Tuesday, January 03, 2006

Economic growth versus economic development

There is a tendency to think of economic growth and economic development as being the same. However, this is not the case.

Economic growth occurs where there is an increase in the level of output of a country. The income of a country can be measured by its Gross Domestic Product (GDP) or Gross National Product (GNP). The GDP measures the value of goods and service produced by the firms of an economy in one year.

GDP or GNP can increase due to two basic reasons or a combination of both:
1. The value can increase because the amount of goods and services actually produced during the course of one year has increased.
2. The value can increase because the prices at which the GDP is valued have increased due to inflation. In this case the actual amount of goods and services need not have actually increased in physical or real terms.

Economic growth occurs where there is an increase in the actual amount of goods and services produced in one year. Only when the real value of GDP and the circular flow of income has increased can the economic growth be said to have occurred.

Economic Development is a broader concept than economic growth. It combines growth with an improvement in living standards. Economic growth does not take into account how GDP is distributed or the degree of poverty that exists or how much access people have to basic needs such as schooling, heath and socials services. Economic Development does.

Dudley Seers in the ' The Meaning of Development' defines development as "the reduction and elimination of poverty, inequality and unemployment within a growing economy".Sometimes the term Human Development is used to describe economic development in an even broader sense.

Michael Todaro suggests that improving living standards must ensure wider economic and social choices. He argues that development should "expand the range of economic and social choice to individuals and nations by freeing them from servitude and dependence, not only in relation to other people and nation states but also to the forces of ignorance and human misery".

Once the distinction has been made between the growth and development then thought must be given to the appropriateness of growth indicators such as GDP to measure development.

Adapted from: http://www.bized.ac.uk/virtual/dc/back/dev.htm

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