The Western Path to Development - Essay Example

? ECONOMIC GROWTH Introduction Economic growth is the measure of how an economy’s production increases when one period is compared with a previous one. Most economists argue that the advantages of economic growth outweigh the disadvantages. The major advantage of economic growth is associated with reduction of poverty. However, Donaldson (2008, p. 2127) argues that there are negative exceptions where economic growth leads to an increase of individual income that is less that the expectations of economists. Various nations in the world have different levels of economic growth. This is illustrated by the fact that the living standards of people within developed economies are better than that of the developing economies. Economic growth generally enables a country to be able to meet the needs and wants of the society by providing it with sufficient goods and services at an affordable cost. This paper describes economic growth as a good thing with analytical discussion of its advantages and disadvantages in relation to the party that benefits from the growth and the manner in which this growth is experienced. Indicators of Economic Growth In the modern world and economy, economic growth is characterized by advancement, adoption and application or technology in production of services and goods within sectors of a specific economy. For example, the use of technology and the internet in the US has facilitated production and thus making it one of the most developed countries in the world. According to Sachs (2005, p. 9), the concept of economic growth has two major dimensions. These are the increased capacity of an economy in the production of services and goods and enhancement of living standards and thus improved quality of life within the society. The indicators of economic growth within a country include an increased gross domestic product (GDP) and individual income. However, it should be noted that economists calculate economic growth rate by comparing the changes in GDP between periods of time. Donaldson (2008, p. 2128) asserts that it is through measuring the production of goods and services that economic growth of a country is determined. Therefore economic growth does not necessarily imply that it is a positive growth because it could be negative. When the growth of a country’s economy decreases, it is said that a negative economic growth has been experienced while an increase in productivity means that a positive growth of the economy is felt. Economic recession or depression is the characteristic of a negative economic growth which means that a country is unable to adequately meet the needs for goods and services of individuals and groups within the society. Sinha (2005, p. 25) points out that the growth in GDP within a country means that its economy is facing a positive growth and this is beneficial to three parties. Firstly, a positive growth in the economy benefits the people within the county by for example reducing poverty and thus improving the living standards. Secondly, the country as a whole benefits because a growing economy attracts foreign investment and leads to growth of its industries and infrastructure. The world economies also gain from the growth of a country’s GDP as illustrated by the economic exchanges during the importation and exportation of goods and services among countries. Decancq, Decoster and Schokkaert (2008, p. 11) explain that the globalization of the world economies links regions and as a result the economic growth of one country or region benefits other regions in terms of the goods and services that they are enabled to enjoy from the production of the grown economy. Advantages of Economic Growth Through an increased production of goods and services in an economically growing country, the living standards of the society are improved significantly. Donaldson (2008, p. 2132) emphasizes that it is through an increase in the earnings or income of people within the society that their living standards are improved. This reveals that economic growth is beneficial to the society because it makes people experience life in a more desirable manner than before. Increased income makes individuals to be able to afford various goods and services which make them to effectively meet their needs and wants. According to Sinha (2005, p. 27), the developing nations focus on improving their economies as the most appropriate strategy of reducing the increasing rate of poverty which characterizes these regions. On the other hand the growth of the economy does not automatically reflect a reduction in poverty. Through studies of various economies within the developing world, it has been established that some economies which have recorded an increased economic growth illustrate reduction in poverty that falls way below the expectation of economic speculation. Employment is one of the chief measurements of an individual’s ability to meet his or her needs for goods and services. Sachs (2005, p. 11), asserts that positive economic growth leads to the increased number of job opportunities and as a result more people within the society get employed. The increased rate of employment in a positively growing economy is a product of the demand of businesses and firms for human capital. As an increased growth of an economy causes an improved productivity and thus more output of goods and services, more people are required to meet the demands of the production firms. Decancq, Decoster and Schokkaert (2008, p. 13) add that firms grow and expand when an economy of a country or region grows. This creates more employment opportunities and thus more people have a source of income. This can be illustrated by the high unemployment rates that are recorded in developing and undeveloped economies as compared to the developed countries. The western world is generally characterized by a higher employment rate among its population because of the many production firms and businesses which translate to a higher demand for human resources. On the other hand Donaldson (2008, p. 2133) asserts that the application of technology in the developed economies has resulted into a negative implication on employment because some people have lost jobs due to the application of information systems by organizations and business. However, the advantages that are associated with adoption of technology outweigh its negative implications. This is because technology facilitates production and thus a general positive growth of the economy. A positive growth in a country’s economy leads through a growth in capital investment. This means that more people are investing in businesses and organizations which propel the economic growth of the country. Sinha (2005, p. 31) illustrates that investors are attracted to businesses within an economically sound region because they are guaranteed of positive returns. The investment in a country’s economic sectors can either emanate from within of externally. The significance of an increase in capital investment for a country is indicated by the fact that it leads to a sustained growth of the economy as revealed by Decancq, Decoster and Schokkaert (2008, p. 11). Investment within a country includes mergers of companies with foreign investors which expands production of services and thus sustained growth of the economy. Investment acts as a facilitator of the growth of industries and businesses. However a fluctuation growth of a country discourages investors because of the unpredictability that is related to such economies. The benefits of increased investment are felt by the people and the country in general. Investment causes more production which makes people to have variety of services and goods to choose from and thus preventing exploitative businesses form operating. A country gains from capital investment because it sustains its economic growth and thus improves its international image in addition to the development of its infrastructure. According to Donaldson (2008, p. 2129), governments benefit from a positive growth of their economies because the revenue on revenue is increased significantly. In return, governments become stronger as revealed by the influence that developed nations have on the less economically sound regions. As governments become stronger, the members of the public also benefit because they are enabled to enjoy superior services within the public sector. The increased income for the government which results from the growth of the economy enables it to spend more money in provision of quality public services which benefits individuals within the society. Business organizations within a country benefit when the economy is experiencing growth because of the enhancement in business confidence that is related to the growth of the economy as explained by Sachs (2005, p. 13). Increased production and investment within businesses leads to more profits of small and medium businesses which significantly enhances their business confidence. In return, these businesses are obliged to put more effort in order to grow bigger so that they would enjoy the economic benefits which are associated with business growth. Disadvantages of Economic Growth The activities within sectors of an economy involve engagement of people in extracting natural resources. Because these resources are non renewable, they are doomed into depletion. Donaldson (2008, p. 2127) says that economic growth facilitates the use of natural resources which aims at meeting the demands for raw materials within the production industries. In return, a country experiences a risk of depleting its natural resources and therefore inability to sustain its economic growth. It is recommended that countries prescribe the limits beyond which extraction of resources should be regulated so that they would be able to sustain this growth for a long duration. Sinha (2005, p. 25) asserts that the depletion of natural resources affects the country, the public and businesses. People would lose employment when resources are depleted because of the resultant reduction of demand for labor in the production industries. Businesses also will be affected negatively with depletion of natural resources because it reduces profits which results from lowered production of goods and services. The revenue that governments get from production industries will also decrease due to depletion and therefore making them less powerful. The negative impact of economic growth on the environment is experienced by economically developed countries to a larger extent as compared to the developing nations. Sachs (2005, p. 15), illustrates that economic growth leads to increased pollution of the environment. Noise pollution is a characteristic of industries in developed nations which is a menace within the society. Additionally, economic growth has led to congestion especially in urban areas due to the large number of people who migrate into towns in search for employment within industries and business organizations. The emissions of industries also cause heavy pollution in the environment. This revealed by the developed economies whose many industries have caused significant damage to the environment and the ozone layer which has led to global warming and increased desertification of the world. An increase in relative poverty is the result of unbalanced economic growth of the world economy. This has led to social inequalities within societies of the world. Because of these differences some economies especially from the undeveloped economies are dependent on the economic giants of the world in many ways. Decancq, Decoster and Schokkaert (2008, p. 19) add that economically sound countries have increased influence on the developing society’s social, economic and political environments. The economic gap between the developing nations and the increased relative poverty has led to the exploitation of the poor societies. Natural resources in the developing nations which have insufficient production capital and capacity have been exploited by the developed economies for their own economic advantage. Additionally, the increased gap between the poor societies and the developed nations has resulted into cultural influence of the economically sound societies. However, westernization is argued to be a positive development on cultures, politics and economies. Donaldson (2008, p. 2127) argues that globalization and the advancements in technology and networking environments has reduced the gap between regions and as a result led to a general globalization of economy. A globalized economy enables businesses to operate anywhere in the world and people can now work within any society. Conclusion Economic growth can be either negative or positive and is measured by the increase of a country’s production of goods and services. Developing nations normally focus on improving their economy as a way of reducing the level of poverty within their population. However, economic growth does not necessarily reflect reduction in poverty because there are some negative exceptions where a growing economy has led to reduction in poverty that is way below the expectations of the economic speculations. However, the advantages of positive economic growth outweigh the disadvantages. The benefits of economic growth include improved living standards, income, employment opportunities, and revenue for governments, investment and business confidence. However, economic growth leads to increased relative poverty between regions, pollution, congestion and depletion of a country’s natural resources. References Donaldson, J. A., 2008, “Growth is Good for Whom, When, How? Economic Growth and Poverty Reduction in Exceptional Cases”, World Development, Vol. 36, No. 11, pp. 2127–2143 Sachs J. D., 2005, “Challenges of sustainable development under globalization”, International Journal of Development Issues, Vol. 4, No. 2, pp. 1-20 Sinha D., 2005, “The WTO and the developing countries: A review of issues”, International Journal of Development Issues, Vol. 4, No. 1, pp. 25-48 Decancq, K., Decoster, A. and Schokkaert, E., 2008, “The Evolution of World Inequality in Well being”, World Development Vol. 37, No. 1, pp. 11–25. Read More