Economic Growth & Economic Development Introduction
Economics is all about making smart choices to cope with scarcity. The most fundamental measurement used to evaluate the success in allocating the scarce resources is economic growth. Individuals monitor their income and the changing value of their assets. Businesses track their profits and their market share. Nations monitor a variety of statistics to measure economic growth such as national income, productivity etc. Moving beyond growth and productivity, some economists argue that any assessment of the nation’s economy must also include measurements of distribution, equity, per-capita income etc. Further, the country should also focus on other needs of a society, like environmental justice or cultural preservation to sustain the economic growth process and allows an overall human development in the economy through creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment.
Meaning of Development and Underdevelopment
The concept “development” refers to the structural changes towards betterment. Until the World War II, interest was rarely shown on the problems of the present day third World Countries. After the Second World War, economists started devoting their attention towards analyzing the problems of underdeveloped countries and formulating theories and models of development and growth. The Under Developed Countries (UDCs) were once the colonies of England and other European countries. After becoming free and independent, there was an awakening to march towards economic development.
Approaches to Economic Development
There are two main approaches to the concept of development viz
- The traditional approach and
- The new welfare-oriented approach.
1.Traditional Approach:
- The traditional approach defines development strictly in economic terms. The increase in GNP is accompanied by decline in share of agriculture in output and employment while those of manufacturing and service sectors increase. It emphasizes the importance of industrialization. It was assumed that growth in GNP per capita would trickle down to people at the bottom.
2.New Welfare oriented Approach:
- During 1970s, economic development was redefined in terms of reduction of poverty,
- ‘inequality’ and unemployment within the context of a growing economy. In this phase, ‘Redistribution with Growth’ became the popular slogan.
Underdevelopment
The UDCs are characterized by predominance of primary sector i.e. agriculture, low per capita income, widespread poverty, wide inequality in distribution of income and wealth, over population, low rate of capital formation, high rate of unemployment, technological backwardness, dualism etc.
Meaning of Underdevelopment
- The term underdevelopment refers to that state of an economy where levels of living of masses are extremely low due to very low levels of Percapita income, resulting from low levels of productivity and high growth rate of population.
ECONOMIC GROWTH
The term economic growth is defined as the process whereby the country’s real national and per capita income increases over a long period of time.
This definition of economic growth consists of the following features of economic growth:
- Economic Growth implies a process of increase in National Income and Per-Capita Income. The increase in Per-Capita income is the better measure of Economic Growth since it reflects increase in the improvement of living standards of masses.
- Economic Growth is measured by increase in real National Income and not just the increase in money income or the nominal national income. In other words, the increase should be in terms of increase of output of goods and services, and not due to a mere increase in the market prices of existing goods.
- Increase in Real Income should be Over a Long Period: The increase of real national income and per-capita income should be sustained over a long period of time. The short-run seasonal or temporary increases in income should not be confused with economic growth.
- Increase in income should be based on Increase in Productive Capacity: Increase in Income can be sustained only when this increase results from some durable increase in productive capacity of the economy like modernization or use of new technology in production, strengthening of infrastructure like transport network, improved electricity generation etc.
ECONOMIC DEVELOPMENT
Economic development is defined as a sustained improvement in material well-being 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 fulfill 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.
- 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.
- Economic development without growth is almost inconceivable. The comparison between the two concepts is given in the following table:
Comparison Chart: Economic Growth vs. Economic Development
| Aspect | Economic Growth | Economic Development |
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