Distinguish between productivity and the level of production and discuss why productivity is likely to be lower in a developing economy than in a developed economy.
Productivity is a measure of efficiency that shows total output produced by a unit of input. It focuses on the ratio of output to input such as labour, capital to measure how efficiently the resources are being utilised to produce goods and services. There could be many factors that affect the level of productivity such as the level of skills of the force, technology usage, motivation of the workforce and availability of resources.
On the other hand, the level of production shows the total quantity of output produced over a period of time regardless of the quantity of input. It is a measure of scale that a firm or economy is capable of producing. There are several factors that affect it such as availability of raw materials, demand for goods and services, level of competition, level of technological advancements and government regulations.
In short, productivity is about efficiency whereas level of production measures the quantity of output produced. While productivity and production are related, they are distinct concepts. An economy may produce more by increasing its resources but it may not be necessarily productive if its using the same resources inefficiently.
A developed country is defined as a high income country with GDP per capita is USD12000 and above. Whereas the least developed country GDP per capita is USD1300 per annum.
In developing countries, productivity is often lower than in developed countries due to several factors. One reason is the low level of investment. Since savings equals investment, lower savings lead to lower investment, which in turn affects productivity. Additionally, many developing countries rely heavily on primary industries, such as agriculture or extractive industries. These industries often have low value-added products and are subject to volatility in the world market, which can lead to low income for workers. Moreover, as the demand for primary goods is income inelastic, an increase in world income does not necessarily translate into an increase in demand for primary goods. As a result, the people in these countries have low income and little capacity to save or invest, leading to lower productivity.
For instance, in many developing countries, workers lack access to advanced technologies and education, which can lead to lower productivity. In the agricultural sector, for example, workers may rely on outdated tools and techniques that are less efficient than modern ones. This can lead to lower yields and decreased income for workers.
The poor infrastructure in an economy is another significant factor that affects productivity. Developing economies often lack essential infrastructure such as efficient rail and road networks, ports, and telecommunication connections. All of these can hamper the distribution of goods and services effectively. For example, in India, it often takes days for perishables from rural areas to reach the central market due to the lack of distribution amenities like refrigerated trucks and proper roads. As a result, up to 40% of perishables are not in sellable condition by the time they reach the market and are consequently discarded.
In contrast, developed countries have higher productivity levels due to factors such as advanced technology, high levels of education and investment, and a more diverse range of industries. For example, workers in developed countries often have access to advanced tools and machinery that can make their work more efficient. Additionally, in developed countries, investment in research and development and infrastructure can lead to increased productivity and innovation. Furthermore, developed countries with better inter-connectedness are able to avoid wastage. Finally, developed countries often have more diverse economies, which can help to mitigate the risks associated with volatility in the global market.
In conclusion, productivity is a critical measure of efficiency that distinguishes it from the level of production. Developing countries often have lower productivity levels due to a lack of investment, outdated technology, and low value-added products. In contrast, developed countries often have higher productivity levels due to advanced technology, education, investment, and diverse industries. By understanding these factors, policymakers can work to increase productivity and promote economic growth.
