Most of the time, when hearing the terms economic growth and economic development, you might have thought about them being similar. However, in reality, these concepts are poles apart and different from one another.
Although both are crucial indicators of a country’s economic health, there are still some significant distinctions between them.
This post takes you through the key difference between economic growth and development and helps you understand both terms.
What is economic growth?
Economic growth is the increase observed in the monetary value of all the products and services manufactured in an economy during a certain period. It is a quantitative measure that showcases a possible increase in the number of business transactions occurring in an economy.
Economic growth can be evaluated in terms of an increase in the overall market value of additional products and services produced through varying economic concepts, such as Gross National Product (GNP) and Gross Domestic Product (GDP).
Let’s understand this with an example. Suppose an exclusive fruit only grows naturally in India. Indians have consumed this fruit for years altogether. An American visits India and likes this fruit. He takes samples to America for his acquaintances.
Then, the American invest in a sizeable fruit exporting business in India as they like the fruit.
Hundreds of Indians engage with this newly structured company to farm, harvest, pack, and ship the fruit to American supermarkets.
The total value of the products and services created by this new fruit exporting business surpasses ten million dollars in one calendar year. The business will add this amount to India’s GDP. The country’s GDP will increase, which will be an indication that India has accomplished economic growth.
This way, it is clear that human capital, technology, labor force, and capital goods – all of them have the capabilities to contribute to economic growth.
What is economic development?
Economic development is a process through which the all-inclusive academic level, well-being, and health of a country’s population improve. It is also known as the enhanced production volume, owing to technological advancements.
Economic development is more of a qualitative improvement and is generally regulated by the Human Development Index (HDI). A country’s overall development is based on several parameters, such as
- Industrial and infrastructural development
- Gross domestic product
- Enhancement in self-esteem requirements
- Quality of life
- Per capita income
- Living conditions
- Standard of living
- Technological advancements
- Job opportunities
And more.
Let’s take the example mentioned above here again. Before this fruit exporting business came into the picture, many Indians lived in small settlements across several miles. Only some Indians out of this lot had access to healthcare, clean water, schools, and other basic facilities. To look after their families, elders worked longer hours to harvest land that was unsuitable for many crops.
After the export of this fruit and an upsurge in the government’s revenue, Indians received better access to basic facilities. The export industry started providing fixed working hours and better salaries. The development indicators, like access to healthcare, per capita income, and literacy rate, got improved, thus, indicating economic development.
Keep in mind that apart from the nation’s income growth, economic development also comprises economic, political, cultural, and social changes that contribute toward materialistic progress.
Key Difference Between Economic Growth and Economic Development
Economic growth measures the increase in the value of goods and services produced by a country over a specific period. It does not take into account income distribution or poverty levels within the country. Economic development refers to the process of improving the quality of life through economic growth, but it also takes into account poverty levels and income distribution within a country.
Here is a comprehensive table outlining the key difference between economic growth and economic development.
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Factors
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Economic Growth
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Economic Development
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|---|---|---|
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Definition
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Economic growth is known as the increase in a nation’s monetary growth in a specific period.
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Economic development is the overall improvement in a nation’s life quality, which comprises economic growth.
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Factors
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Economic growth is defined as a slow increase in one section of GDP, be it net exports, investment, government spending, or consumption.
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Economic development is relevant to human capital growth, structural changes, and a decrease in inequality instances that enhance the country’s quality of life.
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Term
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This is a short-term process.
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This is a long-term process.
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Measurement
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Economic growth is a quantitative measure.
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Economic development is both quantitative and qualitative.
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Government Support
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Economic growth is an automatic process that might or might not need the government’s intervention.
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Economic development requires consistent government intervention as all of the policies are created by the government.
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Effect
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Economic growth brings out quantitative changes in an economy.
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Economic development brings both quantitative and qualitative changes to an economy.
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Relevance
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It reflects per capita income or national income growth.
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It reflects development in the quality of life of a country.
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Span of Concept
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This one is a narrower concept.
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This one is a broader concept.
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Scope
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It deals with a uni-dimensional methodology that looks after the nation’s economic growth.
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It deals with a multi-dimensional methodology that looks after a nation’s income and quality of life.
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Applicability
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Economic growth applies to developed economies.
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Economic development applies to developing economies.
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Examples
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GNP and GDP
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Industrial development, per capita income, HDI
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Wrapping Up
To wrap up both concepts, you must know that economic development is a subsection of economic growth. The former comprises a broader scope than the latter. While economic development has a myriad of indicators that help with the evaluation of an economy’s state, economic growth has a few indicators that help with the calculation. Keep in mind that while economic growth is vital, it is not the only requirement for economic development.
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