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Economic Growth vs Economic Development

Economic Growth:

Economic growth may be distinguished from economic development. Economic growth may be defined as the increase in production or consumption by each nation or region, while economic development is the increase of such production or consumption by each person, putting growth on a per capita basis.

The concept of economic growth is sometimes mixed with economic development. Economic development is a wider term and economic growth simply means, “Increase in Production” or “Increase in income”. We can say that Economic development is the change in one sector of economy, such as agricultural development while Economic growth is the change in whole economy such as GDP growth.

Economic growth means the growth in the productive capacity of an economy or in other words, it conveys growth in the production of goods and services in an economy. The process of growth is initiated when saving rate of a country as a proportion of national income increases and as a consequence, investment level goes up; and thereby real national income or real GNP of the country increases.

If the growth rate of population remains less than the growth rate of real national income, real per capita income will also increase over a long period of time. This would be the growth of an economy. This means that growth is only a rise in the productive capacity of an economy by which it transforms itself from an agrarian to a highly industrialised economy.

It should be borne in mind that the process of economic growth is related with production aspect only and it has got nothing to do with the distribution aspect of an economy. Thus, with the growth of an economy the distribution of income (or wealth) may remain unfair and may not be related with the welfare of the people.

Thus, main features of economic growth are as follows:

An Increase in The Productive Capacity of An Economy:

Economic growth conveys that there should be substantial increase in the productive capacity of any economy so that there is rise in real national income and as a result, real per capita income of the people as well a rise in productive capacity of an economy can be achieved by the optimum use of natural, human and capital resources of the country.

Increase in Real Per Capita Income:

When the growth rate of real national income of a country is greater than the growth rate of population, real per capita income will increase. This is an essential pre-requisite for economic growth to take place.

Long Period of Time:

Growth is a long-run process as it will take place only if real national income as well as per capita income increases consistently over a period of decades. Short-term increase in national and per capita income may take place as a result of cyclical boom which may be followed by a phase of depression Hence short-term fluctuation in an economy will negate the existence of economic growth.

Growth in an economy therefore strictly means the physical or material uplift of the economy or in other words, a rise in the productive capacity of an economy; utterly ignoring its Impact on the welfare of the people, the need for fair distribution of national income and changes in institutional arrangements.

Economic Development:

Economic development brings into focus not only the production uplift of the economy in a long period of time. but also brings in the distribution of national income Economic Development therefore is a multidimensional process under which not only the productive capacity of the country increases, but it also ensures that wealth/income is fairly distributed among the people over the long-run.

It means that economic growth is related with production aspect only whereas in economic development we are also closely related with the fair distribution of national income. Thus, when production and fair distribution take place simultaneously over a long period of time, the society develops as a whole, enjoying equally better food, shelter etc. quality education and sound health facilities.

With the pace of economic development following structural changes take place in the economy.

Changes in The Structure of Sectors:

In the process of economic development there appears a change in the structure of different sectors of an economy. For example, relative contribution of primary sector in the real GNP declines while that of secondary and tertiary sectors goes up.

Changes in The Structure of Occupations:

With the pace of economic development there appears a change in the structure of occupations. For example, the proportion of labour force in the primary occupation i.e. agriculture declines, whereas the proportion of force in the secondary occupation i.e. manufacturing increases.

Changes in The Composition of Industrial Output:

With economic development the economy transforms itself from an agrarian to a highly industrialized economy. There is a transformation in the composition of industrial goods. The proportion of capital goods in the industrial output increases while that of consumer goods decreases.

Changes in The Pattern of Trade:

As the process of development goes on, composition of trade with the rest of the world also changes. For example, the proportion of primary goods in exports declines and that of capital goods rises and on the other hand, the proportion of consumer goods in imports falls and that of industrial raw material increases.

Changes in Technology:

In the process of development, the orthodox technology in the production process is replaced by sophisticated techniques of production.

Changes in Institutional Arrangements:

There is also a change in institutional and organizational arrangements. The element of risk in business increases and there is also a rapid change in investment patterns of the economy.

Comparison of Economic Growth and Economic Development:

According to Maddison:

The raising of income level is generally referred as Economic Growth in countries. Economic growth may increase the weight of a nation in world affairs, but it may fail to make life any easier for its inhabitants.

Economic development provides this increase in goods and services, which may be felt by the population.

According to Schumpeter:

Economic Development is a discontinuous and spontaneous change.

While Economic Growth is a gradual and steady change in long run.

According to Kindleberg,

Economic development implies both more output and changes in the technical and institutional arrangements by which it is produced and distributed

While Economic Growth means just more output.

In the words of Friedman,

Economic Development as an innovative process leading to the structural transformation of social system.

While Economic Growth as an expansion of the system in one or more dimension without a change in its structure.

Economic Development related to qualitative changes in economy.

Economic Growth is related to quantitative increase in countries output.

Economic Development emphasizes on the balance growth of economy.

Economic growth just checks the statistical upward in the economy.

Key point for the measurement of Economic Development is to decide whether poverty has reduced or not.

Economic Growth is measured only by comparing income level of different years.

Concluding Remarks:

Thus, Economic Development, as distinct from Economic Growth, means that distribution aspect of the economy be corrected to increase the middle-income group. It may be achieved by increasing employment opportunities or it may be realised through the expansion of public sector. This will result in the improvement of health and educational facilities and that too along with the satisfaction of basic needs of the people.

Economic Growth is related to quantitative sustained increase in the countries, per capita output or income accompanied by expansion in its labour force consumption, capital and volume as trade.

On the other hand, Economic Development is a wider term. It is related to qualitative changes in economic wants, goods, incentives and institutions. It describes the underlying determinants of growth such as technological and structural change. Development embraces both growth and decline. An economy can grow but it may not develop because of poverty, unemployment and inequalities may continue to persist due to the absence of technological and structural changes. But it is difficult to imagine development without economic growth in the absence of an increase in per capita output particularly when population is grown rapidly.

Despite these apparent differences, some economists use these two terms as synonyms. Arthur Lewis in his The Theory of Economic Growth writes that “Most often we shall refer only to growth but occasionally for the sake of variety, to progress or to development. “

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