Growth and Development

Growth and
Development
Introduction
 Government and investors are interesting in measuring Standard of Living and

Quality of Life in order to make better decisions and plan for the future.
They are particularly interested in planning the future growth and
development of the country
Growth
 Economy growth refers to an all-round expansion of the economy.

 It maybe seen as an increase in the productive capacity of the economy. It
provides a means of achieving higher living standard for all as more goods and
services are produced.
 It is a quantitative change in the good and service that are available for
consumption.
 Growth in any economy is not likely to be continuous for too long a period
since there will be expansion and recession phases in the business cycle
 Economic growth can be measured by changes in GNP.
 All governments are keen to see their country achieve growth, because it
generally results in an improved standard of living and greater economic and
political stability.
Development
 Economic development may be seen as the reduction and eventual

elimination of unemployment and underemployment, poverty and removal of
the inequalities in the distribution of wealth and income.
 In other words development is the process of improving the quality of life of
the citizens of a country. It is a qualitative change that impact the wellbeing
of the citizens. This could be done by having growth and increasing the
standard of living
 It is possible for a country to experience growth without development. There
could be increased investment and productive capacity that generates more
wealth, but this wealth may not be used in a manner that improves the
quality of life of the general population.
Factors affecting Growth and
development
 Rate of investment
 Rate of increase in the working population
 Technical training and education
 Government expenditure
 Migration
Role of Education in economic growth
 The quality of the work force of any country depends upon the quality of the
education it has received.
 Particular attention is given to technical and vocational education as the
Caribbean moves away from primary production (fishing, farming, mining)
toward secondary(manufacturing and assembly) and tertiary
production(commercial and distribution)
 A variety of educational initiatives have contributed to the aim of making
education address the needs of modern industrial society. Skills training
programs have been designed to assist young people seeking to acquire skills
relevant to the work situation and thereby meet the changing needs of
industrial development.
Role of Education in economic growth
 Education makes an important contribution to production because it helps to

 (1) produce a productive workforce
 (2) provide skilled personnel required by employers
 (3) Achieve economic growth through the training of people
 (4)Foster the development of a creative, innovative workforce
 Education also assists in the regulation of family size thus helping to reduce
inequalities in society
Contribution of education to growth and
development of the economy
 Education helps to improve the knowledge and skills of the workforce
 Better educated people are better able to adapt to changes that are
necessary in a developing economy
International trade
 The overseas market is important to businesses and to countries on a whole.

It provides potential additional income from the sale of goods and services. It
is by selling overseas that the home country can earn money to buy things
from other countries thus improving the quality of life of the citizens.
 International trade is the buying and selling of goods and services from other
parts of the world.
Reasons why countries trade with each
other
 (a) one country may not be endowed with certain assets or have the natural
 resources such as land, labour, capital or enterprise to produce the goods
that they need;
 (b) a country may not be able to produce the goods and services they need in
the quantities or of the quality that they require;
Reasons why countries trade with each
other
(c) a country may not have the climate to grow certain foods and have to depend
on trade to get it for example wheat in United States; and,
(d) international trade allows for foreign direct investment allowing individuals in
one country to invest money in foreign companies and other assets.
Balance of Payment account
The balance of payments (BOP) is a statement of all transactions made between

entities in one country and its trading partners over a defined period of time,
such as a quarter or a year. The balance of payments divides transactions in two
accounts: the current account and the capital account.
 (1) Current Account
 a) Visible exports – Visible imports
 b) Invisible exports – Invisible imports
Since goods are tangible they are regarded as visible and since services are
intangible they are regarded as invisible
(2) Capital Account
 Records the inflow and outflow of short, medium and long term
investment and savings
(3) Official Financing

 Indicates how the deficit (debt) of the Balance of Payment is
financed.
Balance of Trade
 The Balance of Trade is the difference between a country’s total imports of

goods and its total export of goods i.e it’s the difference between visible
exports and imports.
 It is shown as part of the current account on the Balance of Payment.
 When exports is greater than imports, the difference, the balance of trade
gap is said to be favourable. In fact a surplus has been experience and there
will be an inflow of funds into the country
 When imports are greater than exports the difference is said to be

unfavourable or adverse. In fact a loss (deficit) has being experienced
resulting in an outflow of funds.
Example of Balance of trade
($ million)
 Visible exports +48,440

 Visible imports -47, 322
 Balance of trade + 1,118 (surplus)
Visible trade +473 22

Visible export -48440
Balance of trade -1118 (deficit)
Correcting an unfavorable balance of
trade
 Borrow from IMF
 Soliciting loans from abroad
 Importing on credit
 Devaluation i.e lowering the value of the dollar
 Selling assets
 Accepting gifts from other countries
 Using from the country’s reserve
 Exchange control i.e controlling the purchase and sale of foreign currencies
 Import control i.e the restriction on importation of products into the country
Example of Balance of Payment account
Visible trade
Exports 19 500
Imports 22 300
Visible balance - 2 800
Invisible trade (net)
Government -1 030
Shipping +20
Travel +220
Civil aviation +130
Other services +1 230
Interest, profits and dividends +950
Private transfers -90
Invisible balance +1 430
Current account balance -1 370
 Capital or financial account
Current balance -1370
Investment and other
Capital flows (net) +150
Balancing item +10
 Total currency flow -1 210

Official financing
Foreign currency borrowing +608
Official reserve of goal + 602
Foreign currency +1 210
Evaluation
Define each of the following items

a) balance pf payment
b) balance of trade
Describe the following components of a country's balance of payment account
The current account
The capital account
c) The official financing
Outline TWO ways in which a country can finance a balance of payment deficit
Discuss how a country might use EACH of the following measures to deal with balance
of payments problems
(i) Devaluation (ii) Import quotas

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Growth and

 Government and investors are interesting in measuring Standard of Living and

 Economy growth refers to an all-round expansion of the economy.

 Economic development may be seen as the reduction and eventual

 Education makes an important contribution to production because it helps to

 The overseas market is important to businesses and to countries on a whole.

The balance of payments (BOP) is a statement of all transactions made between

(3) Official Financing

 The Balance of Trade is the difference between a country’s total imports of

 When imports are greater than exports the difference is said to be

 Visible exports +48,440

Visible trade +473 22

 Total currency flow -1 210

Define each of the following items

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