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The Significance of Economic Growth for Development

 

  • The need to understand the causes of widespread absolute poverty and the prescription of strategies to foster economic growth has always been at the core of development studies.
  • Economic Growth is perceived as the principal means of escaping poverty.
  • There is a close connection between high levels of poverty and low levels of national income.
  • However, the initial growth will do little to alleviate poverty, since it often only benefits those who are better off.
  • But despite the fact that the immediate benefits of growth might be unequally distributed, all sections of society would benefit by the trickle down effect.

 

The Role of Both Physical and Human Capital

  • The price of capital controls the amount of growth that occurs.
  • Physical capital such as buildings and machinery restricts the production, which also restricts growth.
  • Human capital, labour, also controls the level of production. Higher wages mean less production, but higher demand.
  • In developing countries, the lower costs of both types of capital mean that more development can occur.

 

Technological Progress

  • Progress is closely linked to industrialisation.
  • Improved quality of physical capital means that industry is becoming less labour intensive.
  • This leads to underemployment and disguised unemployment with surplus workers in the agricultural sector adding little or nothing to output.
  • However, technological progress is seen by many as the only way for developing countries to become internationally competitive.
  • Technological progress can come at a cost to the agricultural sector.
 

 

 

E-mail Steve Margetts