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Developed Nations and Underdeveloped Nations Economic Growth

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Published: Tue, 20 Mar 2018

Forecasting the gap of Economical Growth between the Developed Nations and Underdeveloped Nations

(Application of Winter Forecasting).

  • Muhammad Bilal

Literature Review:

In 1981 street of Beijing, China was filled with pedestrians, bicycles, a few cars and small buildings. Thirty years later the same street having traffic-jam of cars and skyscrapers. How this city transformed into a mega-city having underground train stations, state of the art technology and high standards of living. This is the effect of sustain and rapid economic development. What is economic development? and how we can obtain these astonishing results out of it. During the speech of 1949, US President Harry Truman, identified the main concern for the west is development of underdeveloped region. The term ‘Economic Development’ is generally used in many other synonymous terms such as economic growth, economic welfare, secular change and economic progress. Economic development, as it is now generally understood, includes the development of agriculture, industry, trade, transport, means of irrigation, power resources, etc. Economic development has been defined in different ways and as such it is difficult to locate any single definition which may be regarded entirely satisfactory.

Economic development applies in the context of people’s sense of morals (Normative Concept).

Michael Todaro defines economic development as an raise in living standards, self-esteem and freedom from unjust exercise of authority as well as a greater options. Distinction was drawn between standards of living (subjective or value based concept of economic development) and levels of living (objective and fact based concept) in article International Definition and Measurement of Standards and Levels of Living (UN, 1954). Positive economics or levels of living can be tested. So we can say that economic development is the quantitative and qualitative changes in the economy. Economic development is sum of actions of policy makers and communities that encourage the standard of living and economic health. Such actions can involve multiple dimensions including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives.

Economic development and economic growth are different concept. Whereas economic development concern with policy intervention which originated in aftermath of war the reconstruction started by the US. The economic development of a nation or humanity is generally linked with growing incomes and associated increases in consumption, investment, and savings. These points are clearly open to debate. Dictionary of Economics’ article on Development Economics, Bell (1989) utilized the “pioneer” and “latecomer” as an organizing framework given that independent countries start out as poor in a world where at that point rich nation. Economic development was visually perceived as a process in which latecomer get closer to pioneers. Per capita income can be use as proxy for measurement of development as various social indicators for instance educational attainment, health, etc.

As discussed above, it is sensible to come to the point that international organizations approach to ‘development construct’ are very differently. One justification for this variety of concept is that economic theory does not give any direction to that matter. Although another explanation is that every organization has their own specific mandate therefore may approach this matter with different mindset and perception. Economic development refers to an upward trend in real national output over a long period. Although the upward trend means that each successive cyclical peak and trough is generally at a higher level of real national output than the preceding peak and trough respectively.

There is a positive relationship between the real national income and economic development if all other things remain the same. Higher real national income of a country is considered to be an indication of higher economic development and vice versa. In Short it is implies that the real national income is a good tool for measuring economic development of a country. However it could be an inadequate tool for measuring economic development, but it can be used for global development comparisons among nations. Purchasing power of national income should be taken into account while quantifying economic development. There is another method (HDI) for measuring development which takes into account the literacy rates and life expectancy which affects output and could result in Economic Growth. It also entails raise in the per capita income.

Economic development leads to the economic growth which is a necessary condition but not sufficient and we can say Economic growth follows many different ways, and not all of them are sustainable. Certainly, there are numerous researchers who argue that globe has limited resources so any form of economic growth is sooner or later unsustainable. Economic Growth does not consider the reduction in natural resources which might lead to greenhouse gasses, overcrowding and diseases. Development however is concerned with sustainability which means meet the requirements of the present with no compromise on future.

From now on we take a look at what exactly Economic Growth is and will go through some measures of it. Economic growth is the increase in the capacity or increase in the market worth of the goods and services produced by a country over period. Economic growth indicator like GDP is used to compare economy of one period of time to another or one country to other. It is traditionally calculated in nominal term (which means inflation adjusted GDP), the ratio of GDP to population; it is also called per capita income. -Economic growth is a process in which country achieve high real national income in long period of time. There are a few approaches to gauge Economic growth.

The fact should be consider while using Economic Growth as proxy for economic development that it does not take into consideration the informal economy also known as the black economy.

Development improves the standards of living and proper employment with appropriate shelter. Consequently, as well known economist Amartya Sen points out that Economic Growth is a piece of the big puzzle the economic development. During the period of high inflation the Growth rate may be much higher. The fact should be considered that growth rate (in short term) also rise and fall with business cycles. Economic boom accompanied the rising inflation which is followed by recession.

It has been observed by statisticians that Developed countries have higher GDP per capita (Easterly 2002). It is argue that GDP per capita may increase due to the increment in incomes of richer groups in the society so we can say that per capita GDP growth may not reduce the poverty or societal development. It is observed by Dependency theorists that poor nations sometimes experience economic growth with modest or no economic development initiatives.

There are many indicator of economic growth like Increase in the capital, progress in technology, and enchantment in the quality and literacy Rate are considered to be the main factors of economic growth. Recently the idea of sustainable growth has brought in additional factors. Underdeveloped nations which are not using their resources fully and having lower livelihood, low Human Development Index (HDI) as compared to other countries.

A GDP that is growing at a high rate is thought to be greatest sign that an economy is developing and thriving. This is the reason nations like China and Brazil were considered so important in 2010s. It wasn’t on account of they had gotten to be major economic power it was on the argument that they were headed to wind up major financial powers because of their high GDP development rates. So nations regularly stay informed regarding how rapid different nations are developing to anticipate (describe a possible future event) what the worldwide economy will look like later on. Influential economies need to know who their new enemies will be. Gross Domestic Product (GDP) is a sort of monetary apparatus that is used by governments and economists as a method for measuring economic growth in an expressed period. For the most part, the estimation of GDP is used because of its significance in the figuring of how well the economy is performing. All things considered, the relationship in the between the GDP and economic growth is the way that GDP serves as a method for study how an economy is acting. GDP tries to gauge the aggregate utilization of resource inside the economy.

Although, GDP is a part measure of the numerous features of our modern economy. The most well-known refrain went for GDP is that it lets us know minimal about our general or individual monetary welfare. “Development concerns not only man’s material needs but also the improvement of the social condition of his life. Development is, therefore, not only economic growth, but growth plus change in social, cultural and institutional as well as economic”. This definition encompasses economic and non-economic aspects of development the central point of this definition is that quantitative and qualitative changes in development variables are considered essential ingredients of economic development. Thus, we can conclude that economic development is a process rather than the result of it which results in a rise in real national income, and the net national product must have a sustained increase i.e., it must be over a long period of time.

How do we construct a classification system based on countries development attainment? The World Bank and the IMF approach this issue differently. Do high levels of GDP necessarily correspond with high levels of development? Necessarily not because countries like India and China having way higher levels of GDP than countries like Belgium and New Zealand, but hardly any would suggest that latter are economically less developed than the former. Main reason behind that may be politically acceptable minimum living standards differ greatly from country to country it implies poverty lines are country specific, which hinder comparison of countries with respect to their economic development.

There is no criterion (either grounded in theory or based on an objective benchmark) that is generally accepted for classifying countries according to their level of development because development is not a concept that can provide a basis upon which countries can be classified.

There are large differences in the standard of living enjoyed by citizens of different countries. For example, in 2009 a citizen in Burkina Faso earned on average US$510 as compared to US$37,870 for a Japanese citizen, and while in Burkina Faso 29 percent of the adult population was literate and a new-born baby could expect to live 53 years, virtually all adults in Japan were literate and a Japanese new-born baby could expect to live 83 years. Another possible justification for the absence of a generally accepted classification system is the inherent normative nature of any such system. In 1960s developing and developed words are became the more common way to characterize countries, especially in the context of policy discussions on transferring real resources from richer (developed) to poorer (developing) countries (Pearson et al, 1969).

This could suggest that a developing/developed country dichotomy is too restrictive and that a classification system with more than two categories could better capture the diversity in development outcomes across countries. It is more complicated develop a classification system. There are two problems that need to be addressed. One, it is not clear what is the correct number of categories. Two countries measured development attainment are most likely all different and a procedure is needed to tweak the development attainments that is to say construct a synthetic distribution to ensure that countries within each category have the same.

A developed economy is the characterized by increase in capital resources, improvement in efficiency of labor, better organization of production in all spheres, development of means of transport and communication, growth of banks and other financial institutions, urbanization and a rise in the level of living, improvement in the standards of education and expectation of life, greater leisure and more recreation facilities and the widening of the mental horizon of the people. 1) Significance of Industrial Sector. 2) High Rate of Capital Formation. 3) Use of High Production Techniques and Skills. A country that is less developed economically than most others, with little industry and little money spent on educationhealthcare.

There is huge debate on this topic that which countries fit these two categories of developed and underdeveloped, although GDP is general reference points to compare nations. This paper use time series method to forecast the upcoming condition of economy. It comprises the use of statistical methods and using factor GDP. We will use GDP to forecast the economical growth gap between the developed nations and underdeveloped nations. It is an important tool for countries as they devise future planning and strategies. I will use Holt winter to forecast the gap of economic growth. The Holt-Winters method has found to be the best and simple method to forecast time series.

References:

Bradford, C. (2010). Economic Growth and Equity Investing. Financial Analysts Journal, 66, 54-64.

Reddaway, W. (1963). The Economics of Under-Developed Countries. The Economic Journal, 73, 1-12.

William, F. (1964). Differential rates of growth, developed and underdeveloped nations, and their implications. Journal of farm economics, 46, 1043-1050.

Minh, Q. (2009). Poverty, income distribution, and Agriculture in developing Countries. Journal of economic,36, 168-183.

Harold, B. (1969). Growth in developed nations. The review of economics and statistics, 51, 143-148.

Williams, T. (1987). Adaptive Holt-Winters Forecasting. The Journal of the Operational Research Society, 38, 553-560.


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