5 Key Differences Between Economic Development and Economic Growth
In order to measure a nation’s progress, we need to examine its economy, which provides insight into whether the country is flourishing or in recession. The words growth and development are synonymous grammatically, which is why most people assume economic development and economic growth are the same. They are often used interchangeably, but they are not similar, although both economic policies aim to achieve the financial well-being of a country. Economic growth is a quantitative concept, while economic development is a qualitative concept. But before we dive into the key differences between these two policies, you need to understand what they both mean.
What is Economic Growth?
Economic growth can be defined as the ability of a nation’s economy to produce more goods and services per person over a period. According to the Inter-American Bank, economic growth is the increase in product and income per person in the long term. Unlike economic development, economic growth is a narrow concept because it focuses on the rise in output in quantitative terms. It is a quantitative measure that expresses the increase in commercial transactions in an economy.
Economic growth simply allows us to compare how much an economy has grown in absolute terms and in percentage terms over a year.
Economic growth is primarily determined by the increase in the average market value of additional goods and services produced, calculated using the Gross Domestic Product (GDP), which helps estimate the size of the economy.
What is Economic Development?
Economic development can be defined as sustainable growth from four points of view: social, cultural, political, and economic changes that contribute to material progress. It is a sustained improvement in the material well-being of societies. Economic development is a broader concept than economic growth. It involves changes in resource supplies, the rate of capital formation, population size, technology, skills, and efficiency, and institutional and organizational set-up.
Economic development refers to the improvement in living standards from a low-income economy to a high-income economy. It considers factors like health, education, working conditions, domestic and international policies, and market conditions intending to improve conditions in developing countries. The overall development of a country is measured by the following parameters: job opportunities available, technological advancement, living conditions, standards of living, per capita income, quality of life, gross domestic production (GDP), and industrial and infrastructural development. You need to understand that when it comes to economic development, economic growth is essential, but it is not the only condition to consider.
Now that you understand the meaning of economic growth and development, it is time to explore their key differences.
Economic Growth Vs. Economic Development
The first fundamental difference you need to know about economic growth and economic development is that economic growth involves an increase in output in quantitative terms. In contrast, economic developments include changes in qualitative terms such as social attitudes and customs and quantitative growth of production or national income.
Concept
As said earlier economic development is a broader concept than economic growth. Economic development shows social and economic progress and requires economic growth. Economic growth is a prerequisite for economic development, but it can not guarantee it.
Economic development is also considered a broader concept because economic growth only focuses on financial development, while economic development requires social development and financial development.
Economic development focuses on more sectors than economic growth, and that is why economic development requires more time and resources. You can say economic growth is a subcategory of economic development.
Scope
Economic growth is a uni-dimensional approach to the growth of a country. In contrast, economic development is a multi-dimensional approach to a country’s growth as it considers many significant factors.
Economic growth only considers sustained increases in a country’s real GDP, making it a quantitative analysis while economic development considers the sustainable growth of real GDP, which has a positive impact on education, health, and real per capita income as well as security and efficient production and distribution system for goods and services.
Economic growth being a uni-dimensional approach makes a weak measure of the economic progress of a country.
Measurement and Results
You can easily measure economic growth when the national income changes for the better, while economic development can be seen when there is an increase in job opportunities available, technological advancement, living conditions, standards of living, per capita income, quality of life, gross domestic production (GDP), industrial and infrastructural development. Economic growth is measured in terms of Gross Domestic Production (GDP), while economic development is measured in terms of the Human Development Index (HDI).
Economic growth increases indicators like GDP, per capita income, etc., while economic development enables improvement in living conditions, life expectancy, education rate, infrastructure development rate, poverty rates, and infant mortality rate.
Applications
Economic growth can be used by developed countries to measure the economy and the quality of life but can also be used by developing countries. Developing countries can use economic development, on the other hand, to measure progress.
Economic growth is short-term, as GDP is calculated yearly to determine the country’s income. Whereas economic development is a long-term process to improve the quality of life, and it requires more years to build resources and apply them.
Government Support
Economic growth being a short-term process and an automatic process that may or may not require any support or intervention from the government, while economic development being a long-term process that also requires planning and result-oriented activities, makes it solely dependent on government support.
From the above discussion, you will agree that both economic growth and economic development are necessary to measure a country’s economy and progress. Still, economic development seems to be the best when measuring a nation’s overall welfare. Economic growth may be narrower than economic development, but it provides easy and reliable development statistics in developed countries.
Economic growth and economic development both have flaws and advantages, but they both have areas they are needed. You can not measure economic development without measuring economic growth, but economic growth doesn’t rely on economic development.