Economic Development and Structural Transformation Of Countries

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Economic development can be defined as the process whereby simple, low-income national economies are transformed into modern industrial economies. It is one of the topmost priorities of a country’s government.

Sen said that, ‘development is about creating freedom for people and removing obstacles to greater freedom. Greater freedom enables people to choose their own destiny.

Obstacles to freedom, and hence to development, include poverty, lack of economic opportunities, corruption, poor governance, lack of education and lack of health.’

Process of economic development of less developed countries

Myrdal and Kuznets on Economic Development and Structural Change

Simon Smith Kuznets was an American economist and a statistician. He received the 1971 Nobel Memorial Prize in Economic Sciences. Kuznets started his extensive project on the economic growth of nations not much before 1950.

However, already in his earlier studies in the late 1920s, he showed interest in the growth and structural shifts.

An essential motivation for Kuznets’s studies was that structural change is a conflictive process that requires individual and societal adaptations. This is especially in the early stages of development.

Here, a large reallocation of the population from rural traditional places to the modern urban ones.

These changes require mechanisms for conflict resolution. Kuznets regarded the State as having often been the arbitrator among group interests and a mitigator of the adverse effects of economic change.

He was among the few who did not adopt the distinction between the terms growth and development. He analyzed the processes of structural change over time in the advanced countries and showed it to be an indispensable part of the overall process of Modern Economic Growth.

Kuznets varies the secular retardation at the sectoral level “with our belief in the fairly continuous march of economic progress” and asked an important question of why not balanced growth?

The answer combines demand effects and technological change and the progress of technology makes new goods available, however, eventually, demand reaches saturation, the pace of technical change reduces, new goods emerge, and possibly also the competition from younger nations.

Karl Gunnar Myrdal was a Swedish economist and a sociologist. In 1974, Myrdal was awarded the Nobel Memorial Prize in Economic Sciences.

Myrdal’s work on development and underdevelopment made three essential contributions. He came up with a cumulative causation approach in opposition to the dominant one, which he stated as the stable equilibrium approach.

He debated the existence of a body of economic thought which is objective in the sense that it is value-free. Myrdal believed that ‘the argument moves on a general and methodological plane in the sense that the theory is discussed as a complex of broad structures of thought’.

Into the general vision, the specific features of the development process of every economy can be efficiently fitted.

Myrdal used the expressions ‘approach’, ‘theory’, and ‘general theory’ as equivalents. However, In his subsequent writings, he mainly referred to it as ‘approach’, explaining it as something containing, among other things and theories.

Dealing with development processes, Myrdal (1957, pp. vi and 39) moved from the belief that reality shows that inequalities within the same economy or among different economies. It tends to persist and increase.

He said, the ‘facts of life’ represented at the time a fundamental cause of the international tensions. But, they were not at the center stage in most of the literature on development, which was ruled by the belief that the operation of competitive market forces conduces to eliminate inequalities.

Also to bring about movements towards the equilibrium positions that are identified by the efficient allocation of the available resources and the exploitation of growth potential of the economy.

Role of Agriculture in the Economic Development of Less Developed Countries

Agriculture is the backbone of the economy of a country. Agriculture is the reason behind providing the food and the basic needs of the people of a country. Some of the main contributions of agriculture are listed below –

1. Contributes to National Income

It is observed that “The leading industrialized countries of today were once predominantly agricultural while the developing economies still have the dominance of agriculture and it largely contributes to the national income”. In India, Agriculture contributes about 28% to the national income, annually.

2. Supplies Food

Due to the heavy pressure of the population in the underdeveloped and developing countries and its rapid increase, the demand for food increases at a speedy rate. If agriculture deserts to meet the rising demand for food products, it is found to affect the growth rate of the economy adversely.

3. Prerequisite for Raw Material

The shortage of agricultural goods impacts industrial production and a consequent increase in the general price level.

4. Shift of Manpower

Agricultural progress permits the manpower shift from agricultural to the non-agricultural sectors. In India, there is still about 62% labor that is absorbed in this sector.

The discharge of surplus manpower from the agricultural sector is essential for the progress of the agricultural sector and for extending the non-agricultural sector.

5. Creating Infrastructure

The development of agriculture needs roads, market yards, transportation railways, storage, postal services, and many others for infrastructure. This further leads to creating demand for industrial products and the development of the commercial sector.

6. Helps to Reduce Inequality

To reduce the inequality of income, it is important to accord higher priority to agriculture. The prosperity of agriculture will raise the income of the majority of the rural population and thus the variation in income will be reduced to a certain extent.

7. Creates Effective Demand

The development of the agricultural sector tends to increase the purchasing power of agriculturists which aids the increase of the non-agricultural sector of the country. Thus, it provides a market for increased production.

An improvement in the productivity of cash crops can pave the way for the promotion of the exchange economy which can help the growth of the non-agricultural sector.

8. Helps in Phasing our Economic Depression

During the phase of depression, industrial production can be stopped or reduced, however, agricultural production continues as it produces necessities of life. Thus it continues to create adequate demand even during unfavorable conditions of the economy.

9. Contributes to Capital Formation

Underdeveloped and developing countries require a huge amount of capital for their economic development. In the primary stages of the development of the economy, agriculture compounds a significant source of capital formation.

10. Employment Opportunities

Agriculture grants employment opportunities for rural people on a massive scale in the underdeveloped and developing countries.

Landless workers and marginal farmers are generally engaged in non-agricultural jobs like handicrafts, textiles, leather, metalwork, processing industries, and in other service sectors.

11. Extension of Market

Due to agricultural progress, it will lead to an extension of the market for industrial products. An rise in agricultural productivity will lead to an increase in the income of the rural population which further leads to higher demand for industrial products. Thus, the development of the industrial sector.

12. Improves Rural Welfare

The rising agricultural surplus that is caused by increasing agricultural production and productivity manages to improve social welfare, particularly in rural areas. The living standard of rural masses expands and they start consuming nutritious diets like eggs, milk, ghee, and fruits.

Conclusion

Over the years, agriculture has proven itself to be one of the most essential contributors to the national income of a country. However, it fails to get the amount of credit that it deserves.

Therefore, one should not ignore the fact that it is the agricultural workers that ultimately help in economic development, which further induces the growth of other sectors.

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