A STUDY ON EFFECT OF ECONOMIC GROWTH ON ECONOMIC DEVELOPMENT WITH REFERENCE TO SULTANATE OF OMAN

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TRANS Asian Research Journals

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A s i a n J o u r n a l o f

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R e s e a r c h

( A D o u b l e B l i n d R e f e r r e d & R e v i e we d I n t e r n a t i o n a l J o u r n a l )

A STUDY ON EFFECT OF ECONOMIC GROWTH ON ECONOMIC

DEVELOPMENT WITH REFERENCE TO SULTANATE OF OMAN

Dr. A. Prakash*

*Assistant Professor, Department of Management, Waljat College of Applied Sciences,

Sultanate of Oman.

ABSTRACT

This paper aims to study the economic growth and development. The term economic growth is an element of economic development from economic perspective. The researcher tries to study whether economic growth and economic development are going parallel or there is any significant difference between the growth and development. This study also aims to explore the relative influence of economic growth on economic development. For this study, researcher considers Gross Domestic Product (GDP) is an indicator of economic growth in the country. Whereas the economic development includes human welfare elements such as per capita income, reduction in poverty, growth in employment, equality, life expectancy, literacy rate, access to health, standard of living and sustainable development are some of the important elements which are considered to be socio- economic indicators of the developments. However in this study, an attempt has been made to find out correlation between GDP and employment in public sectors and private sectors, per-capita income, expenditures on education and health.

The research is based on secondary data and empirical evidences being used to support the study. Period of study is taken from 2006-2010. An appropriate statistical tool – correlation coefficient analyses has been used to make the study meaningful.

KEYWORDS: Economic development Economic growth, Gross Domestic Product and Socio- Economic.

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INTRODUCTION

The main aim of this study is to focus the attention on the effect of economic growth on various socio economic development indicators. There are socio economic indicators which may be either directly indirectly associated with the real GDP of the country. Again, it is not necessary that the GDP and economic development should go in the same direction until and unless the concern state directs and channelize its attention to Economic Development. Moreover, an increase in GDP does not necessarily mean there must be a rise in the standard of living. It does not measure the quality of life or quantify human happiness. There are other factors such as increase in population, increase in capital goods rather than consumer goods might be the reasons for increase in GDP1. The GDP of a country cannot be taken as a true indicator of economic welfare, but it can be considered as a rough indicator to measure economic well being of the society and hence for this present study, the real GDP is taken into account to correlate and to know the effect of real GDP on economic welfare indicators.

It is understood that the growth of GDP is an indication for the policy makers to concentrate on various growth activities and stimulus policies which could bring down or boost up employment rate in the state. When labor force and GDP are at the same level in terms of productivity which means more labor force is entering into labor market that what required. There is a close relationship between the GDP and growth of employment when the GDP is below the growth rate of work force, it is indicated that enough employment opportunities is not created to meet the new employment seekers as a result the rate unemployment will increase.

Economists clearly defined as what is economic growth in the country and how does it measure to quantify the term economic growth. Economic growth is nothing but expansion of national output or Gross Domestic product (GDP).

OMAN’S ECONOMY

The economic parameter GDP is very important tool for the policy makers. Oman’s economy is an open economy. Population of Sultanate of Oman was 2,773, 479 as per 2010 census. Omani population comprises about 71% and expatriates constitute 29%. About 50% GDP comes from oil sector which is continuously playing very crucial role in the economic growth of the country and remaining 50% comes from non oil sectors such as services sectors, industry sectors and agricultural sectors. Among the non oil sectors, service sectors contribute about 40% to GDP of the country. Although Sultanate of Oman is on the progress of diversification of its economy at all levels, the dependence on oil sectors continues to be inevitable. In 2007, non oil sectors contribution to GDP was about 56% which is 18.3% growth rate when compared to previous year contribution.

As far as Human development Index (HDI) is concern, Sultanate of Oman comes under the category of highest HDI and stands at 89th place amongst 187 countries and territories, its value was 0.705. There has been increasing trend in HDI in Oman, between 2005 and 2010 which accounted an annual average increase of 0.3%. Life expectancy in Oman over the last 5 years is

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73 at birth with marginal fluctuations. GNI per capita income of Oman in 2011 was 22,841 at PPP$ 2005 while in Arab states it was 8554 at PPP US$.

REVIEW OF LITERATURE

Studies have done in the area of health and its impacts on economic growth. Heshmati (2001) said in his study that there was a relationship between economic growth and health. He found that when there is growth in investment in human capital, it will have effect on economic growth. In this Study, the author looks at the problem from different dimension that what is the effect of GDP on health, education, and employment opportunities. It is believed that if the economy of a country is growing and prosperous, there will be a positive effect on economic development indicators. an increase in GDP does not necessarily mean there must be a rise in the standard of living. It does not measure the quality of life or quantify human happiness. There are other factors such as increase in population, increase in capital goods rather than consumer goods might be the reasons for increase in GDP ( Prasad 2011). It is true that Economic growth does not necessarily lead to economic development it all depends on how the income is being distributed. If the income of the country is not evenly distributed and it is accumulated to a few people, it is not a real national development. It will not change the quality of life of majority of the people. Indicators of Human Development Index ( HDI) includes access to education or level of education, GDP per capita at PPP and health status that is life expectancy, when GDP of the state increases. Economic growth represents the expansion of a country’s potential GDP or national output (Nordhaus 2004). The economic growth is an indicator and determines the rate of living standards of people in the country because it leads to increasing average income of the people. Here the study just correct how far the GDP has made impact on social welfare activities.

OBJECTIVE OF THE STUDY

The main objective of the study is to examine whether there is correlation between GDP and per capita income, reduction in poverty, growth in employment, equality, life expectancy, literacy rate, access to health, and standard of living.

METHODOLOGY OF THE STUDY

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r= correlation coefficient,

x= GDP

y= Variables,

N= Number of years

LIMITATIONS OF THE STUDY

The study is done at a macro level which means that the growth rate of GDP is being compared with the total employment growth in the country. It would have given more clarity if the study had been done and analyzed on the basis of sector. This study will not reflect the health conditions of the people in the state because the important focus of the study is on expenditures of the government on health sectors. It is reflecting only the government expenditures towards the health sector. Data which are used in the study are in terms of figures converted into percentage.

ANALYSIS

TABLE:1 ECONOMIC INDICATORS

Variables /Year 2005 2006 2007 2008 2009 2010

Education Expenditures(5) 18.66 12.73 16.73 11.4 9.36 -15.81

Employment in private sectors (%) 2.34 19.43 23.23 22.32 9.6 9.76

Employment in Public sectors (%) 4.16 4.83 5.84 4.5 3.9 2.78

GDP at constant price 2000 annual 4.89 5.99 6.73 13.1 3.9 5

GNI per capita at 2005 PPP (%) 0.91 4.74 4.74 4.74 4.74 4.74

Health expenditures (%) 14.1 11.52 14.49 14.31 12.98 15.72

Source: Ministry of National Economy

Note: Absolute figures converted into percentage

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2 2

2

2 _x _N _y _y

x N

y x xy

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TABLE: 2 CORRELATION COEFFICIENT BETWEEN GDP AND EMPLOYMENT GROWTH IN PUBLIC SECTORS

Year x Y** xy r

2005 4.89 4.16 20.34 23.91 17.31

2006 5.99 4.83 28.93 35.88 23.33

2007 6.73 5.84 39.30 45.29 34.11

2008 13.10 4.50 58.95 171.61 20.25

2009 3.90 3.90 15.21 15.21 15.21

2010 5.00 2.78 13.90 25.00 7.73

N= 6 x 39.61 y= 26.01 xy= 176.64 316.91 117.93 0.133

y ** = employment in public sectors

TABLE: 3 CORRELATION BETWEEN GDP AND EMPLOYMENT GROWTH IN PRIVATE SECTORS

Year x y ** xy r

2005 4.89 2.34 11.44 23.91 5.48

2006 5.99 19.43 116.39 35.88 377.52

2007 6.73 23.23 156.34 45.29 539.63

2008 13.10 22.32 292.39 171.61 498.18

2009 3.90 22.32 87.05 15.21 498.18

2010 5.00 9.76 48.80 25.00 95.26

N=6 x=39.61 y= 99.40 xy=712.41 316.91 2008.78 0.391

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TABLE-4 CORRELATION BETWEEN GDP AND HEALTH EXPENDITURES

Year x y ** xy r

2005 4.89 14.10 68.95 23.91 198.8

2006 5.99 11.52 69.00 35.88 132.71

2007 6.73 14.49 97.52 45.29 209.96

2008 13.10 14.31 187.46 171.61 204.78

2009 3.90 12.98 50.62 15.21 168.48

2010 5.00 15.72 78.60 25.00 247.12

N= 6 x

=39.61 y=83.12

xy=

552.15 316.9

1

=1161.8 6

0.14 3

y ** = health expenditures

TABLE-5 CORRELATION COEFFICIENT BETWEEN GDP AND EDUCATION EXPENDITURES

Y** = education expenditures

Year X y ** Xy r

2005 4.89 18.66 91.25 23.91 348.20

2006 5.99 12.73 76.25 35.88 162.05

2007 6.73 16.73 112.59 45.29 279.89

2008 13.10 11.40 149.34 171.61 129.96

2009 3.90 9.36 36.50 15.21 87.61

2010 5.00 -15.81 -79.05 25.00 249.96

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TABLE-6 CORRELATION COEFFICIENT BETWEEN GDP AND PER CAPITA INCOME

Year x Y Xy r

2005 4.89 0.91 4.45 23.91 0.83

2006 5.99 4.74 28.39 35.88 22.47

2007 6.73 4.74 31.90 45.29 22.47

2008 13.10 4.74 62.09 171.61 22.47

2009 3.90 4.74 18.49 15.21 22.47

2010 5.00 4.74 23.70 25.00 22.47

N= 6 x= 39.61 y = 24.61 xy= 169.02 = 316.91 = 112.34 0.119

Y** = per capita income

FINDINGS AND CONCLUSIONS

Table:1 Shows economic indicators for period between 2005 to 2010. The researcher has made an attempt to correlate between GDP at constant price at 2000 and other related variables such as growth of employment in public sector and in private sectors, and also correlate with health expenditures and educational expenditures. Correlation coefficient is being used in the study to correlate the variables. Figures given in table-1 are in percentage.

Table-2: There is a low degree of positive correlation between GDP and employment in government sectors. Since the correlation between the GDP and employment in public sectors is (r) + 0.133. They are not going in the same direction or not at constant ratio. The public sectors employment includes civil service, diwan of royal court, royal court affairs and public corporations but excluding the defense personal. In this study, the distinction between employment of expatriates and Omanis is not made. Employment for expatriates in public sectors is on need based. In fifth five year plan Sultanate of Oman is taken efforts to create adequate employment opportunities for Omanis. Though, there is low degree of positive correlation, from the point of view of economic principles, the rate of GDP is higher than the rate of employment, more employment opportunities will be created under this circumstances.

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also a positive sign for the country that GDP is growing fast which creates more employment opportunities to the surplus unemployed work force

Table-4: shows the correction between the GDP and health expenditures. The correlation between the GDP and health expenditures (r) is +0.143. This is low degree of positive correlation. It just shows health expenditures only, the author assumes that when government allocates more budget, it will enhance health facilities and accessibility to health services which ultimately increase the life expectancy of the people, fertility rate and decrease in maternal mortality. The planners can make sufficient budget to enhance health facilities because the GDP growth is faster. In 2010, life expectancy and total fertility rate has been increased.

Table: 5 reveals the GDP and educational expenditures. The relationship between the GDP and the educational expenditures is in low positive degree (r ) 0.155. Both the GDP and educational expenses are not in the same direction and in table 6, the GDP and per capita income is being compared which is also positive correlation ( r ) 0.119.

RECOMMENDATION

From the above study it is understood that there is a positive correlation between GDP and health expenditures, employment in private and public sectors and per capita income. But the degree of relationship is low which means that GDP growth will have very moderate effect on employment opportunities, health and per capita income. Therefore the studies suggests that there will be high degree of effect on these areas provided the government pays attention towards these sectors.

REFERENCES

Norghaus, P. A. (2004). Economics.: Tata McGraw-Hill, New Delhi.

Prasad (2010-2011). Principles of Economics, Lakshmi Narain Agarwal, Agra.

William G. Frgang, K. W. (2007). Management Economics- An Accelerated

Approach, M.E Sharpe, New York.

Toossiand Mitra; (2002) A Change of Change.

http://www.moneoman.gov.om/websites_en.aspx

http//www.mohe.go/om/book/syb2011/18_health.pdf.

http//www.mohe.go/om/book/syb2011/19_education.pdf.

http//www.cbo.oman.org/annual/cbo annual _report_ 2011.pdf

http//www.hawalli.edu/powerkills