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Difference Between Economic Growth and Economic Development

Introduction

The economy is a complex system that encompasses the factors that relate to the production and the consumption of goods in a region. These factors determine the economic growth and development. The two terms can be hard to tell apart, but their meaning in economics can be clearly distinguished. The term economic development is broader and more inclusive of the economic factors than economic growth. When a region experiences economic development, it implies that there is an improvement in the aspects that affect human welfare. Economic development is translated to enhancement in the quality of life of the population, through the betterment of education, health, income among other factors. Economic development is determined by the quality of life that the population enjoys due to the improvement of the various aspects life. This improvement can cause the region to realize economic growth.

Difference between Economic Growth & Economic Development

Economic growth, however, has a much narrower outlook of than economic development, in that; it refers to the increase in the value of products from the various sectors involved in the economy of a nation. The growth is usually expressed using the Gross Domestic Product GDP.  When economic growth is realized in a region, it is not guaranteed that this growth will result in development.

Another significant difference apart from the definition of the two terms is that, economic growth takes one dimension in that it is centered on increasing the GDP of a region. This is, however, different in economic development, since the latter involves a wider approach in that it is involved in the income created in the population and the improvement of the quality of life of individuals, since social amenities and structures are also improved (Capello and Nijkamp, 2008, 173). This will result in a positive effect in the lives of the population. Economic growth, however, is narrower in that growth will not necessarily have a positive impact on the population.

The two phenomena are also different in that economic growth is quantitative. This is so since the phenomenon mostly deals with numbers in that the growth is translated by the figures and percentages. Economic development in contrast is measured in the quality since the development is translated to the improved livelihoods of the population. Economic development is, therefore, measured qualitatively (Arestis and Thirlwall, 2006, 109).

Another noteworthy variation between the two is that economic development is irregular and spontaneous. It causes changes in the equilibrium that is experienced in the economy, which is always static (Eicher, 2006, 231). Economic growth, however, is steady and occurs gradually resulting in long-term effects in the economy. This shows that the two terms are distinguishable since the aspect of time defines the two, in that economic development is spontaneous while growth is steady over time.

Economic Growth ignores the depletion of natural resources, which results in adverse environmental impacts. Development, however, takes into account these factors since the environment affect the sustainability of the development realized. Some of the issues that affect the environment include pollution, congestion and disease among others.

Growth also, does not regard the size of the black economy. The black economy refers to the informal sectors that are mostly illegal in nature. Most of these activities are illegal and, therefore, are not in the official records. The activities in the black economy are, however, significant in development since they are not taxed hence reduce the income used to fund the development, which improves the livelihoods of the population significantly. Therefore, the black economy affects the rate of development, but not economic growth.

Problems in Measuring Economic Development

Like all economic factors, economic development needs to be appraised in order to determine the overall performance of the economy. This is, however, more difficult to achieve than when measuring economic growth. This is because, economic development affect the quality of the livelihoods in the community, which is difficult to enumerate.

Economists have, however, come up with methods of appraisal for economic development. One of the methods used in this appraisal is the use of the Production Possibility Curve (PPC). This involves the principle of combing two products that an economy can produce employing the use of all its resources. Another method employed by economists is the use of GDP, and the GNP, which refers to the gross national products (Arestis and Thirlwall, 2006, 89). Economists encounter numerous problems when using these tools to appraise economic development. For example, when using GNP, a critical assumption made that the more an individual produces, the more the country develops. This assumption can sometimes be faulty as in the case of India and Switzerland. The GNP of India range is $336 billion which is evidently higher than Switzerland $288 billion. This difference results from by population (Papathanasiou, 2007, 43). This clearly shows that it is difficult to measure economic development since there are complex factors involved. Economists to measure development also use Human Development Index, in an attempt, but they usually encounter a problem when collecting data to determine the accurate figures (Acemoglu, 2009, 76). The use of GDP in measuring economic development has its limitations. One of the reasons for this is because it does not include the population. The method is based majorly on the production value. Population is crucial when determining the real extent of development since it involves them directly. This is, however, not the case in growth since the production is sufficient for its calculation. The significance of the population in measuring development is shown using The Rule of Seventy (Eicher, 2006, 267). This rule shows the period in years it takes for a something to double provided the parties concerned know the rate of growth in percentage. Consequently, the population in the US whose rate of growth is 1% will be twice over in about 70 years (Fan, 2007, 56).  Contrary, countries like Mozambique, South Africa, with annual population of four percent, two times in 17.5 years, four times in 35 years and multiply by factor 8 in 70 years if the rate remains the same.

Another limitation is GDP leaves out the non-market transactions. This includes the productions realized from informal activities that are crucial in determining development in the economy. This is because these non market productions play a crucial role in improving the quality of life.

The use of the appraisal methods mentioned also is unable to include the bad-side effects. These are the negative outcomes of a production. Resources are crucial in ensuring that development is sustainable. Therefore, in measuring development, the negative effects need to be appraised in order to determine the sustainability of the developments.

Also, when using GDP to measure development, it is difficult to differentiate between what is being produced and the quantity that is being produced.  In this scenario, it will be difficult to determine the development since it is difficult to determine what is produced.

Conclusion

Economic development and economic growth both have a positive impact in the overall economy of a region. The two terms are hard to distinguish; however, the two terms refer to different aspects of the economy. It is crucial for economists to differentiate these two situations since they have varying impacts in the society. It is crucial that these situations to be measured in order for the economists to determine the condition of the economy. This means that economists need to device an efficient method to appraise economic development, in order to ensure they have accurate facts on the situation of the economy.

References;
  • ACEMOGLU, D. (2009), Introduction to modern economic growth. Princeton, Princeton University Press. Available at: <http://public.eblib.com/EBLPublic/PublicView.do?ptiID=729936.>
  • ARESTIS, P., & THIRLWALL, A. P., (2006), Growth and economic development: essays in honour of A.P. Thirlwall. Cheltenham [u.a.], Elgar.
  • ARNER, D. W., (2007),  Financial stability, economic growth, and the role of law. New York, Cambridge University Press. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=311259.
  • CAPELLO, R., & NIJKAMP, P., (2008), Handbook of regional growth and development theories. Northampton, MA, E. Elgar.
  • EICHER, T., (2006), Institutions, development, and economic growth. Cambridge, Mass. [u.a.], Mit Press.
  • FAN, S., & CHAN-KANG, C., (2007), Road development, economic growth, and poverty reduction in China. Washington, DC, International food policy research institute (IFPRI).
  • LA GRANDVILLE, O. D., (2011), Economic growth and development. Bingley, Emerald. http://lib.myilibrary.com?id=340641
  • PAL, P., (2007), Economic growth and development: emerging issues. New Delhi, Deep & Deep Publications.
  • PAPATHANASIOU, A., & FENN, P., (2007), Economic growth and development: an observation of development patterns and factors related to development in developing countries. Manchester, Umist.
  • World Bank. (2010), World development indicators 2010. Washington, D.C., World Bank.

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