Growth Development and Inequality:

Economic growth  implies that the output of goods and  services in  an  economy has been  expanding. This  would  also  entail  an  increase  in  the  income levels in an economy. The two concepts of 'national  income' and  'per capita income' are used  to analyse the growth  levels of various economies. Thus the Chinese economy, which has  been  growing at about  10 percent per  annum  for  several years, is performing better than the Indian economy, which is growing at the rate of about 6 percent per year.  It means  that  the rate at which an economy is producing goods and  services would  determine the level of growth of that economy. There are several theories of economic growth to explain why some economies grow faster than others. Economists such as Lientiff, Harrod and Domar have developed theoretical models to define factors that would  lead  to stable growth in an economy. These theories explain that there is a close link between  technological change and the capacity to invest by  individuals or governments.  

According to some economists growth process based on inefficient use of resources, particularly exhaustible raw materials, is not sustainable in  the  long  run.

Thus an economy should thrive for technological progress. Labour can  influence growth by  its quantity and  quality. At the macro level, labour supply  can  increase  due  to  demographic reasons  such  as  population growth  and higher work  participation, or through longer working hours. Labour quality, on  the other hand, can  be  enhanced  by  increasing capital investment per labour and  by imparting skill  in  labour. Similarly, technical  advances and  innovation  can  further enhance overall productivity in  an economy. Schumpeter attached a high  degree of significance to  innovation in  facilitating  growth. He argued that  in modem  capitalist societies,  innovations and technological advances are basic to rapid development  and growth.

The  inter-relationships between  various factors and  processes, however, determine the pattern  and  pace of growth  in  an  economy. You may  have observed  that  some countries  have  reached  high  levels  of productive  capacity, which  enhances  their potential to produce goods and services.

There have been  attempts to theorize the growth process which can explain the way societies develop. In  1960s, W.W. Rostow developed a  'stages-of-growth model'  of development with  five categories, viz.,  the traditional society, the pre-conditions for take-off into self sustaining growth, the take-off, the drive to maturity and the age of high mass consumption. Developed countries were considered to be  in  the stage of self sustaining growth and beyond. The developing countries were considered to be either  traditional societies or working towards pre-take off stage. In order to take off, these countries needed  sufficient  investment which  could  take  place only with  the help of domestic  and foreign savings. This was further elaborated  in  the Harrod- Domar  growth model  according to which national  savings, and  the capital-output ratio together determine  the growth in national income.

Therefore, higher  the  savings,  the  higher  the  rate of GDP growth. Robert  Solow, however,  in  his growth model  argued that economies with  similar rates of  savings, depreciation  and growth  in  labour  force and  productivity will  converge to similar income levels. The growth model developed by  Solow yields diminishing returns to capital and labour. The neoclassical growth models could not explain the differential growth rates and pattern of growth in  underdeveloped countries even when  they had
high  levels of capital infusion. In practice we observe that the gap between  rich and poor  countries  is widening.