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Learning outcomes • By studying this section students will be able to: • define and explain economic growth • review critically the concept of economic growth • understand the determinants of economic growth • evaluate appropriate growth strategies for developed and developing countries • evaluate the role of the sector in regeneration strategies • evaluate the contribution of the sector to growth
Meaning and measurement of economic growth • Economic growth is defined as the increase in real output per capita of a country. • The most commonly used measures of output are GDP and GNP.
Problems of measurement • First there are the problems associated with collecting national income data. • Second some apparent changes in growth may in fact stem from currency movements against the dollar. • Third, over a period of time the labour force may work fewer hours in a week. • Fourth, GNP per capita figures are an average. They may disguise the fact that there are large differences in incomes of the population. • Finally, economic activity which contributes to GNP has some unwanted side-effects in the form of pollution.
The causes of economic growth • Land Utilization • Labour • It is the quality of the labour force that is important in increasing productivity • Capital • Investment in new plant, machines and other capital enables labour productivity and GNP to rise. • Technology • Improved technology can increase growth by reducing production costs and creating new products for the market.
Beijing, China, 1990 • Lack of capital combined with large population means that labour force has low productivity
Promoting growth • Interventionists believe the government should play a key role in funding appropriate education and training, R&D and investing in projects and infrastructure. • Free marketeers advocate market liberalization and ‘supply side’ policies, e.g: • reducing government expenditure to release resources for the private sector • reducing taxes to increase incentives • reducing trade union power to encourage flexible labour markets • reducing welfare payments to encourage individual enterprise • encouraging risk and entrepreneurship and privatisation • encouraging competition through deregulation • reducing red tape
Economic growth in developing countries • Stages of development • Advanced Economies • Countries in Transition • Developing Countries
Advanced Economies • The term developed country is used to describe countries that have a high level of development according to some criteria. • One such criterion is income per capita and countries with high gross domestic product (GDP) per capita being described as developed countries. Another economic criterion is industrialization.
Countries in Transition • A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization (letting market forces set prices and lowering trade barriers), macroeconomic stabilization where immediate high inflation is brought under control, and restructuring and privatization in order to create a financial sector and move from public to private ownership of resources. • These changes often may lead to increased inequality of incomes and wealth, dramatic inflation and a fall of GDP.
Countries in Transition • Transition process is usually characterized by the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions and the promotion of private-owned enterprises, markets and independent financial institutions. • E.g. Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Cambodia, China, Croatia,
Countries in Transition • Prague, Czech Republic in transition from communist to market economy • Considerable investment in increasing capacity at Prague airport • Importance of tourism to prosperity of Prague
Developing Countries • A developing country is a country that has low standards of democratic governments, civil service, industrialization, social programs, and/or human rights guarantees that are yet to "develop" to those met in the West or alternative goals of material progress (not necessarily a clone of those of the West). • It is often a term used to describe a nation with a low level of material well being. • Despite this definition, the levels of development may vary, with some developing countries having higher average standards of living.
Developing Countries • Developing countries are in general countries which have not achieved a significant degree of industrialization relative to their populations, and which have, in most cases a medium to low standard of living. There is a strong correlation between low income and high population growth. • The development of a country is measured with statistical indexes such as income per capita (per person) (GDP), life expectancy, the rate of literacy, et cetera. • The UN has developed the HDI, a compound indicator of the above statistics, to gauge the level of human development for countries where data is available.
Human Development Index • The Human Development Index (HDI) combines normalized measures of life expectancy, literacy, educational attainment, and GDP per capita for countries worldwide. It is claimed as a standard means of measuring human development—a concept that, according to the United Nations Development Program (UNDP), refers to the process of widening the options of persons, giving them greater opportunities for education, health care, income, employment, etc.
Human Development Index • The HDI combines three basic dimensions: • Life expectancy at birth, as an index of population health and longevity • Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting). • Standard of living, as measured by the natural logarithm of gross domestic product per capita
Barriers to Growth • high population growth • low incomes: This leads to low savings, leading to low investment, leading to low incomes (low rate of capital formation) • an undeveloped financial sector. • absence of welfare system: This can lead to over population where children are seen as a financial insurance for old age • low levels of training and education: • existence of a large subsistence sector: This can mean that taxation is difficult. • few resources • dependence on raw material exports • employment centred on the agricultural sector of economy • traditional (non-entrepreneurial) culture • foreign currency shortages • poor terms of trade (exports cheap, imports expensive) • international debt
Main sources of investment funds • domestic savings (but these are often low because of low incomes) • government investment funded through taxes or borrowing (but governments often have a low tax base because of low incomes and subsistence economies and high foreign debt repayments • private foreign investment • overseas aid
Strategies for development • import substitution (producing goods that are currently imported) • export-led growth (producing goods and services where a local cost or other advantage can be established) – leisure and tourism can be important elements in this strategy • population control • education and training projects • infrastructure projects
Regeneration • Regeneration is the term used to describe the process of economic redevelopment generally in an area that has suffered decline because of structural changes in the economy. • Urban Regeneration • Rural Regeneration
Urban Regeneration • Urban renewal (similar to urban regeneration in British English) is a program of land re-development in areas of moderate to high density urban land use. • The process has had a major impact on many urban landscapes, and has played an important role in the history and demographics of cities around the world, including: Beijing, China, Melbourne, Victoria; Glasgow, Scotland; Boston, Massachusetts; and San Francisco, California
Rural Regeneration • A re-development program aims to support rural areas in terms of farming, reforestation, improve employment or self-employment in the areas. • For tourism areas, such as agro-tourism, ecotourism.
Rural regeneration • Rural Diversification in Finland: A farmer provides boat trips for tourists. • Thailand: Local people offers home-stay tourism for travellers.