The Economics OF Development and Planning

THE ECONOMICS
OF
DEVELOPMENT AND PLANNING
By the same author :

MACRO ECONOMIC THEORY
ADVANCED ECONOMIC THEORY
MODERN MICROECONOMICS
MONETARY ECONOMICS
INTERNATIONAL ECONOMICS
MANAGERIAL ECONOMICS
ENVIRONMENTIAL ECONOMICS : THEORY MANAGEMENT AND POLICY
MONEY, BANKING AND INTERNATIONAL TRADE & PUBLIC FINANCE
MICROECONOMIC THEORY
PRINCIPLES OF ECONOMICS
PUBLIC FINANCE & INTERNATIONAL TRADE
HISTORY OF ECONOMIC THOUGHT
DEMOGRAPHY
(Hindi Editions of all these Books are available)
(Punjabi Editions of the following Books are also available)

Modern Microeconomics
Macroeconomic Theory
International Economics
THE ECONOMICS
OF
DEVELOPMENT AND PLANNING
40TH REVISED
AND
ENLARGED EDITION
M.L. JHINGAN
Retired Deputy Director,
Higher Education, Haryana
SIMPLY THE TEXT !
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First Edition : 1966

Thirty Ninth Revised & Enlaged Edition : 2007
Reprint : 2008, 2009
Fourty Revised & Enlarged Edition : 2011
Reprint:2012
M.L. Jhingan, 1997

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or by any information, storage and retrieval system, without written permission from
the publishers.
ISBN 978-81-8281-385-4
(The Economics of Development and Planning 40th Edition)
Typeset by : Harsimran Graphics, Delhi

Printed at : Nisha Enterprises, Delhi
PREFACE TO
THE 40th EDITION
It is gratifying that this popular text book has been patronized by both teachers and students in
India and abroad for more than four decades ever since it was first published in 1966.
The present edition has been substantially revised, rearranged and presented in a new format
with new diagrams. The text contains some significant alterations and additions in a number of
chapters.
Rewrite of Chapters:
The Malthusian Theory
Mills Theory
The Classical Theory
The Marxian Theory
The Jorgenson Model
The Models of Technical change.
New Chapters:
Economic Integration among Developing Countries
WTO and Developing Countries
Millennium Development Goals (MDGs).
I hope the present edition will be of immense help to candidates preparing for M.A., N.E.T., I.E.S.,
Civil Services and other related examinations.
Suggestions to improve the book are solicited.
M.L. JHINGAN
PREFACE TO
THE FIRST EDITON
This book examines the problems of economic development of underdeveloped countries. There
is, however, no dearth of literature on the subject. But it is scattered in journals, reports and doctoral
theses. Some of the books on the subject deal with particular aspects of the problems of
underdevelopment, while others are in the form of lectures delivered by eminent economists from
time to time. There are very few books written in the textbook style. But they are mostly occidental
in nature. In certain cases, their appoach and presentation is abstract and difficult. I have
endeavoured to present the subject in a lucid and intelligible manner as possible as in oriental
setting.
The book is intended to meet the requirements of M.A. and Honours students preparing for the
paper on Economics of Development and Planning. It will also prove useful to the candidates for the
various competitive examinations. The syllabi of all the Indian Universities and those of the
Universities of Leeds, Manchester and London have been consulted for this purpose.
I have drawn heavily on the writings of a vast galaxy of economists who have done much to enrich
the subject matter of economic development within the last two decades. However, no amount of
footnoting can ever repay the debt I owe to them.
My interest in the subject was aroused when I was a student of the University of Delhi. I had the
opportunity to listen to a series of lectures delivered by Dr J.B. Condliffe of the University of
California and Mr Maurice Dobb of the University of Cambridge as Visiting Professors.*
I imbibed further interest from the classroom lectures of Professors V.K.R.V. Rao, B.N. Ganguli
and Raj Krishna on the different aspects of the subject though it was in its nascent state at that time.
I wish to recall my indebtedness to all of them.
I beg to acknowledge my sincere gratitude to the following publishers from whose publications I
have borrowed copyright material: George Allen & Unwin Ltd., London; Prentice-Hall, New Jersey,
USA; Oxford University Press, New York & London; Macmillan & Co., The Free Press; Yale
University Press; Routledge and Kegan Paul, London; John Wiley & Sons, Inc. N.Y.; Orient
Longmans; Cambridge Universiy Press; Asia Publishing House, Bombay; Kitabistan, Allahabad;
Central Book Depot, Allahabad; Allied Publishers, Bombay; and to many others.
No word of gratitude is sufficient to appreciate the encouragement I have been receiving from
time to time from my revered teachers, Mr K.N. Bhattaharya, Professor of Economics, National
Academy of Administration, Government of India, Mussoorie and Mr. N.K. Pant, Associate Director
in Economics, School of Correspondence Courses, University of Delhi. Without their help, this
book could not have been possible. Needless to say, I alone am responsible for any errors which
may remain.
M.L. JHINGAN
* J.B. Condliffe, Technological Progress and Economic Development; M. Dobb, Some Aspects of Economic Development,
Delhi 1951.
BRIEF
CONTENTS
PART ONE BASIC PROBLEMS
1
2
3
4
5
6
7
8
Economics of Development : Concepts and Approaches

Economic Growth and Income Distribution : The Kuznets Hypothesis
Sustainable Development
Characteristics of An Underdeveloped Country
Obstacles to Economic Development
Factors of Economic Growth: Economic and Non-Economic
Chenerys Patterns of Structural Change
Meaning and Characteristics of Modern Economic Growth
3
24
29
38
50
56
68
72
PART TWO SOME THEORIES OF ECONOMIC DEVELOPMENT

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
Adam Smiths Theory

The Ricardian Theory
Mills Theory
The Marxian Theory
The Schumpeterian Theory
The Keynesian Theory
Marx Stages of Growth
Rostows Stages of Economic Growth
Gerchenkrons Great Spurt Theory
Nurkses Theory of Disguished Unemployment as a saving potential
Lewis Theory of Unlimited Supplies of labour
Fei-Ranis Theory
Jorgensons Neo-Classical Model of a Dual Economy
Harris-Todaro Model of Migration and Unemployment
Leibensteins Critical Minimum Effort Thesis
Nelsons Low-Level Equilibrium Trap
The Big Push Theory
The Doctrine of Balanced Growth
The Concept of Unbalanced Growth
Dualistic Theories
The Dependency Theory of Underdevelopment
The Limits to Growth Model
Myrdals Theory of Circular Causation
83
88
94
101
106
109
117
124
131
136
147
152
159
165
172
179
186
192
195
199
206
213
223
233
238
PART THREE SOME GROWTH MODELS

34
35
The Harrod-Domar Models

The Kaldor Model of Distribution
245
257
viii
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
The Economics of Development and Planning

The Pasinetti Model of Profit and Growth
Joan Robinsons Model of Capital Accumulation
Meades Neo-Classical Model of Economic Growth
The Solow Model of Long-Run Growth
Kaldors Model of Growth
The Models of Technical Change
The Uzawa Two-Sector Growth Model
The von Neumann Growth Model
Steady State Growth
The Golden Rule of Accumulation
Growth Accounting
The new Endogenous Growth Theory
The Cambridge Capital Controversy in The Neo-classical Analysis of Growth
The Feldman Model
The Mahalanobis Model
262
266
272
278
285
291
300
307
312
318
232
331
344
355
360
PART FOUR DOMESTIC MEASURES FOR ECONOMIC DEVELOPMENT

51
52
53
54
55
56
57
58
59
60
Capital Formation and Economic Development

Role of Agriculture and Industry in Economic Development
Monetary Policy in Economic Development
Fiscal Policy in Economic Development
Deicit Financing as an Instrument of Economic Development
Price Policy in Economic Development
Population Growth and Economic Development
Human Capital Formation and Manpower
Entrepreneurship in Economic Development
Role of the State in Economic Development
371
382
388
393
404
411
415
424
439
444
PART FIVE INTERNATIONAL MEASURES FOR ECONOMIC DEVELOPMENT

61
62
63
64
65
66
67
68
69
70
Foreign Trade and Economic Development

The Debt Problem of LDCs
New International Economic order (NIEO)
Commercial Policy and Economic Development
Foreign Capital and Aid in Economic Development
Two-Gap Model and Costs-Benefits of Foreign Aid
Private Foreign Investment and Multinationals
Economic Integration Among Development Countries
Millennium Development Goals (MDGs)
455
461
467
473
487
493
504
511
517
522
PART SIX SOME PROBLEMS OF DEVELOPMENT PLANNING

71
72
73
74
75
76
77
78
79
80
81
Economic Planning
Shadow Prices
Project Evaluation and Cost-Benefit Analysis
Controls under Planning
Input-Output Analysis
Linear Programming
The Concept of Capital-Output Ratio
The Choice of Techniques
Transfer of Technology
Investment Criteria in Economic Development
Economic Planning and Price Mechanism
BiBliography
533
561
569
582
590
599
605
614
623
630
639
645-648
CONTENTS
PART ONE BASIC PROBLEMS
Chapter-1
Economics of Development : Concepts and Approaches
Introduction ........................................................................................................................................................ 3
Economic Development and Economic Growth .......................................................................................... 4
Measurement of Economic Development ..................................................................................................... 5
Basic Needs vs Economic Growth ................................................................................................................ 10
Conclusion ........................................................................................................................................................ 11
Human Development Indices ....................................................................................................................... 12
Physical Quality of Life Index (PQLI) ......................................................................................................... 12
Construction of PQLI ...................................................................................................................................... 14
Human Development Index (HDI) .............................................................................................................. 15
Constructing the Human Development Index (HDI) ............................................................................... 18
Development Economics in Retrospect ....................................................................................................... 19
Chapter-2
Economic Growth and Income Distribution : The Kuznets Hypothesis
24
The Kuznets Hypothesis ................................................................................................................................ 24

Causes of Increase in Inequality with Development ................................................................................ 26
Causes of Reduction in Inequality with Development ............................................................................ 27
Its Critical Appraisal ....................................................................................................................................... 27
Chapter-3
Sustainable Development
29
Meaning ............................................................................................................................................................ 29
Objectives of Sustainable Development ...................................................................................................... 30
Environmental Problems ............................................................................................................................... 30
Causes of Environmental Degradation ....................................................................................................... 32
Policies for Sustainable Development .......................................................................................................... 33
Measuring Sustainable Development .......................................................................................................... 35
Chapter-4
Characteristics of An Underdeveloped Country
38
Meaning of the Term Underdeveloped ..................................................................................................... 38

Different Criteria of Underdevelopment .................................................................................................... 39
Characteristics of an Underdeveloped Country ........................................................................................ 42
General Poverty ............................................................................................................................................... 42
Agriculture, the Main Occupation ............................................................................................................... 43
A Dualistic Economy ....................................................................................................................................... 43
Underdeveloped Natural Resources ............................................................................................................ 44
Demographic Features ................................................................................................................................... 44
Unemployment and Disguised Unemployment ....................................................................................... 45
Economic Backwardness ................................................................................................................................ 46
Lack of Enterprise and Initiative .................................................................................................................. 47
Insufficient Capital Equipment ..................................................................................................................... 48
Technological Backwardness ......................................................................................................................... 48
Foreign Trade Orientation ............................................................................................................................. 49
Chapter-5
Obstacles to Economic Development
50
Vicious Circles of Poverty .............................................................................................................................. 50

Low Rate of Capital Formation ..................................................................................................................... 52
Socio-cultural Constraints .............................................................................................................................. 53
Agricultural Constraint .................................................................................................................................. 54
Human Resources Constraint ....................................................................................................................... 55
Foreign Exchange Constraint ........................................................................................................................ 55
Chapter-6
Factors of Economic Growth: Economic and Non-Economic
56
Economic Factors ............................................................................................................................................. 56

Non-Economic Factors .................................................................................................................................... 62
Social Factors .................................................................................................................................................... 62
Human Factor .................................................................................................................................................. 65
Political and Administrative Factors ............................................................................................................ 66
Chapter-7
Chenerys Patterns of Structural Change
68
Introduction ...................................................................................................................................................... 68
Development Processes .................................................................................................................................. 69
Accumulation Processes ................................................................................................................................. 69
Resource Allocation Processes ...................................................................................................................... 69
Demographic and Distributional Processes ............................................................................................... 70
Conclusion ........................................................................................................................................................ 71
Chapter-8
Meaning and Characteristics of Modern Economic Growth
72
Meaning ............................................................................................................................................................ 72
Characteristics of Modern Economic Growth ............................................................................................ 73
High Rates of Growth of Per Capita Product and Population ................................................................ 73
Contents
xi
The Rise in Productivity ................................................................................................................................. 74

High Rate of Structural Transformation ...................................................................................................... 75
Urbanisation ..................................................................................................................................................... 76
The Outward Expansion of Developed Countries .................................................................................... 77
International Flow of Men, Goods and Capital ......................................................................................... 77
Conclusion ........................................................................................................................................................ 80
PART TWO SOME THEORIES OF ECONOMIC DEVELOPMENT

Chapter-9
Adam Smiths Theory
83
The Theory ........................................................................................................................................................ 83

A Critical Appraisal ........................................................................................................................................ 86
Its Applicability to Underdeveloped Countries ......................................................................................... 87
Chapter-10
The Ricardian Theory
88
Ricardos Theory .............................................................................................................................................. 88

Underdeveloped Countries and Ricardos Theory .................................................................................... 93
Chapter-11
94
The Theory ........................................................................................................................................................ 94

Measures to Promote Economic Development .......................................................................................... 96
Its Applicability to Underdeveloped Countries ......................................................................................... 99
Chapter-12
Mills Theory
101
Introduction .................................................................................................................................................... 101

The Theory ...................................................................................................................................................... 102
A Critical Appraisal ...................................................................................................................................... 104
Applicability of Mills Theory on Underdeveloped Countries ............................................................. 104
Chapter-13
106
The Theory ...................................................................................................................................................... 106

Its Criticisms ................................................................................................................................................... 107
Chapter-14
The Marxian Theory
109
Introduction .................................................................................................................................................... 109

The Marxian Theory ..................................................................................................................................... 110
The Marxian Process of Economic Development ....................................................................................110
xii

Downfall of Capitalism ................................................................................................................................ 113
The Marxian Theory and Underdeveloped Countries ........................................................................... 115
Chapter-15
The Schumpeterian Theory
117
The Theory ...................................................................................................................................................... 117

Criticisms of the Theory ............................................................................................................................... 121
Schumpeters Analysis and Underdeveloped Countries ...................................................................... 122
Chapter-16
The Keynesian Theory
124
Summary of Keynes Theory ........................................................................................................................ 124

Applicability of Keynes Theory to Underdeveloped Countries .......................................................... 125
Keynesian Assumptions and Underdeveloped Countries .................................................................... 126
Tools of Keynesian Economics and Underdeveloped Countries .......................................................... 127
Chapter-17
Marx Stages of Growth
131
The Primitive Communal Stage .................................................................................................................. 132

The Slave Stage .............................................................................................................................................. 132
The Feudal Stage ........................................................................................................................................... 133
The Capitalist Stage ...................................................................................................................................... 133
The Socialist or Communist Stage .............................................................................................................. 134
Marx vs. Rostow ............................................................................................................................................ 134
Chapter-18
Rostows Stages of Economic Growth
136
The Traditional Society ................................................................................................................................. 136

The Pre-conditions for Take-off .................................................................................................................. 137
The Take-off .................................................................................................................................................... 138
The Drive to Maturity ................................................................................................................................... 141
The Age of High Mass-Consumption ........................................................................................................ 141
Criticism of the Stages of Economic Growth ............................................................................................ 142
Importance and Limitations of Take-off for Underdeveloped Countries ........................................... 144
The Take-Off and India ................................................................................................................................ 145
Chapter-19
Gerchenkrons Great Spurt Theory
147
Gerschenkrons Great Spurt Theory .......................................................................................................... 147

Six Generalisations ........................................................................................................................................ 147
Common Characteristics of Nations .......................................................................................................... 148
How to Bring About the Great Spurt? ....................................................................................................... 148
Critical Appraisal .......................................................................................................................................... 150
Gerschenkron vs. Rostow ............................................................................................................................ 151
Contents
Chapter-20
Nurkses Theory of Disguised Unemployment as a Saving Potential
xiii
152
Meaning of Disguised Unemployment ..................................................................................................... 152

Nurkses Theory ............................................................................................................................................. 153
Limitations of the Concept ........................................................................................................................... 155
A Realistic View ............................................................................................................................................. 157
Chapter-21
Lewis Theory of Unlimited Supplies of labour
159
The Lewis Theory .......................................................................................................................................... 159

Chapter-22
Fei-Ranis Theory
165
The Theory ...................................................................................................................................................... 165

Assumptions ................................................................................................................................................... 166
Chapter-23
Jorgensons Neo-Classical Model of a Dual Economy
172
The Jorgenson Model .................................................................................................................................... 172

Assumptions of the Model ........................................................................................................................... 173
Conclusion ...................................................................................................................................................... 176
Jorgenson Vs. Fei-Ranis ................................................................................................................................ 178
Chapter-24
Harris-Todaro Model of Migration and Unemployment
179
Assumptions of the Model ........................................................................................................................... 179

The Model ....................................................................................................................................................... 180
Policy Implications of the H-T Model ........................................................................................................ 183
Its Critical Appraisal ..................................................................................................................................... 184
Chapter-25
Leibensteins Critical Minimum Effort Thesis
186
Leibensteins Theory ..................................................................................................................................... 186

Chapter-26
Nelsons Low-Level Equilibrium Trap
192
Nelsons Theory ............................................................................................................................................. 192

Sets of relations .............................................................................................................................................. 193
Factors that Avoid Trap ................................................................................................................................ 194
xiv
Chapter-27
The Big Push Theory
195
Rosenstein-Rodans Thesis ........................................................................................................................... 195

Indivisibilities in the Production Function ............................................................................................... 196
Indivisibility of Demand .............................................................................................................................. 196
Indivisibility in the Supply of Savings ...................................................................................................... 197
Chapter-28
The Doctrine of Balanced Growth
199
Meaning of Balanced Growth ..................................................................................................................... 199

Explanation of the Theory ........................................................................................................................... 200
Criticisms of the Doctrine of Balanced Growth ....................................................................................... 203
Chapter-29
The Concept of Unbalanced Growth
206
Introduction .................................................................................................................................................... 206

Hirschmans Strategy .................................................................................................................................... 206
Its Limitations ................................................................................................................................................ 210
Balanced Vs. Unbalanced Growth ............................................................................................................. 211
Conclusion ...................................................................................................................................................... 212
Chapter-30
Dualistic Theories
213
Social Dualism ................................................................................................................................................ 213

Technological Dualism ................................................................................................................................. 217
Financial Dualism .......................................................................................................................................... 220
Chapter-31
The Dependency Theory of Underdevelopment
223
Introduction .................................................................................................................................................... 223

Meaning of Dependency .............................................................................................................................. 224
The Dependency Theory .............................................................................................................................. 224
Dependency : A Historical International Process .................................................................................... 225
Foreign Capital .............................................................................................................................................. 225
Technological Dependence .......................................................................................................................... 226
Trade and Unequal Exchange ..................................................................................................................... 226
Dualism ........................................................................................................................................................... 227
Policy Implications of Dependency Theory .............................................................................................. 228
Critical Appraisal .......................................................................................................................................... 229
Emmanuels Theory of Unequal Exchange ............................................................................................... 231
Chapter-32
The Limits to Growth Model
233
Contents
xv
Introduction .................................................................................................................................................... 233

The Model ....................................................................................................................................................... 234
Predictions of the Model .............................................................................................................................. 234
Its Graphic Explanation ................................................................................................................................ 235
Its Criticisms ................................................................................................................................................... 235
Its Implications ............................................................................................................................................... 237
Conclusion ...................................................................................................................................................... 237
Chapter-33
Myrdals Theory of Circular Causation
238
Introduction .................................................................................................................................................... 238

The Myrdal Thesis ......................................................................................................................................... 239
Regional Inequalities .................................................................................................................................... 239
International Inequalities ............................................................................................................................. 241
PART THREE SOME GROWTH MODELS

Chapter-34
The Harrod-Domar Models
245
Introduction .................................................................................................................................................... 245

Requirements of Steady Growth ................................................................................................................ 245
Assumptions ................................................................................................................................................... 246
The Domar Model ......................................................................................................................................... 246
The Harrod Model ......................................................................................................................................... 247
A Comparative Study of the Two Models ................................................................................................. 251
Limitations of these Models ........................................................................................................................ 252
Application of Harrod-Domar Models to Underdeveloped Countries ............................................... 253
Limitations of these Models from the Standpoint of Underdeveloped Countries ............................ 254
Chapter-35
The Kaldor Model of Distribution
257
The Kaldor Model ......................................................................................................................................... 257

Its Criticisms ................................................................................................................................................... 260
Chapter-36
The Pasinetti Model of Profit and Growth
262
The Model ....................................................................................................................................................... 262

Comparison with the Kaldor Model .......................................................................................................... 265
Chapter-37
Joan Robinsons Model of Capital Accumulation
266
The Robinson Model ..................................................................................................................................... 266

Its Weaknesses ............................................................................................................................................... 270
Its Applicability to Underdeveloped Countries ....................................................................................... 271
xvi
Chapter-38
Meades Neo-Classical Model of Economic Growth
272
The Meade Model .......................................................................................................................................... 272

Chapter-39
The Solow Model of Long-Run Growth
278
Introduction .................................................................................................................................................... 278

Assumptions ................................................................................................................................................... 278
The Model ....................................................................................................................................................... 279
Weaknesses ..................................................................................................................................................... 283
Applicability of Solow Model to Underdeveloped Countries .............................................................. 283
Chapter-40
Kaldors Model of Growth
285
Introduction .................................................................................................................................................... 285

Assumptions ................................................................................................................................................... 285
The Model ....................................................................................................................................................... 286
Chapter-41
The Models of Technical Change
291
Introduction .................................................................................................................................................... 291

Neutral and Non-Neutral Technical Change ........................................................................................... 291
Hicks Neutrality ............................................................................................................................................ 292
Its Criticisms ................................................................................................................................................... 293
Hicks Non-Neutral Technical Change ....................................................................................................... 293
Disembodied and Embodied Technical Change ......................................................................................296
Embodied Technical Change Model-Vintage Approach ........................................................................ 298
Chapter-42
The Uzawa Two-Sector Growth Model
300
The Uzawa Model ......................................................................................................................................... 300

Equations of The Model3 ............................................................................................................................. 301
Working of the Model ................................................................................................................................... 303
Chapter-43
The von Neumann Growth Model
307
The Neumann Growth Model ..................................................................................................................... 307

Contents
xvii
Chapter-44
Steady State Growth
312
Meaning .......................................................................................................................................................... 312

Properties of Steady State Growth ............................................................................................................. 313
Flexibility of n ................................................................................................................................................ 313
Flexible Capital-Output Raio (v) ................................................................................................................ 313
Flexibility of Saving Ratio (s) ...................................................................................................................... 315
Flexible Saving Ratio (s) and Flexible Capital-Output Ratio (v) .......................................................... 315
Technical Progress ......................................................................................................................................... 316
Chapter-45
The Golden Rule of Accumulation
318
Introduction .................................................................................................................................................... 318

The Golden Rule Path ................................................................................................................................... 319
Representation of the Golden Rule ............................................................................................................ 320
The Neoclassical Case ................................................................................................................................... 321
Chapter-46
Growth Accounting
323
Introduction .................................................................................................................................................... 323

Solows Sources of Growth .......................................................................................................................... 324
Its Criticisms ................................................................................................................................................... 325
Denisons Sources of Growth ...................................................................................................................... 325
Its Criticisms ................................................................................................................................................... 327
Jorgenson-Griliches Sources of Growth ................................................................................................... 328
Measurement of Sources of Growth .......................................................................................................... 329
Its Criticisms ................................................................................................................................................... 330
Chapter-47
The New Endogenous Growth Theory
331
Introduction .................................................................................................................................................... 331

The Solow-Swan Model ................................................................................................................................ 332
Implications of the Model ............................................................................................................................ 334
The Convergence-Divergence Controversy .............................................................................................. 334
Absolute or Unconditional Convergence .................................................................................................. 335
Empirical Evidence ....................................................................................................................................... 335
Conditional Convergence ............................................................................................................................ 336
Empirical Evidence ....................................................................................................................................... 336
Conclusion ...................................................................................................................................................... 337
Arrows Learning by Doing and Other Models ....................................................................................... 338
The Lucas Model ........................................................................................................................................... 339
Romers Model of Technological Change .................................................................................................. 340
Criticisms of New Growth Theory ............................................................................................................. 341
Policy Implications of New Growth Theory ............................................................................................. 342
Implications for Developing Countries ..................................................................................................... 342
xviii
Chapter-48
The Cambridge Capital Controversy in The Neo-classical Analysis of Growth
344
Introduction .................................................................................................................................................... 344

The Capital Controversy .............................................................................................................................. 344
The Neo-Classical Capital Theory .............................................................................................................. 345
Assumptions ................................................................................................................................................... 345
The Cambridge Criticisms ........................................................................................................................... 347
Joan Robinsons Critique .............................................................................................................................. 347
Samuelsons Critique and the Surrogate Production Function ............................................................. 348
Assumptions ................................................................................................................................................... 348
Surrogate Production Function ................................................................................................................... 349
Its Criticisms ................................................................................................................................................... 351
More about the Cambridge Critique .......................................................................................................... 353
Conclusion ...................................................................................................................................................... 354
Chapter-49
The Feldman Model
355
The Model ....................................................................................................................................................... 355

Comparison with the Domar Model .......................................................................................................... 357
Implications for Economic Development .................................................................................................. 358
Chapter-50
The Mahalanobis Model
360
Introduction .................................................................................................................................................... 360

Two-Sector Model .......................................................................................................................................... 360
Relation of the Mahalanobis Two-Sector Model with the Domar Model ........................................... 363
Four-Sector Model ......................................................................................................................................... 364
PART FOUR DOMESTIC MEASURES FOR ECONOMIC DEVELOPMENT

Chapter-51
Capital Formation and Economic Development
371
Meaning of Capital Formation .................................................................................................................... 371

Importance of Capital Formation ............................................................................................................... 372
Reasons for Low Rate of Capital Formation ............................................................................................. 373
Sources of Savings ......................................................................................................................................... 375
Sources of Capital Formation ...................................................................................................................... 376
Chapter-52
Role of Agriculture and Industry in Economic Development
382
Agriculture and Economic Development ................................................................................................. 382

Role of Industrialisation ............................................................................................................................... 384
Interrelationship between Agricultural and Industrial Development ................................................ 386
Contents
Chapter-53
Monetary Policy in Economic Development
xix
388
Meaning and Importance ............................................................................................................................. 388

Main Features of Monetary Policy ............................................................................................................. 388
Chapter-54
Fiscal Policy in Economic Development
393
Meaning and Importance ............................................................................................................................. 393

Taxation as the Most Effective Instrument of Fiscal Policy ................................................................... 398
Role of Public Borrowing in Economic Development ............................................................................ 401
Role of Public Expenditure in Economic Development ......................................................................... 402
Chapter-55
Deicit Financing as an Instrument of Economic Development
404
Meaning .......................................................................................................................................................... 404

Role of Deficit Financing .............................................................................................................................. 405
Its Adverse Effects ......................................................................................................................................... 406
Safe Limits of Deficit Financing .................................................................................................................. 409
Chapter-56
Price Policy in Economic Development
411
The Nature of Price Policy ........................................................................................................................... 411

Objectives of Price Policy ............................................................................................................................. 411
Chapter-57
Population Growth and Economic Development
415
Introduction .................................................................................................................................................... 415

Effects of Population Growth on Economic Development .................................................................... 415
Factors Promoting Economic Development ............................................................................................. 416
Factors Retarding Economic Development .............................................................................................. 417
The Theory of Demographic Transition .................................................................................................... 420
Its Criticisms ................................................................................................................................................... 422
Chapter-58
Human Capital Formation and Manpower
424
Meaning and Importance of Human Capital Formation ....................................................................... 424

Problems of Human Capital Formation .................................................................................................... 426
Criteria for Investment in Human Capital ............................................................................................... 428
Manpower Planning in LDCs ..................................................................................................................... 432
Manpower Shortage ...................................................................................................................................... 432
Manpower Surplus ........................................................................................................................................ 433
Strategy for Manpower Planning ............................................................................................................... 434
Estimating Future Manpower Requirements ........................................................................................... 436
xx
Chapter-59
Entrepreneurship in Economic Development
439
Role of the Entrepreneur .............................................................................................................................. 439

Factors Impeding the Growth of Entrepreneuship ................................................................................. 440
How to Encourage Entrepreneurship ........................................................................................................ 442
Chapter-60
Role of the State in Economic Development
444
Introduction .................................................................................................................................................... 444

Changes in Institutional Framework ......................................................................................................... 445
Organisational Changes ............................................................................................................................... 446
Social and Economic Overheads ................................................................................................................. 447
Agricultural Development ........................................................................................................................... 450
Industrial Development ............................................................................................................................... 451
Monetary and Fiscal Policies ....................................................................................................................... 452
Increase in Foreign Trade ............................................................................................................................. 452
PART FIVE INTERNATIONAL MEASURES FOR ECONOMIC DEVELOPMENT

Chapter-61
Foreign Trade and Economic Development
455
Introduction .................................................................................................................................................... 455

Importance of Foreign Trade ....................................................................................................................... 455
Direct Benefits ................................................................................................................................................ 456
Indirect Benefits ............................................................................................................................................. 457
Its Criticisms ................................................................................................................................................... 458
Overview ......................................................................................................................................................... 459
Conclusion ...................................................................................................................................................... 460
Chapter-62
The Debt Problem of LDCs
461
Introduction .................................................................................................................................................... 461

The Debt Crisis ............................................................................................................................................... 462
Causes of the Debt Crisis ............................................................................................................................. 462
Measure to Solve the Debt Crisis ................................................................................................................ 463
Long-Term Suggestions ................................................................................................................................ 465
Chapter-63
New International Economic order (NIEO)
467
Origin ............................................................................................................................................................... 467

Objectives (or Features) of NIEO ................................................................................................................ 468
Implementation of NIEO Programme ....................................................................................................... 469
Conclusion ...................................................................................................................................................... 472
Contents
Chapter-64
Commercial Policy and Economic Development
xxi
473
Meaning .......................................................................................................................................................... 473

Arguments For and Against ........................................................................................................................ 473
Export Promotion Vs. Import Substitution ............................................................................................... 485
Conclusion ...................................................................................................................................................... 486
Chapter-65
487
Introduction .................................................................................................................................................... 487

The WTO ......................................................................................................................................................... 487
Its Objectives ................................................................................................................................................... 488
Its Functions ................................................................................................................................................... 488
WTO Agreement ............................................................................................................................................ 489
WTO and Developing Countries ................................................................................................................ 489
The Doha Round ............................................................................................................................................ 490
Chapter-66
Foreign Capital and Aid in Economic Development
493
Types of Foreign Aid ..................................................................................................................................... 493

Role of Foreign Aid In Economic Development ...................................................................................... 494
Case For Foreign Aid .................................................................................................................................... 495
Case Against Foreign Aid ............................................................................................................................ 497
Tied Vs. Untied Aid ...................................................................................................................................... 498
Factors Determining the Amount of Foreign Aid for Economic Development ................................. 500
Aid or Trade .................................................................................................................................................... 502
Chapter-67
Two-Gap Model and Costs-Benefits of Foreign Aid
504
Two-Gap Model ............................................................................................................................................. 504

Its Limitations ................................................................................................................................................ 506
Importance of Two-Gap Analysis ............................................................................................................... 507
Costs and Benefits of Aid ............................................................................................................................. 508
Its Implications ............................................................................................................................................... 510
Chapter-68
Private Foreign Investment and Multinationals
511
Nature .............................................................................................................................................................. 511

Merits of Private Foreign Investment ........................................................................................................ 511
Demerits of Private Foreign Investment ................................................................................................... 512
Multinational Corporations and LDCs ..................................................................................................... 513
Meaning .......................................................................................................................................................... 513
Spread of MNCs ............................................................................................................................................ 514
Merits of MNCs ............................................................................................................................................. 514
Demerits of MNCs ......................................................................................................................................... 515
An Overview .................................................................................................................................................. 516
xxii
Chapter-69
Economic Integration Among Development Countries
517
Need for Economic Integration ................................................................................................................... 517

Benefits from Economic Integration .......................................................................................................... 518
Problems of Economic Integration ............................................................................................................. 519
Measures to Encourage Economic Integration among Developing Countries .................................. 520
Conclusion ...................................................................................................................................................... 521
Chapter-70
Millennium Development Goals (MDGs)
522
Introduction .................................................................................................................................................... 522

Goals and Targets .......................................................................................................................................... 522
Strategies ......................................................................................................................................................... 523
How to Achieve the Goals ........................................................................................................................... 524
Implementation of Millennium Development Goals (MDGs) in India ............................................... 526
Progress of Millennium Development Goals ........................................................................................... 528
PART SIX SOME PROBLEMS OF DEVELOPMENT PLANNING

Chapter-71
Economic Planning
533
Meaning of Economic Planning .................................................................................................................. 533

Need for Planning in Underdeveloped Countries .................................................................................. 534
Plan Formulation and Requisites for Successful Planning .................................................................... 536
Problems of Development Planning .......................................................................................................... 539
Planning by Direction and Planning by Inducement ............................................................................. 540
Financial and Physical Planning ................................................................................................................ 543
Perspective Planning and Annual Planning ............................................................................................ 545
Indicative Planning and Imperative Planning ......................................................................................... 547
Democratic Planning and Totalitarian Planning ..................................................................................... 549
Rolling and Fixed Plans ............................................................................................................................... 551
Planning under Capitalism and Socialism ............................................................................................... 554
Centralised and Decentralised Planning .................................................................................................. 556
Corrective Planning and Development Planning ................................................................................... 557
Planning in a Mixed Economy .................................................................................................................... 558
Planning Models ............................................................................................................................................ 559
Chapter-72
Shadow Prices
561
Introduction .................................................................................................................................................... 561

Need For the Use of Shadow Prices ........................................................................................................... 561
Meaning of Shadow Prices .......................................................................................................................... 562
Determination of Shadow Prices ................................................................................................................ 563
Difficulties of Shadow Price ........................................................................................................................ 566
Uses of Shadow Prices .................................................................................................................................. 567
Contents
xxiii
Chapter-73
Project Evaluation and Cost-Benefit Analysis
569
Meaning .......................................................................................................................................................... 569

Its Stages .......................................................................................................................................................... 570
Methods of Evaluation ................................................................................................................................. 570
Cost-benefit Analysis .................................................................................................................................... 570
Evaluation on the basis of Cost-Benefit Criteria ...................................................................................... 571
Evaluation on the Basis of Benefits ............................................................................................................ 576
Evaluation on the Basis of Costs ................................................................................................................. 577
Importance of Data for Evaluation ............................................................................................................. 577
Limitations of Cost-Benefit Analysis ......................................................................................................... 578
Use of Cost-Benefit Analysis in Developing Countries .......................................................................... 579
Its Difficulties ................................................................................................................................................. 579
Use of Cost-Benefit Analysis in India ........................................................................................................ 580
Some Suggestions .......................................................................................................................................... 581
Chapter-74
Controls under Planning
582
Need for Controls .......................................................................................................................................... 582

Types of Controls ........................................................................................................................................... 583
Aims of Physical Controls ............................................................................................................................ 583
Limitations of Physical Controls ................................................................................................................ 587
Chapter-75
Input-Output Analysis
590
Meaning .......................................................................................................................................................... 590

Use of Input-Output Model in Planning ................................................................................................... 591
Feasibility and Consistency of the Plan .................................................................................................... 592
The Leontief Solution .................................................................................................................................... 594
The Dynamic Input-Output Model ............................................................................................................ 585
Limitations of Input-Output Analysis ....................................................................................................... 596
Use of Input-Output Technique in Planning ............................................................................................ 597
Chapter-76
Linear Programming
599
Meaning .......................................................................................................................................................... 599

Conditions and Generalisations ................................................................................................................. 600
Assumptions ................................................................................................................................................... 600
Programming TechniqueIts Application in Planning ......................................................................... 601
Limitations of Linear Programming .......................................................................................................... 602
Uses of Linear Programming in Planning ................................................................................................ 603
Chapter-77
The Concept of Capital-Output Ratio
605
Meaning .......................................................................................................................................................... 605

Capital-Output Ratio in Underdeveloped Economies ........................................................................... 606
Factors Determining Capital-Output Ratio .............................................................................................. 607
Nature of Capital-Output Ratio .................................................................................................................. 609
xxiv

Case for Low or High Capital-Output Ratio ............................................................................................ 610
Limitations ...................................................................................................................................................... 611
Importance in Planning ................................................................................................................................ 613
Chapter-78
The Choice of Techniques
614
Meaning .......................................................................................................................................................... 614

Process of Technological Development ..................................................................................................... 615
Labour-intensive Techniques ...................................................................................................................... 615
Capital-intensive. Modern Techniques ...................................................................................................... 616
Use of Abandoned Techniques of Advanced Countries ......................................................................... 617
Intermediate Technology ............................................................................................................................. 618
Appropriate Technology .............................................................................................................................. 618
Labour-intensive vs Capital-intensive Techniques ................................................................................. 620
Conclusion ...................................................................................................................................................... 622
Chapter-79
Transfer of Technology
623
Introduction .................................................................................................................................................... 623

Need for Transfer of Technology ................................................................................................................ 624
Channels of Technology Transfer ............................................................................................................... 626
Problems in Technology Transfer ............................................................................................................... 627
Appropriate Package of Technology Transfer .......................................................................................... 628
Chapter-80
Investment Criteria in Economic Development
630
Introduction .................................................................................................................................................... 630

The Capital-Turnover Criterion .................................................................................................................. 630
The Social Marginal Productivity Criterion ............................................................................................. 632
The Reinvestment Criterion ........................................................................................................................ 634
The Time Series Criterion ............................................................................................................................ 636
Conclusion ...................................................................................................................................................... 638
Chapter-81
Economic Planning and Price Mechanism
639
Introduction .................................................................................................................................................... 639

Price Mechanism in a Planned Economy .................................................................................................. 640
Price Mechanism in an Underdeveloped Economy ................................................................................ 641
Bibliography
645-648

The Economics OF Development and Planning

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First Edition : 1966

M.L. Jhingan, 1997

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Economics of Development : Concepts and Approaches

PART TWO SOME THEORIES OF ECONOMIC DEVELOPMENT

Adam Smiths Theory

PART THREE SOME GROWTH MODELS

The Harrod-Domar Models

The Economics of Development and Planning

PART FOUR DOMESTIC MEASURES FOR ECONOMIC DEVELOPMENT

Capital Formation and Economic Development

PART FIVE INTERNATIONAL MEASURES FOR ECONOMIC DEVELOPMENT

Foreign Trade and Economic Development

PART SIX SOME PROBLEMS OF DEVELOPMENT PLANNING

The Kuznets Hypothesis ................................................................................................................................ 24

The Economics of Development and Planning

Meaning of the Term Underdeveloped ..................................................................................................... 38

Vicious Circles of Poverty .............................................................................................................................. 50

Economic Factors ............................................................................................................................................. 56

The Rise in Productivity ................................................................................................................................. 74

PART TWO SOME THEORIES OF ECONOMIC DEVELOPMENT

The Theory ........................................................................................................................................................ 83

Ricardos Theory .............................................................................................................................................. 88

The Theory ........................................................................................................................................................ 94

Introduction .................................................................................................................................................... 101

The Theory ...................................................................................................................................................... 106

Introduction .................................................................................................................................................... 109

The Economics of Development and Planning

The Theory ...................................................................................................................................................... 117

Summary of Keynes Theory ........................................................................................................................ 124

The Primitive Communal Stage .................................................................................................................. 132

The Traditional Society ................................................................................................................................. 136

Gerschenkrons Great Spurt Theory .......................................................................................................... 147

Meaning of Disguised Unemployment ..................................................................................................... 152

The Lewis Theory .......................................................................................................................................... 159

The Theory ...................................................................................................................................................... 165

The Jorgenson Model .................................................................................................................................... 172

Assumptions of the Model ........................................................................................................................... 179

Leibensteins Theory ..................................................................................................................................... 186

Nelsons Theory ............................................................................................................................................. 192

The Economics of Development and Planning

Rosenstein-Rodans Thesis ........................................................................................................................... 195

Meaning of Balanced Growth ..................................................................................................................... 199

Introduction .................................................................................................................................................... 206

Social Dualism ................................................................................................................................................ 213

Introduction .................................................................................................................................................... 223

Introduction .................................................................................................................................................... 233

Introduction .................................................................................................................................................... 238

PART THREE SOME GROWTH MODELS

Introduction .................................................................................................................................................... 245

The Kaldor Model ......................................................................................................................................... 257

The Model ....................................................................................................................................................... 262

The Robinson Model ..................................................................................................................................... 266

The Economics of Development and Planning

The Meade Model .......................................................................................................................................... 272

Introduction .................................................................................................................................................... 278