The modern approach to development economics has some relation to the old growth economics of classical theory. However, modern development economics goes beyond both the classical and neoclassical periods. It is more analytical than these two phases of economic thought.
The ultimate goal of modern development economics is to
increase income per head through changes in the dimensions of development.
These dimensions are both economic and non-economic, including economic
development, human development and sustainable development.
Modern growth and development can be examined as follows.
Economic Growth and Economic
Development
In general terms, economic development refers to the
economic problems of underdeveloped countries, whereas economic growth is often
associated with developed countries. As Maddison writes:
“The raising of income levels is generally called economic
growth in rich countries, and in poor ones, it is called economic development.”
This distinction, however, is not absolute.
The increase in productivity in agriculture, industry and
manufacturing over a certain period of time is called economic growth, whereas
improvements in economic and non-economic social conditions, such as education
and health, are associated with economic development.
The problems of underdeveloped countries are often related
to the development of unused natural resources and infrastructure, whereas
developed countries have already utilized these resources considerably. This
distinction, however, does not mean that growth and development are confined to
two different types of economies. Rather, the distinction between growth and
development is related to the nature and causes of economic change.
According to Schumpeter, development consists of
discontinuous and spontaneous changes in existing conditions, whereas growth is
a gradual and steady change in the long run associated with factors such as
saving and population.
According to Kindleberger, economic growth means more
output, while economic development implies both more output and changes in the
technical and institutional arrangements concerning what is produced and how it
is distributed.
Thus, growth implies more output with greater efficiency,
i.e. an increase in output per unit of input. Development goes beyond this to
include changes in:
- The
composition of output;
- The
allocation of inputs among sectors;
- Production
techniques;
- Technical
and institutional arrangements.
According to Friedman, growth refers to the expansion of a
system in one or more dimensions without necessarily involving a change in its
structure, whereas development is an innovative process that leads to the
structural transformation of a social system.
Thus, economic growth refers to a quantitative and sustained
increase in a country's output or income per capita, accompanied by expansion
in its labour force, consumption, capital and volume of trade.
On the other hand, economic development is a broader concept
than economic growth. It may be understood as:
Development = Growth + Qualitative and Structural Change
Economic development involves qualitative changes in
economic wants, goods, incentives, institutions, productivity and knowledge,
leading to the upward movement of the entire social system.
Therefore:
- Growth
mainly includes quantitative changes in economic variables.
- Development
includes both quantitative and qualitative changes in economic and
non-economic variables.
The two terms are sometimes used synonymously in economic
literature, but development is generally considered the broader concept.
…
Globalization,
Growth and Equity
There is relatively limited research on the long-run impact
of globalization on economic development. This is partly due to limitations in
data and partly to theoretical limitations. Economists and political scientists
have yet to resolve several important conceptual issues.
Two major relationships are particularly important:
1. The relationship between openness
and economic growth; and
2. The relationship between trade and
inequality.
Both links—the one from trade to growth and the other from
trade to inequality—have been subjects of considerable debate among development
economists.
The central issue is therefore how globalization affects
both growth and equity.
How Does Globalization Affect
Equity?
Globalization has affected nearly every aspect of modern
life. Its economic implications are particularly important for international
investors and developing economies.
Globalization affects economies through international trade,
foreign direct investment, technological change, international production and
increased competition.
Benefits of Globalization
Most economists argue that globalization can provide net
benefits to individual economies by making markets more efficient, increasing
competition, limiting economic isolation and facilitating the spread of wealth
and technology.
Some of the major benefits include:
1. Foreign Direct Investment (FDI)
Foreign direct investment tends to increase at a greater
rate than the growth of world trade in some periods. It can contribute to:
- Technology
transfer;
- Industrial
restructuring;
- Expansion
of global companies;
- Capital
formation.
2. Technological Innovation
Increased competition resulting from globalization can
stimulate technological development. Foreign direct investment can also
facilitate the transfer of technology and improve economic output by making
production processes more efficient.
3. Economies of Scale
Globalization enables large companies to access larger
markets and realize economies of scale. This can reduce production costs and
prices and support further economic growth.
However, greater competition can create difficulties for
small businesses attempting to compete in domestic markets.
Risks and Challenges of
Globalization
Globalization also involves several risks.
1. Economic Interdependence
Globalization increases interdependence between countries.
As a result, economic fluctuations in one country or region can affect other
countries that depend on it through trade, investment and financial
relationships.
2. National Sovereignty
The growing influence of multinational corporations,
international organizations and global economic institutions can raise concerns
about national policy autonomy and sovereignty.
3. Unequal Distribution of Benefits
The benefits of globalization may be distributed unevenly
among countries, regions, firms and individuals. If the gains are concentrated
among richer countries or higher-income groups, globalization may contribute to
greater inequality.
…
Tariffs and
Other Forms of Protectionism
The 2008 global economic crisis led many policymakers to reconsider
the merits of globalization.
In response to economic and financial risks, some countries
introduced tariffs and other forms of protectionism to protect domestic
industries and reduce exposure to international shocks.
Banking and financial regulations were also strengthened in
some countries to reduce the risk of financial contagion.
Protectionist measures may provide temporary protection to
domestic industries. However, they may also involve the cost of foregoing some
of the potential benefits of international trade and economic integration.
The debate over globalization has therefore involved a
continuing tension between:
- International
economic integration;
- Domestic
industry protection;
- Employment;
- Economic
stability;
- Income
distribution.
As Kofi Annan suggested, globalization may be inevitable in
the long run, but its path can involve significant short-run difficulties.
Economic crises and some negative consequences of globalization can generate
demands for protectionism.
…
Effect of
WTO, Privatization and Globalization
WTO and Nepal
Nepal became a member of the World Trade Organization (WTO)
in 2004.
WTO provisions favour competitive producers. Therefore,
greater trade openness can create difficulties for people involved in informal
economic activities in Nepal because they may find it difficult to compete due
to limitations in:
- Technology;
- Information;
- Capital;
- Productivity;
- Market
access.
At the same time, WTO membership can provide opportunities
for Nepal to access international markets and participate in global trade.
Privatization
Privatization of state-owned enterprises has resulted in the
restructuring and, in some cases, retrenchment of formal-sector employment in
many countries.
Consequently, privatization may contribute to changes in the
structure of employment and, under certain circumstances, to an expansion of
informal economic activities.
Globalization and Employment
Globalization has contributed to the emergence of new and
atypical forms of both formal and informal employment.
Globalization could be particularly beneficial to small
economies and small enterprises by opening access to developed-country markets,
sometimes even without extensive state intervention. For example, e-commerce
can allow small enterprises to reach customers beyond their domestic markets.
If increased transactions by small informal businesses
translate into:
- More
employment;
- Higher
wages;
- Better
working conditions;
- Greater
social protection;
then workers can also benefit from globalization.
However, globalization may also reduce employment in certain
parts of the marketing and distribution chain.
Therefore, the effects of globalization may differ across
countries and economic contexts. There is a need to continuously monitor its
effects on the economy and labour markets.
Conclusion
Economic growth and economic development are closely related
but distinct concepts. Growth primarily refers to increases in output and
income, while development encompasses broader quantitative, qualitative and
structural changes.
Globalization has created opportunities for economic growth
through foreign investment, technological innovation, economies of scale and
access to international markets. At the same time, it has raised concerns
regarding economic interdependence, inequality, employment and national policy
autonomy.
Similarly, WTO integration and privatization can create both
opportunities and challenges, particularly for developing countries and
informal-sector workers.
Therefore, the relationship between growth, globalization
and equity remains an important issue in modern development economics.
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