Meaning of Economic Growth and the Difference between Growth and Development

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The term economic development is fundamentally different from the concept of economic growth. In an ordinary sense, the term economic growth is related to the rate of change in GDP or per capita income of the people of the country. Growth concerns the quantitative aspect of change and growth. So, economic growth is a sustained annual increase in an economy’s real national income over a long period of time. It is a rising trend of net national products at a constant price.

This definition of economic growth is not a complete one. It is because total national income may be increasing and at the same time the living standard of people may be falling. This could happen when the population increase rate is higher than the rate of increase in national output. Per capita income increases when the economic growth rate is higher than the growth rate of the population.  

Thus, economic growth further can be defined as an annual increase in the real per capita income of a country over a long period of time. The main objective of economic growth is to raise the living standard of the people, therefore the economic growth should be defined in terms of real per capita income or output rather than only increase in national output and such increment in real per capita should be sustained increase.

According to Michael P. Todaro and Stephen C. Smith defines economic growth as “the steady process by which the productive capacity of the economy in increased overtime to bring about rising of national output and income.”

According to Jacob Viner, “economic growth is an issue of reducing mass poverty.”

Therefore, economic growth is a continuous or persistent increase in total real GDP per capita achieved by increasing productivity, employment, and the living standard of people. The economic growth rate has measured both terms as an increase in overall Gross National Product (GNP) or Net National Product (NNP) and an increase in per capita income.

GNP measures the total output of goods and services that an economy is capable of producing and per capita income measures how much of real goods and services which an average person of the commodity will have for consumption and investment, that is the average level of living of the citizens of the country.

Therefore, international organizations like the World Bank and IMF have been using both measures of economic growth in their annual World Development Reports for comparing growth with levels of living standards f the developed and the developing countries. In Nepal, the Ministry of Finance and Nepal Rastra Bank have been measuring the economic growth of Nepal on the basis of both overall GDP or NNP and per capita income.

Studying the economic growth trend of most developed countries of the world Simon Kuznets (1971 Nobel laureate in Economics) identified six important features of modern economic growth which are;

  • The high rate of growth per capita income and population
  • A high rate of increase in total factor productivity
  • High rates of structural transformation of the economy
  • The high rate of social and ideological transformation
  • The propensity of economically developed countries to reach out to the rest of the world for market and raw material and
  • The limited spread of this economic growth to only one-third of the world’s population.

Thus, in any economy, economic growth occurs when the economy achieves an increase in its National Income (NI), in excess of its rate of population growth. This will lead to an increase in GNP per capita. In the underdeveloped countries of the world, there is an existence of poverty. It can be eradicated if these countries managed to achieve a sustained level of economic growth over a period of time. 

Difference between Economic Growth and Economic Development

The term economic development is different from economic growth; economic growth is mainly related to the rate of change in national income or GDP. But economic development is associated with qualitative and quantitative changes in various aspects of human life.

Economic growth is necessary for economic development but economic development includes more indicators of human life. Economic growth is considered a necessary condition for economic development. The growth of an economy directly depends on the productivity of factors of production, quality of inputs, availability of socio-economic facilities like transportation, communication, improvement in technology, provision of education, health and drinking water facilities, political stability, industrial development, etc.

The major differences between economic growth and economic development areas follow;

BasisEconomic GrowthEconomic Development
MeaningEconomic growth is considered as the continuous increase in national income or gross national product (GNP)Economic development refers to the continuous increase in GNP plus structural changes in the economy.
ObjectiveThe objective of economic growth is to increase the pace of economic prosperity.The main objectives of economic development are to ensure the equitable distribution of income, wealth, resources, and opportunities and reduce poverty.
ConcernThe concept of economic growth is generally concerned with the economic progress of developed countries.The concept of economic development is concerned with the economic progress of underdeveloped and developing companies. 
EffectThe effect of economic growth can be easily measured.The measurement of the effect of economic development requires a long period of time.
ScopeIt is a narrow concept since it is based on the concept of an increase in the real output of a particular sector.It is based on a broad concept since it is related to every sector of the economy.
IndicatorsPer capita income, Gross National Income, etc. is considered as an indicator of economic growth.Basic need fulfillment, Physical quality of life index (PQLI), Human development index (HDI), etc. are major indicators of economic development.
Measurement Economic growth is measurable quantitatively in a unit since it includes the economic variable such as Capital Output Ratio, Balance of Trade, Balance of Payment, etc.It is almost impossible to measure quantitatively since it also includes the social, cultural, and political aspects of the society including economic variables. 
ConclusionEconomic growth is related to the necessary condition of economic development.It is considered a sufficient condition of development.
Difference between economic growth and economic development

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