Meaning of Economic Growth and Economic Development

Every economy is judged on two related but distinct yardsticks: how much bigger it has become, and how much better off its people actually are. The Andhra Pradesh Intermediate second-year Economics syllabus introduces this distinction early in the study of the Indian economy, because a country can register an impressive rise in output while large sections of its population remain poor, illiterate, or without access to basic health care.

Economic Growth

Economic growth is a narrow, quantitative concept. It refers to a sustained increase in an economy's real output of goods and services over a period of time, usually measured as the rate of increase in Gross Domestic Product (GDP) or Gross National Product (GNP), or in real per capita income.

• It is measured purely in quantitative terms — how much more is being produced this year compared with an earlier year.
• It says nothing, by itself, about how the increased output is distributed, or whether ordinary people's lives have actually improved.
• Growth can occur even in economies where inequality is rising, the environment is deteriorating, or health and education outcomes are stagnant.

Economic Development

Economic development is a broader, qualitative concept. It includes economic growth as one of its ingredients but goes further to cover structural, institutional, and welfare changes that raise the standard of living of the population as a whole.

• It covers quantitative and qualitative change together — rising income along with better health, education, nutrition, employment opportunities, reduced poverty and inequality, and an improved quality of life.
• It involves structural change in the economy, such as a shift of the workforce from agriculture toward industry and services, urbanisation, and stronger institutions (property rights, the legal system, financial markets).
• Because it is multi-dimensional, economic development is harder to capture in a single number than growth is — which is exactly why composite indicators such as the Human Development Index were devised (see Section 3).

In short: growth is about more, development is about better. An economy can grow without developing, but genuine development is not possible without some underlying growth to finance it.