Q.1 Examine the role of Natural
resources in economic development. 5
The process of economic growth is a
highly complex phenomenon and is influenced by numerous and varied factors such
as economic, political, social and cultural factors. It is believed by some
economists that the capital is the only requirement for growth and therefore
the greatest emphasis is laid on capital formation to bring about economic
development. But this is wrong.
As
Professor Nurkse rightly remarks, “Economic development has much to do with
human endowments, social attitudes, political conditions and historical
accidents. Capital is a necessary but not a sufficient condition of progress.”
The quantity
and quality of natural resources play a vital role in the economic development
of a country. Important natural resources are land, minerals and oil resources,
water, forests, climate, etc. The quality of natural resources available in a
country puts a limit on the level of output of goods which can be attained.
Without a minimum of natural resources there is not much hope for economic
development. It should, however, be noted that resource availability is not a
necessary condition for economic growth. For instance, India, though rich in
natural resources, has remained poor and under-developed.
This is because resources have not been fully utilised for productive
purposes. Thus it is not only the availability of natural resources but also
the ability to bring them into use which determines the growth of an economy.
On the other hand, Japan has a relatively few natural resources but has shown a
very high rate of economic growth and as a result has become one of the richest
countries in the world.
How has Japan done this miracle? It is international trade that has
made possible for Japan to achieve higher growth rate. Japan imports many of
natural resources such as mineral oil it requires for production of manufactured
goods. It then exports manufactured goods to the countries that are rich in
natural resources. Thus experience of Japan shows that abundant natural resources
are not a necessary condition for economic growth.
Q.2 Examine
the role of non-economic factors in economic development. 5
There are a number of
domestic or non-economic factors that act as sources of economic development
and barriers to development. Kindleberger presented several non-economic
factors: “The various aspects to be touched upon include the orientation of the
individual in his society, family, class, race, and religion, rural-urban
differences, national character, size of social unit, effect of culture on
institutions, and interaction of cultural values and economic change”
Ø The main institutional
factors are
Ø Education
Ø Healthcare
Ø Infrastructure
Ø Political Stability and
corruption
Ø Legal system
Ø Financial system, credit
and micro finance
Ø Taxation
Ø The use of appropriate
technology
Ø The empowerment of women
Ø Income distribution
Q.3 GNP as
a measure of national development is faced with several challenges. What are
they?
Economic
growth has been defined in two ways. In the first place, economic growth is
defined as sustained annual increases in an economy’s real national income over
a long period of time. In other words, economic growth means rising trend of
net national product at constant prices.
This
definition has been criticized by some economists as inadequate and
unsatisfactory. They argue that total national income may be increasing and yet
the standard of living of the people may be falling. This can happen when the
population is increasing at a faster rate than total national income.
For
instance, if national income is rising by 1% per year and population is
increasing at 2% per year, the standard of living of the people will tend to
fall. This is so because when population is increasing more rapidly than
national income, per capita income will go on falling. Per capita income will
rise when the national income increases faster than population.
Therefore,
the second and better way of defining economic growth is to do so in terms of
per capita income. According to the second view, “economic growth means the
annual increase in real per capita income of a country over the long period.
Thus Professor Arthur Lewis says that “economic growth means the growth of
output per head of population.” Since the main aim of economic growth is to
raise the standards of living of the people, therefore the second way of
defining economic growth which runs in terms of per capita income or output is
better.
Another
point which is worth mentioning in regard to the definition of economic growth
is that the increase in national income or more correctly increase in per
capita income or output, must be a ‘sustained increase’ if it is to be called
economic growth.
By
sustained increase in per capita income we mean the upward or rising trend in
per capita income over a long period of time. A mere short-period rise in per
capita income, such as that occurs over a business cycle, cannot be validly
called economic growth.
As a
result, per capita income and levels of living of the people of the developed
countries are now much higher as compared to those of the developing countries.
The problem of the developing countries is to catch up with the developed
countries through attaining rapid economic growth so as to enjoy higher levels
of living.
For
the sake of comparison we have given in Table 39.1 the data of population,
Gross National Income (GNI) per capita and growth rate of Gross Domestic
Product (GDP) for three periods 1980-90, 1990-2000 and 2000-2009 of some both
developed and developing countries. It will be seen from this Table 39.1 that
in the last two decades India has become the second fastest growing economy of
the world. 
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