For two Economic Models, briefly describe the Model, and carefully compare and contrast their application to any one developing country.Introduction - India

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For two Economic Models, briefly describe the Model, and carefully compare and contrast their application to any one developing country.

Introduction - India

India is still seen as a developing nation, even though it has an ever growing economy, and is likely to become one of the largest economies within the next two decades. It has a strong currency, the Rupee, and its GDP is growing at a stable and secure rate of between 5 and 7% per annum.

* Population (2001): 1.0329 Billion

* Rural Population (of total population, 2001): 72%

* Life expectancy at birth (2001): 63 years

* Gross National Income per Capita (2001): US$ 460

The Government has played a large part in making sure India has a stable economy, with an infrastructure suitable to deal with the expected future expansion. There is a growing further education sector, with over 300 universities teaching 12,000 students. Education is vital for developing nations. This is due to its need to keep up with developed countries, and have an intelligent generation capable of moving the country forward in all directions. It is however, important to look at this in context. There are over one Billion people in India, so those at university count for around 1% of the population.

There is an expanding social benefits package within the economy, allowing people to retire at 55 with a state pension, however, this is not enough to live on alone at the minute. Unfortunately, like many developing countries, there are weaknesses within the system, and so it is open to corruption. However, the Government are putting a lot of time into closing the gaps and loopholes.

Although all this looks promising, there are still around 27% below the international poverty line, this is far greater in some areas. With India been such a large country, both in population and land mass, it is difficult to implement economic theories and plans throughout the whole economy. There are differing trends throughout the various regions in all sectors of the economy. 'The market orientated policy reforms initiated in 1991 were blamed by some for a rise in rural poverty but poor agricultural performance was an important additional cause. Growth slowed as reforms were retarded by complex political problems.1'

First Model - Ricardian

Ricardo was from the Classical school of economics, along with Adam Smith (Wealth of Nations: 1776) and Malthus (An Essay On The Principle Of Population: 1798). In 1817, he wrote 'Principles of Political Economy and Taxation.' His work was based in late eighteenth and early nineteenth century Britain. He assumed that the agricultural sector was subject to diminishing returns. This is the theory by which, as the population increases, more land comes into production, and as this is less fertile, so the production per area falls in comparison to the previous production cycle. It is also assumed that there is a labour surplus. This is when there are more people willing to work than there are jobs for. So, in theory, if this excess labour is removed, production will stay the same, as those previously working part time due to the 'sharing out' of work, will be able to work full time as they take the work of those removed. However, this is only a theory. 'Models are simplifications of reality which focus on crucial variables and relationships.2'
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Ricardo's work also suggests that by keeping population growth down, poorer soils will be used and so the supply of food stays sufficient, and avoids diseconomies of scale. He also believes that if wages were to rise, workers would have more children; this in turn cuts into the profit allocated to investment, which would have allowed the rural labour surplus to move to urban areas.

Unfortunately, his predictions failed regarding income distribution and economic growth. This was due to rent not taking a greater share of national income within industrial nations, and profits of capitalists have not ...

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