Difference between Economic Growth and Development

Readers Question: What is the difference between Growth and Development? Explain the factors affecting macro-economics growth in a under developed country? Can a country experience economic growth without development?

Economic growth measures an increase in Real GDP. (real Output). GDP is a measure of the national income / national output and national expenditure. It basically measures the total volume of goods and services produced in an economy.

Economic Development

Development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards

Measures of economic Development will look at:

  • Real income per head – GDP per capita
  • Levels of literacy and education standards
  • Levels of health care e.g. number of doctors per 1000 population
  • Quality and availability of housing
  • Levels of environmental standards

Factors affecting Economics growth in developing countries

  • Levels of infrastructure – e.g. transport and communication
  • Levels of corruption
  • Educational standards and labour productivity
  • Labour mobility
  • Flow of foreign aid and investment
  • Level of savings and investment

Economic Growth without Development

It is possible to have economic growth without development. i.e. an increase in GDP, but most people don’t see any actual improvements in living standards.

  1. Economic growth may only benefit a small % of the population. For example, if a country produces more oil, it will see an increase in GDP. However, it is possible, that this oil is only owned by one firm, and therefore, the average worker doesn’t really benefit.
  2. Corruption. A country may see higher GDP, but the benefits of growth may be siphoned into the bank accounts of politicians
  3. Environmental problems. Producing toxic chemicals will lead to an increase in real GDP. However, without proper regulation it can also lead to environmental and health problems. This is an example of where growth leads to a decline in living standards for many.
  4. Congestion. Economic growth can cause an increase in congestion. This means people will spend longer in traffic jams. GDP may increase but they have lower living standards because they spend more time in traffic jams.
  5. Production not consumed. If a state owned industry increases output, this is reflected in an increase in GDP. However, if the output is not used by anyone then it causes no actual increase in living standards.
  6. Military Spending. A country may increase GDP through spending more on military goods. However, if this is at the expense of health care and education it can lead to lower living standards.

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