Monday, April 10, 2017

Explain the meaning of Economic Growth, Economic Development. What is the difference between the two.

Question- Explain the meaning of Economic Growth, Economic Development. What is the difference between the two.


In general, the terms “Economic Growth” and “Economic Development” are used to express the same idea i. e., “Economic Advancement”. But the term economic development is more comprehensive in its scope. Growth means persistent increase in physical output or per capita income. While development includes the overall quality of life and structural changes like, infrastructural, social and political in the country.
ECONOMIC GROWTH:
Definitions:
Ø      According to Micheal P. Todaro.
“Economic growth is a steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national output and income”.
Ø      According to Simon Kuznets.
“Economic growth may be defined as a long term process wherein the substantial and sustained rise in real national income, total population and real per capita income takes place”.  
  
Essentials of Economic Growth:
Above definitions are showing following basics of economic growth:
  1. Economic growth is a long run process; it includes a period of decades.
  2. Economic growth shows higher rate of increase in real per capita income than rate of growth of population.
  3. Economic growth is always linked with large increase in productive ability of the economy.
ECONOMIC DEVELOPMENT:
Definitions:
      Simple Definition.
“It refers to the process whereby the total supply of goods and services of the society increases leading towards improved living standard.”
       According to Micheal P. Todaro.
“Development must be conceived (considered) for as a multi-dimensional process involving major change in social structures, popular attitudes and national institutions as well as the acceleration of eco-growth, the eradication (end) of poverty and reduction of inequality of wealth.”

Structural Changes of Economic Development:
Economic development represents following structural changes in various sectors of the country:
 There is a change in the occupational structure. In economic development there is decrease in the share of labour force in primary sector (farming, fishing and mining etc.) and increase in the share of labour force in secondary sector and tertiary sectors.
  1. There is a change in the structure of national output. The contribution of primary sector in the national output falls and the share of secondary and tertiary sectors gradually increase.
  2. There is a change in the structure of industrial production. There is an increase in the production of capital goods and decrease in the production of consumer goods.
  3. There is a change in the structure of foreign trade. The share of primary goods in exports decreases and the share of capital goods in imports increase. Accordingly, in economic development there is an increase in exports of manufactured and final goods. Similarly, there is decrease in the imports of consumer items.
  4. There is a change in the structure of technology. In the economic development modern and advanced techniques are used in all the sectors of economy.
  5. There is a change in the social and institutional sector. Due to economic development there is an increase in the self-esteem and living standard of the population.
Prof. Goulet explained the meaning of economic development by mentioning the three Core Values of Development[1]:
Life Sustenance:
The life-sustaining basic human needs include food, shelter, health and protection. When any one of these is absent or in critically short supply, a condition of absolute "underdevelopment" exists.
Self-esteem:
A second universal component of good life is self- esteem- a sense of worth and self-respect- of not being used as a tool by others for their own ends. Due to the significance attached to material values in developed nations, worthiness and esteem are now-a-days increasingly conferred only in countries that possess economic wealth and technological power- those that have developed.
Freedom
Arthur Lewis stressed the relationship between economic growth and freedom from servitude when he concluded that "the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice.
Difference between Economic Growth Economic Development
Economic Growth is a narrow concept. Economic development is broader in nature. Economic Growth includes the quantitative changes economic development also includes certain qualitative changes in the economy. Economic growth means just Physical increase in the real per capita income where as Economic Development is the reduction in economic-divide, poverty, illiteracy and unemployment. Thus, economic development includes both economic growth as well as social welfare. Economic development focuses on inclusive growth – Growth that includes all sectors of the economy and all sections of the society. The following discussion outlines the basic differences between Economic Growth and Development:
Economic Growth is Single dimension Concept: Economic growth is merely a quantitative concept. It is concerned with rate of increase in national income.
Economic Development is Double / Multi dimension Concept: Concept of economic development is both quantitative and qualitative in nature. It is concerned with welfare of people (a qualitative aspect) along with increase in per capita income (a quantitative concept).
Growth Ignores Distribution of Income: Distribution of income is ignored in case of economic growth. In spite of increase in income, number of poor people may rise if the distribution of income becomes further unequal.
Development Considers Distribution of Income: In case of economic development, distribution of income is given due consideration. Reduction in inequality (of income distribution) is one of the principal targets of economic development. Inequality of income and wealth must be reduced.
Independent of Structural, Institutional and Technical Changes:
Economic growth is independent of any structural, institutional and technical changes in the economy. Associated with socio-technological Change:
Economic development is invariably associated with significant structural, institutional and technical changes in the economy. Development is a qualitative concept and relates to human development index (HDI) Gender Development Index (GDI) Human Poverty Index (HPI). Growth is quantitative concept.
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[1] Goulet, D. (1971) The Cruel Choice: A New Concept in the Theory of Development, New York, Athenaeum

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