What Is Economic Growth?
- Economic growth is an increase in the production of economic goods and services, compared from one period of time to another.
- It can be measured in nominal or real (adjusted for inflation) terms.
- Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used.
Ways to generate economic growth
- The first is an increase in the amount of physical capital goods in the economy.
- Newer, better, and more tools mean that workers can produce more output per time period.
- The second method of producing economic growth is technological improvement.
- Improved technology allows workers to produce more output with the same stock of capital goods, by combining them in novel ways that are more productive.
- Example: The invention and use of Petroleum became a better and more productive method of transporting goods in process and distributing final goods more efficiently.
- The third way to generate economic growth is to grow the labour force.
- All else equal, more workers generate more economic goods and services.
- The last method is increases in human capital.
- This means labourers become more skilled at their crafts, raising their productivity through skills training, trial and error, or simply more practice. Savings, investment, and specialization are the most consistent and easily controlled methods.
- Economic development is defined as a sustained improvement in material wellbeing of society.
- Economic development is a wider concept than economic growth.
- Apart from growth of national income, it includes changes – social, cultural, political as well as economic which contribute to material progress.
- It contains changes in resource supplies, in the rate of capital formation, in size and composition of population, in technology, skills and efficiency, in institutional and organizational set-up. These changes fulfil the wider objectives of ensuring more equitable income distribution, greater employment and poverty alleviation.
- In short, economic development is a process consisting of a long chain of interrelated changes in fundamental factors of supply and in the structure of demand, leading to a rise in the net national product of a country in the long run.
- On the whole, the economic growth is a narrow term.
- It involves increase in output in quantitative terms but economic development includes changes in qualitative terms such as social attitudes and customs along with quantitative growth of output or national income.
- But, Economic development without growth is almost inconceivable.
Differences between Economic Growth and Economic Development
|Parameter||Economic Growth||Economic Development|
|Concept||It is the positive change in the indicators of economy.||It is the quantitative and qualitative change in an economy.|
|Factors||Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net
|Development relates to growth of human capital, decrease in inequality figures, and structural changes that improve the quality of life of the population.|
|Impact||It refers to the increment in amount of goods and services produced by an economy.||It refers to the reduction and elimination of poverty, unemployment and inequality with the context of growing economy.|
|Focus||This focuses on production of goods and services.||This focuses on distribution of resources.|
|Measurement||Economic Growth is measured by quantitative factors such as increase in real GDP or per capita income.||The qualitative measures such as HDI (Human Development Index), gender- related index, Human poverty index (HPI), infant mortality, literacy rate etc. are used to measure economic development.|
|Relevance||It reflects the growth of national or per capita income||It reflects progress in the quality of life in a country.|
|Time Frame||It is for short term/short period. It is measured in certain time frame/period.||It is a continuous and long-term process. Economic development does not have specific time period to measure.|
|Interaction||Economic growth is an automatic process that may or may not require intervention from the government||Economic development requires intervention from the government as all the developmental policies are formed by the government|
|Expectations||It is not concerned with happiness of public life||It is concerned with happiness of public life.|
|Application||Economic growth is more relevant metric for assessing progress in developed countries.||More relevant to measure progress and quality of life in developing countries.|