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A DISTINCTION BETWEEN ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT

Updated on March 3, 2011

Most often than not, economic growth and economic development are used interchangeably, but there is a fundamental difference between them. Economic growth can viewed as a continuous increase in the per capita income of a country as a result of continuing increment in per capita productivity. According to Gillis et al, economic growth refers to a rise in national product or per capita income. Productivity as used above is very critical to economic growth. There is therefore the need to examine the processes that operate in order to enhance increase in the productive capacity of an economy.

These processes are increases in capital formation, increases in technical knowledge, and environmental changes. By increases in capital formation it is meant a rise in the creation of assets which could help in producing more output. These assets may be made up of plant and equipment or improvement in the quality of the labor inputs. This is called human capital formation and embodies three things, namely education, health and nutrition. Todaro (2000: 14) defines economic growth as a sustained increase in income (GDP and GNP) at rates perhaps 5 – 7% or more. The rate of growth must take into consideration the ability of the nation to increase its output at a faster rate than the rate of population growth.

Other indications of economic growth are clearly manifested in the example of South Korea since the 1960s. In this economy, there has been a rising share of industry but a declining share of agriculture in the national product, increasing proportion of people in the cities rather than the countryside, a decrease in population growth rate, changes in consumption patterns away from necessities towards consumer durables, leisure etc. and there has also been high participation of citizens in the development process. No economic development can take place without economic growth but there can be economic growth without economic development in an economy.

Economic development goes beyond economic growth. Economic development is a rise in per capita income accompanied by fundamental changes in the structure of the economy. In other words, economic development is economic growth plus structural changes. Economic development is simply an extension of the concept of economic growth. Economic development is therefore a continuing increase in per capita productivity which is accompanied by changes in the economic structure of the country. Economic development places emphasis on ‘process’ and this makes the economy to be classified as developing economy. The structural change basically places emphasis on economic policies that bring about sustenance in the characteristics discussed under the South Korea example above. For there to be changing economic structure, the share of industry in the Gross National Product (GNP) must be rising as per capita income rises. There must also be a population shift from the rural areas, to where the major occupations are mostly farming, to cities and industrial jobs among such other changes.

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    • profile image

      Jerinho 

      3 years ago

      no economic growth cannot occur without economic development

    • Chrisagbe profile imageAUTHOR

      Chrisagbe 

      6 years ago

      Thanks Rachael

    • profile image

      racheal 

      6 years ago

      nice

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