ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT

Economic growth and economic development have become household words these days. Economic development is the most significant economic and social challenge faced by mankind. It is important to know the precise  meaning of economic growth and economic development to avoid and confusion.

Economic growth is generally defined as the process whereby real per capita income of a country increases over a long period of time.

Economic growth has been defined in terms of national income aggregates. Everybody agrees that a necessary requirement of economic growth is an increased output of goods and services. Output is conveniently measured in terms of national income. It is with this idea that economic growth is defined in terms of national income aggregates. These are two important national income aggregates in this regard, namely gross national product (GNP) or total national income and per capita income.

A more appropriate definition of economic growth is in terms of per capita income (output). Since economic development is concerned with increase in standard of living of the population, income or product per head of population is more relevant. Per capita income is a measure of the per capita availability of goods and services to the people. From the viewpoint of economic growth, what is important is not simply an increase in income, but increase in income which is corrected for population change, i.e., per capita income. Thus it is appropriate to define economic growth in terms of rise in per capita income.

Growth versus Development

The term economic growth refers to increase in real per capita income. The economic development means process whereby the real per capita income of a country increases over a long period of time, along with reduction of poverty, inequality and unemployment. The two concepts differ in their nature and context. It is important to draw a distinction between economic growth and economic development on the following basis:

(1)    Economic growth is a narrow concept, while economic development is a more comprehensive term. Economic development denotes growth plus change.

(2)    Economic growth refers to mere output, resulting from use of more inputs and greater efficiency of inputs. Economic development goes beyond this to include composition of output, allocation of resources to different sectors of the economy like agriculture, industry and structural changes.

(3)    Economic growth involves a rise in income. Economic development, on the other hand, involves not only rise in income, but also reduction of poverty, inequality of income and unemployment.

(4)    Economic growth is defined strictly in terms of economic indicator, i.e., income. Economic development involves not only economic indicators, but also non-economic indicators like literacy, health services, etc.

(5)    Economic growth is entirely a quantitative concept. Economic development involves not only quantitative, but many qualitative changes as well.

(6)    Economic growth is easier to realise. It is possible to increase output and income by using larger quantity of inputs and increasing their efficiency. The process of economic development is far more extensive. It involves a whole lot of changes in the society — changes in the social structure, attitudes, institutions as well as acceleration of economic growth, eradication of poverty and reduction of income inequalities. Therefore, attainment of economic development is a more difficult task.

(7)    Economic growth relates to the problems faced by the developed countries, while economic development relates to the problems faced by the present-day developing countries.

(8)    Economic growth differs from economic development in terms of degree of involvement and intervention by the government. Economic growth does not require much of government intervention. However, economic development demands active involvement of the government. The governments in the developing countries are expected to assume an active responsibility for promoting economic development.

Some economists point out the distinction between economic development and economic growth.

According to Mrs. U.K. Hicks, "Economic Development' deals with the problem of underdeveloped countries whereas 'Economic Growth' deals with the problem of developed countries. In underdeveloped countries, the problems are that of initiating and. accelerating, development."

Prof. Maddison's views run in this way, "The raising of income levels is generally called economic growth in rich countries and in poor ones, it is called economic development."

C.P. Kindleberger has explained the distinction between economic development and economic growth. He says. "Economic growth means more output and economic development implies both more output and changes in the technical and institutional arrangements, by which it is produced."

The above mentioned views of different economists show that these two terms are-nothing hut synonymous. The difference in both is imaginary and unreal. In this context, it is better to quote Prof Lewis. According to him, Most often we shall refer only to 'Growth' but occasionally, for the sake of variety to 'Progress' and 'Development'. In the same tune, Prof Paul A. Baron expressed that, "The mere notions of 'Development' and "Growth' suggest a transition 10 something that is new from something that is old, that has out lived its utility."

Developed and Developing Economics

The world in which .we live today us characterized by a sharp contrast in lifestyle. An average family in North America or Europe lives in large and comfortable houses; it is well-clothed, healthy and educated, uses all types of electronic appliances and travels in large and expensive cars. European and North American countries are affluent. On the other hand, people in Latin America, Asia and Africa are much less fortunate. Poverty and low levels of living are the facts of life in these countries. A large number of people in these countries live in small and simple houses. They get inadequate food. They lack in essential basic services, like sanitation and clean drinking water. Their health is poor. They are illiterate. They have to struggle for their physical survival. Thus, affluence coexists with acute poverty in the world.

UN classification of developed and developing countries is on the basis of per capita income. Many economists have traditionally used per capita income as cut off point to differentiate between developed countries and developing countries. Accordingly, a developed country is defined' as the country which has a high real per capital income. In view of high per capita income, people in the developed countries are able to enjoy a higher standard of living. Thus, those countries of the world which have high per capita real incomes are considered to be developed countries. USA, Canada, Australia, New Zealand, Japan, the West European countries and some of the East European countries are the developed countries of the world today.

An underdeveloped or developing country, on the other hand, is defined as a country in which real per capita income is low and which has the potentiality of development.

This general definition of developing economy emphasizes two elements. First, an developing economy is defined in terms of low per capita income. Low per capita income is taken in the relative sense. Developing countries are those countries in which real per capita income is lower than those of the USA, Canada, Australia and Western Europe. Second, an developing country is one which has the potential of development so as to increase per capita real income.

Thus, though low per capital income is an important indicator of developing economy, but an equally important fact is that it possesses the potential of development. It should be noted that the terms 'developing', 'underdeveloped' and 'poor' economies are used interchangeably. However, the term (developing) signifies that though still developing, the process of development has been initiated in these economies. Most of the countries of Asia, Africa and Latin America are developing or developing countries.