Economic Growth Vs Development

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The economic growth vs development is an old debate among the economists and regional planners. Some of them prefer economic growth while others prefer economic development. As a layman, you must have heard these terms in reference to the state of economy in a India or other countries. People use these terms as synonyms. However, there is a fundamental difference in the meaning of these terms. In this article, we will be discussing the the key differences in these two concepts.

Concept of Economic Growth

  • Definition: It refers to increase in the national income (GDP, NDP, NNP etc.) of a country in last one financial year.

  • Calculation of Economic Growth

    • Economic growth is a quantitative concept. It is calculated by substracting previous year income (Yp) from current or present year income (Yc) and dividing the remainder with present year income (Yc). Then the product is multiplied by 100. The formulae for calculating economic growth is ((Yc – Yp) / Yc) x 100. A researcher can adjust the income data with inflation (Wholesale Price Index) to arrive at real growth in national income. The national income and Wholesale Price Index data can be downloaded from Reserve Bank of India website.
  • Once we have data on economic growth, we can see the trends in national income growth. The growth can either be positive or negative. Positive growth means increase in national income while the negative growth refers to decline in national income.
  • The concept of growth measures the increase in income of country as a whole and does not represent the increase in the income of all regions, classes, castes and races of a country. Therefore, this concept ignores distributive justice. It is just the average of whole country. This means that the benefits of growth may not reach equally to all the citizens of a country. For instance, the increase in the income of very few rich people in economy may boost the total income of the country but the poor may still be earning lot less. In terms of regional disparity, the difference in the growth of Maharashtra’s income and of Bihar’s income may be large but economic growth at national level will not show it.

Concept of Development

  • Definition: Development refers to growth of a country in social, cultural, economic and political spheres of life while maintaining distributive justice.

  • Calculation of Development

    • Development is a complex concept and does not have a direct simple formulae for calculation. One of the easiest way of measure development is to build index e.g. Human Development Index, Hunger Index etc.
    • Firstly, a student or researcher selects the most suitable parameters/ variables which represent the overall development of a country such as life expectancy, education, health, social harmony, political stability etc.
    • Secondly, the researchers compute Z-Score for each variable because these variables can not be added due to different units of measurement. Z-Score is calculated by (X-M)/SD. The X represents variable value; M refers to mean/ average of the particular variable and SD refers to standard deviation in whole series of that particular variable.
    • Lastly, we can add the Z-score of a country for different years and ascertain if the z-score index is increasing or decreasing.
    • To ensure representation of all the people in development index, the researchers, often, exclude the top and bottom 1-5% of population from the analysis. It ensures exclusion of anomalies and representation of the distributive effect of growth.
  • Since, the development is a qualitative concept, many of its indicators can not be measured in numbers. For, instance, we can not measure happiness, religious brotherhood, women empowerment statistically. Therefore, sociologists and political scientists study them through qualitative methods.
  • The concept of development entails the distributive justice. When we say a country is developing, it means that most of the citizens of that country are experiencing increasing in per-capita income, life expectancy, literacy rate, nutrition etc.
  • Development may be positive or negative, too.

What Economists Want? Growth or Development

After discussing the growth vs development debate, the real question arises, “what do the economists want for a their country? To answer this question, there are various theories of economic development. However, the ultimate goal of any country is the development.

  • We have established that the growth and development are fundamentally different but related to each other. However, these processes are dependent on each other. The question is that what should come first.
  • The economist have two lines of thought i.e. balanced and unbalanced economic growth.
  • The economists who believe in the unbalanced growth argue that growth can  not take place equally at all places because of variation in endowment of natural resources. Hence, policy makers should focus on growth and development of one region. Once the place with initial capital input develops, the benefits of growth and development will trickle down to surrounding regions too.
  • Contrarily, the proponents of the balanced growth believe that once a single region develops, they continue to accumulate wealth and the economic activities. Subsequently, the benefits of growth do not trickle down to surrounding regions. Ultimately, unbalanced growth leads to high economic disparity. Hence, the policy should intend to start growth in balanced manner.
  • We will discuss the concept of balanced and unbalanced growth in detail in Theories of Regional Development.

Conclusion

  • In short, the growth leads to increase in income which fuels process of development.
  • Development of a nation provides social and political stability which is essential for economic growth
  • The debate over growth vs development and unbalanced vs balanced growth is ever going. But, it is apparent that economic growth and development can not take place equally at all places due to natural endowments. However, the government policy should intend to ensure provision of basic amenities to people of all classes and regions.