MEANING AND

IMPORTANCE OF
ECONOMIC GROWTH
 Presented by:
 Josy Joseph
 Jerin Joseph
 Jintu Elizabeth
 Liji K Raju
 Leena Maria John
 MEANING AND IMPORTANCE OF
ECONOMIC GROWTH
ØEconomic growth is the increase in the amount
of goods and services produced by an economy
over time.
ØIt is conventionally measured as the per cent
rate of increase in real gross domestic product,
or real GDP.
ØGrowth is usually calculated in real terms, i.e.,
inflation-adjusted terms, in order to net out the
effect of inflation on the price of goods and
services produced.
ØEconomic growth is measured as the annual
percent change of GDP.
 STRATEGIES CONTRIBUTING TO
WORLD ECONOMIC GROWTH
§ Major objectives of economic policies of
most developing countries are to achieve a
high rate of economic growth.
§ To improve the standard of living of
people.
§ To obtain freedom in economic choice and
decisions consistent with social good and to
accelerate the rate of investment not only
in manufacturing sectors, but also in other
sectors such as agriculture, power ,
transport and export activities.
 Different strategies to achieve world economic
growth are:

1.International Trade
Economic development of any country depends
largely on the effective functioning of several key
sectors of the economy.
International trade has been an important element in
the process of development.
Foreign trade involves the movement of
commodities, capital goods and raw materials
across national frontiers.
The basic reason for the importance of international
trade arises from the fact that goods obtained from
abroad cannot be produced at home.
2. Import substitution
 Developing countries have pursued two
competing strategies for industrialization:
ØAn inward- looking strategy
ØAn outward – looking strategy
 Import substitution involves extensive use of
trade barriers to protect domestic import
competition.
 Import substitution policies could lead to
complete self- sufficiency.
 Advantage of Import Substitution
 The risk of establishing a home industry to replace
imports are low because the home market for the
manufactured good already exist.
 It is easier for a developing nation to protect its
manufactures against foreign competitors than to
force industrial nation to reduce their trade
restrictions on products exported by developing
nations.
 To avoid the high import tariffs of the developing
country, foreigners have an incentive to locate
manufacturing plant in the country, thus providing
jobs for local workers.
 To avoid the high import tariffs of the
developing country, foreigners have
an incentives to locate
manufacturing plants in the country,
thus providing jobs for local workers.
 Disadvantages of Import
Substitution
 Because trade restrictions shelter domestic industries
from international competition, they have no
incentives to increase their efficiency.
 Given the small size of the domestic market in many
developing countries, manufactures cannot take
advantage of economies of scale, and thus have high
unit costs.
 Because resources employed in the protected industry
would otherwise have been employed elsewhere,
protection of import-competing industries
automatically discriminating against all other
industries, including potential exporting ones.
 Once investment is sunk in activities that are profitable
only because of tariffs and quota, any attempts to
remove those restrictions is generally strongly
resisted.
 Import substitutions also breeds corruption.
 Export - Lead Growth
- Outward oriented strategy
- Involves promoting growth through
export of manufactured goods.
- Trade controls are low or non-existent

 Export - Lead Growth
 Advantages


1.They encourage industries in which developing

countries are likely to have a comparative
advantage such as labour intensive
manufactured goods
2.By allowing larger markets in which to sell,
they allow domestic manufacturers greater
scope for exploiting economies of scale.
3.By maintaining low restrictions on imported
goods, they impose a competitive discipline
on domestic firms that forces them to
increase their efficiency.
 Foreign Direct Investment
- Most developing countries resort to
foreign direct investments for
improving the national economy.
- FDI is setting up of a firm in a foreign
country.
- IMF and World Bank believe that FDI’s
play an important role in the
economic development of the
country.
 Effects of Economic Growth

Economic growth has undeniable effects on the

living conditions of the people of the earth.
ØThere is no denial of the remarkable effects of
the recent economic growth on the conditions of
people, especially in the developing countries.
 Positive Effects of
EconomicGrowth
1.Economic growth has resulted in the repaid
reduction in poverty across the globe. This
can be understood from the fact that poverty
is still high in places where economic
development is slowest.
2.Advancement in technology have resulted in
more ecomnomical and intelligent usage of
natural resources, thereby putting to rest
contemplations regarding possibile famines
due to depletion of resources .
3.

 3. Those more optimistic about the
environmental effects are of the opinion that
eve though there will be localized
environmental hazards, there are only few
large scale implications.

  
Negative effects of economic
growth
1.Growth has a negative effects on the
quality of life . many things that
affects the quality of life, such as
environment , are not traded or
measured.
2.Growth promotes creation of artificial
needs . industry prompts
customers to develop new tastes,
and preferences for growth to occur.
3. Resource depletion ; according to the
2007 united nations GEO-4 report
humanity’s environmental demand is
purported to be 21.9 hectares per
person while the earth’s biological
capacity is purported to be 15.7
hectors per person. This report supports
the fact that economic growth depletes
non renewable resources rapidly.
4. Distribution of income : the gap
between the poorest and richest
countries in the world has been growing .
although mean and median wealth has
increased globally, it adds to the
inequality of wealth.