Main differences between growth and economic development
It is not many years since we emerged from the last great economic crisis, the euro crisis of 2008. In fact, although the situation is no longer as critical as it once was, the consequences of this are still felt in part of the world, so we cannot yet speak of a full recovery.
However, fortunately, it seems that little by little the different countries are improving their situation and a certain growth and economic development can be observed in comparison with the first years of the crisis . As far as the latter two terms are concerned, they are often considered as practically identical synonyms.
But although they have a certain relationship with each other, the truth is that they actually refer to different concepts. That is why throughout this article we are going to make a brief explanation of the differences between economic development and economic growth .
Economic growth: basic concept
Economic growth is understood as that economic situation or reality in which the set of goods and services produced per year exceed those of the previous period . In other words, we consider that we are in a situation of economic growth when the production of a country or territory is greater than during the period (generally year) immediately prior, with a greater volume of income.
This growth is perceived per capita, that is, it is derived from the increase in the value of the production of each worker.
This growth may lead to an increase in the welfare of the whole population , as there is greater economic capacity on the part of the territory to seek the benefit of the citizens. However, although we are talking about something that usually leads to such an improvement, it does not always necessarily imply it, as it is not necessary for economic growth that the increase in capital is reflected in the quality of life of the population as a whole.
The fact is that economic growth is defined as a purely quantitative factor, directly measurable through existing capital figures. It can be evaluated from different statistical indicators, among which the Gross Domestic Product or GDP stands out as the main one .
What is economic development?
With regard to economic development, this concept is referring to the socio-economic situation in which there is an increase in the quality of life of the inhabitants of a country, which increases the conditions of the citizens and their prosperity in a generalised way.
Economic development occurs when the growth of the economy is translated into progress for the whole community that inhabits the country or territory, in an equitable manner and affecting various areas.
On the other hand, economic development implies, for example, the improvement of health and education systems, infrastructure, life expectancy or economic capacity of each member of society. It also includes the development of more egalitarian and inclusive social policies , as well as an increase in the freedoms and rights (also on the other hand of their duties) and the participation of the citizen in political and community life.
The concept of economic development, unlike that of growth, is not quantitative but qualitative : development is difficult to measure directly, and different mechanisms must be used such as satisfaction indexes, measurement of the different aspects that influence the quality of life, literacy or access to employment or training.
Main differences between growth and economic development
Observing the above definitions of development and economic growth already indirectly allows us to glimpse some of the main differences between the two concepts. However, in order to make them more evident, we will now go into more detail on the aspects that make it possible to differentiate between economic growth and economic development.
1. How it is applied
To begin with, one of the main and most important differences is that while economic growth only implies the existence of a higher level of capital within the territory , development implies that this growth or the economic situation of the country in question will be applied to improving the well-being of each of its inhabitants.
2. Economic development needs growth
They also differ in that while economic development generally requires economic growth to be effective, the latter does not necessarily need or lead to development. Likewise, for the economic development of a country to take place, growth may be necessary, but it is not sufficient to generate it: requires a correct application of the benefits . Furthermore, while economic growth refers mainly to the economic aspect, in the case of development we tend to focus more on the structural and social changes that may result from it.
3. Qualitative or quantitative indicators
Another difference is in the way the indicator is obtained from each of them. While growth is a quantitative measure obtained from relatively simple mathematical calculations, calculating the level of economic development involves making a qualitative assessment and not a totally accurate one of the general situation of the population.
4. Degree of stability
Finally, it should be taken into account that while economic growth can easily be cut back and move into a situation of decline , in the case of economic development it tends to be more stable in terms of most of its progress, although it can also be deeply influenced by the alteration of the economy.
- Galor, O. (2005) From Stagnation to Growth: Unified Growth Theory. Handbook of Economic Growth, Elsevier.
- Maddison, A. (2001). The World Economy: A Millennial Perspective, Paris, OECD.