Introduction
Economic growth and economic development are two important but distinct concepts in economics. While both relate to improvements in the economy, they differ in scope, measurement, and impact on people’s lives. This answer will explain the difference between the two and illustrate why economic development is a more comprehensive and better measure of economic welfare than economic growth.
Economic Growth: Meaning and Characteristics
Economic growth refers to the increase in a country’s output of goods and services over time, measured by the rise in Gross Domestic Product (GDP) or Gross National Product (GNP).
Key Features of Economic Growth:
- Quantitative in nature
- Measured by GDP, per capita income
- Focuses only on the volume of economic activity
- Does not consider how the wealth is distributed
Example:
If India’s GDP grows from ₹200 trillion to ₹220 trillion in one year, it shows economic growth of 10%, regardless of whether the poor benefited from it or not.
Economic Development: Meaning and Characteristics
Economic development is a broader concept that includes economic growth along with improvements in living standards, health, education, poverty reduction, and social equality.
Key Features of Economic Development:
- Qualitative in nature
- Includes human development indicators
- Focuses on equitable distribution of income
- Measures the overall well-being of people
- Involves structural changes in the economy
Indicators of Economic Development:
- Human Development Index (HDI)
- Literacy rates
- Life expectancy
- Poverty rates
- Employment generation
Example:
A country like Sri Lanka may not have very high GDP, but it performs better in human development indicators like life expectancy and education, showing better economic development than many richer countries.
Economic Development vs Economic Growth
| Criteria | Economic Growth | Economic Development |
|---|---|---|
| Definition | Increase in national income or output | Improvement in quality of life and standard of living |
| Nature | Quantitative | Qualitative and Quantitative |
| Focus | GDP, income | Poverty, education, health, equality |
| Measurement | GDP, GNP | HDI, MPI, education, life expectancy |
| Equity | Ignores distribution | Considers inclusive growth |
Why Economic Development is a Better Measure of Welfare
1. Inclusive Approach
Economic development includes both income and non-income aspects like education, health, and equality, which are crucial for human welfare.
2. Reduces Poverty and Inequality
It aims not just to increase income, but also to reduce poverty and income disparity, leading to more equitable growth.
3. Sustainable and Long-Term
Development includes aspects like environmental sustainability and social cohesion, ensuring that growth is not harmful or short-lived.
4. Reflects Real Progress
GDP can rise even with growing inequality or environmental damage. Development indicators give a clearer picture of real improvement in people’s lives.
5. Better Policy Planning
Development indicators help governments focus on education, healthcare, and social welfare, not just production and profits.
Conclusion
While economic growth is necessary for a country’s progress, it is not sufficient on its own. Economic development is a more holistic and comprehensive measure of economic welfare because it captures both the quantity and quality of growth. It helps assess how economic improvements are impacting the lives of people, especially the poor and marginalized. Hence, development should be the ultimate goal of any nation’s economic policy, with growth being a means to that end.