Welcome back to elimuyako.co.tz in ECONOMICS TWO FOR ADVANCED LEVEL IS IMPORTANT TO SOLVE EXAMINATIONS AND PAST PAPERS FOR THE PREPARATION OF FINAL EXAM
ECONOMIC GROWTH AND DEVELOPMENT
Economic Development
Economic development is the quantitative and qualitative improvement in the economy.
Economic development, therefore, involves increase in the Gross National product
(economic growth) and improvement of the welfare of the people.
Indicators of economic development
Economic development has the following indicators:
Increase in income per capita.
High standards of living and low cost of living.
Decline in illiteracy levels.
Improvements in technology.
Fair income distribution.
Low death rate.
Advanced infrastructure.
Large percentage of GNP from the manufacturing sector.
Social and political stability.
Low or absence of social cost, such as environment pollution.
Democratic and human rights such as freedom of expression, free and fair election,
freedom of association, freedom of worship etc.
Efficiency of labour.
Urbanisation.
High life expectancy.
High consumption and investment.
Low or absence of economic instabilities such as inflation, deflation, budget deficit and
deficit in the balance of payments.
Therefore, economic development is a multi-dimensional concept; its indicators are
economic, social and political in nature
Economic growth
Economic growth is the quantitative increase in the national output, that is, it is the increase
in the volume of goods and services produced in an economy.
Economic growth differs from economic development in the sense that it covers only
the physical aspect of the economy, without considering the socio and political aspects of
the economy, therefore, its indicators are only economic in nature. Examples of such
indicators are: -
High growth rate of the Gross National Product
Improvement of the physical infrastructure
High income per capita
Increase in the manufacturing sectors (industrial) development
Economic stability
Increase in the size of markets
Efficiency of labour.
Technological growth.
Favourable terms of trade and balance of payments
Large tax revenues
Increasing social costs, such as environment pollution
In some situation, growth may be seen by the growing income inequalities among the
people and regions.
Determinants of Economic Growth
Economic growth is determined by the following factors:
(i) Availability of natural resources: If a country is gifted in natural resources, such as
minerals and favourable climate, and they are well utilized, it can easily attain a high
economic level, but if a country has less natural resources it will be difficult for the
country to realize economic growth.
(ii) Size of the labour force: A country with enough and efficient labour force is able to
increase its national output than a country with shortage of labour force.
(iii) Stock of capital: If a country has a large stock of capital goods, such as machinery,
factories, buildings, infrastructures etc, it can easily achieve economic growth, unlike a
country with limited capital goods.
(iv) Entrepreneur capacity: Entrepreneurs are the owners and investors of various economic
enterprises. The growth of investment and the ultimate growth of the economy
depend much on the number and efficiency of entrepreneurs. A country with a large
number of efficient entrepreneurs may realize a rapid economic growth.
(v) Political and social stability: The growth of investments and the resulting economic
growth depend much on the social and economic stability of the country. A country
with political instability and social unrest hardly achieve any meaningful economic
growth.
(vi) Internal and External Market Size: A large growth of the economy depends much on the
market for the goods produced. Producers are encouraged to increase production if
there is a readily available market for the goods and services. In a situation when the
market size is so small, producers are discouraged from increasing production; as a
result, the country cannot achieve high economic growth.
(vii)Conducive Environment for Growth of Investments: Adequate and reliable infrastructure with
good the government economic policies on issues, such as tax, stabilization and
employment, attract both local and foreign investors in the country and, thus provide
the necessary condition for economic growth.
Positive impact of economic growth
Economic growth has the following impact:
(i) Raises the living standards: Economic growth leads to an increase in income per capita,
which increases the ability of the people to purchase goods and services and, thus
improve their living standards.
(ii) Creation of employment opportunities: Economic growth leads to more employment
Economic stability
Increase in the size of markets
Efficiency of labour.
Technological growth.
Favourable terms of trade and balance of payments
Large tax revenues
Increasing social costs, such as environment pollution
In some situation, growth may be seen by the growing income inequalities among the
people and regions.
Determinants of Economic Growth
Economic growth is determined by the following factors:
(i) Availability of natural resources: If a country is gifted in natural resources, such as
minerals and favourable climate, and they are well utilized, it can easily attain a high
economic level, but if a country has less natural resources it will be difficult for the
country to realize economic growth.
(ii) Size of the labour force: A country with enough and efficient labour force is able to
increase its national output than a country with shortage of labour force.
(iii) Stock of capital: If a country has a large stock of capital goods, such as machinery,
factories, buildings, infrastructures etc, it can easily achieve economic growth, unlike a
country with limited capital goods.
(iv) Entrepreneur capacity: Entrepreneurs are the owners and investors of various economic
enterprises. The growth of investment and the ultimate growth of the economy
depend much on the number and efficiency of entrepreneurs. A country with a large
number of efficient entrepreneurs may realize a rapid economic growth.
(v) Political and social stability: The growth of investments and the resulting economic
growth depend much on the social and economic stability of the country. A country
with political instability and social unrest hardly achieve any meaningful economic
growth.
(vi) Internal and External Market Size: A large growth of the economy depends much on the
market for the goods produced. Producers are encouraged to increase production if
there is a readily available market for the goods and services. In a situation when the
market size is so small, producers are discouraged from increasing production; as a
result, the country cannot achieve high economic growth.
(vii)Conducive Environment for Growth of Investments: Adequate and reliable infrastructure with
good the government economic policies on issues, such as tax, stabilization and
employment, attract both local and foreign investors in the country and, thus provide
the necessary condition for economic growth.
Positive impact of economic growth
Economic growth has the following impact:
(i) Raises the living standards: Economic growth leads to an increase in income per capita,
which increases the ability of the people to purchase goods and services and, thus
improve their living standards.
(ii) Creation of employment opportunities: Economic growth leads to more employme
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