large surplus of labour but a limited stock of capital, workers working in certain activities cannot be efficient.

As a result, we can see that a rapidly expanding labour force is no guarantee of economic development. Increases in national production, or economic development, are only possible when the supply of capital and other resources keeps pace with the growth of the labour force. When capital and other resources are scarce, however, an increase in the labour force (or population) would simply contribute to unemployment rather than increase national productivity.

As previously noted, economic growth necessitates increased capital goods supplies. Increasing capital goods stocks is only possible with a higher rate of investment. A high rate of saving, in turn, allows for a higher rate of spending.

Now, as the population grows, so does the number of mouths to feed, which leads to higher consumption and, as a result, lower saving and investment. Rapid population growth, as a result of lower savings and investment rates, continues to slow economic growth in developing countries. As a result, under circumstances like those in India, population growth actually hinders rather than stimulates economic development.

It's worth remembering that increases in total GDP, which are used to calculate the rate of economic growth, aren't a reliable indicator of economic prosperity. GDP per capita is more important for determining improvements in a country's economic well-being or living standards because it indicates the amount of goods and services available to a person in the economy.

However, how does population or labour force growth impact GDP per capita? The explanation for this is that rapidly rising labour forces the economy's other cooperating factors, especially capital and property, to be spread out more thinly. As a result, capital or land per job decreases, resulting in a decrease in GDP per worker productivity.

Furthermore, rapid population growth negates our attempts to improve our people's living standards. In other words, a high rate of population growth absorbs a significant portion of the increase in national income, resulting in a relatively low increase in per capita income or living standards.

This is exactly what happened in India during the planning period. Though India's total national income increased by 17.5 percent in the first plan period and 20% in the second plan period, per capita income increased by just 8% and 9%, respectively.

2.  According to Harrod-Domar growth models rate of economic growth is given by the following formula:

g= I/v

Where g denotes rate of growth (i.e., the rate at which GNP increases), I denotes rate of investment, and v denotes capital-output ratio.

3.  The above equation can also be expressed in the following form:

Growth Rate = Investment/Capital Ratio – Production Ratio

If the rate of investment in an economy is 30% of national income and the capital-output ratio is 4, the rate of economic growth can be calculated using the formula above.

Growth Rate = 30/4 = 7.5

As a result, the annual rate of increase in GNP of national income would be 7.5 percent.

The rate of expenditure is expected to increase to 28% of national income in the Tenth Five Year Plan (2002-07). Furthermore, the capital-output ratio is expected to fall to 3.5 as a result of increased productivity.

With a rate of investment of 28% of national income and a capital-output ratio of 3.5, the target rate of growth for the Tenth Plan period has been set at 8% per year (using the Harrod-Domar growth equation, namely (g = 1/v = 28/3.5 = 8%). Both the average rate of investment of 28% per year during the 10th plan cycle and the capital-output ratio of 3.5 will be met, based on the previous four years' experience.

Several economists have proposed that, in order to achieve a higher rate of growth, developing countries should receive international assistance and foreign direct investment to augment their domestic savings and increase the rate of investment to the target level, based on the Harrod-Domar growth model.

As a result of the above, in addition to the rate of investment, the capital-output ratio is a critical factor in determining the country's rate of economic growth. The lower the capital-output ratio, the higher the rate of economic growth, given the rate of investment. As a result, a thorough examination of the capital-output ratio is needed.

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