What is the difference between Economic Growth and Economic Development?

The term development may mean different things to different people. In strictly economic terms, development has traditionally meant a sustained annual increase in GNP (or GDP) at rates varying from 5 per cent to 7 per cent or more.

A common alternative economic index of development has been the rates of growth of per capita GNP i.e., the ability of a nation to expand its output at a rate faster than the growth of population. Levels and rates of growth of “real” per capita GNP i.e., monetary growth of GNP per capita minus the rate of inflation, are normally used to measure the overall economic well being of a population.

Till the 1960’s, the term economic development was often used as a synonym of economic growth, the measure for the latter being the rise in per capita GNP in real terms. According to C.P. Kindleberger, “whereas economic growth merely refers to a rise in output, economic development implies changes in technological and institutional organisation of production as well as distributive pattern of income.”2 Thus economic developments is a broader concept than economic growth.

Compared to the objective of development, economic growth may be easy to realise. By larger mobilisation of resources and raising their productivity, output levels can be raised. The process of development is far more extensive. Apart from the rise in output, it involves changes in the composition of output as well as a shift in the allocation of productive resources to ensure social justice.

In some of the underdeveloped countries, the process of economic growth has been accompanied by economic development. But this may not be the case always. While there can be growth without development, development without growth is unconceivable. A substantial rise in a country’s GNP is required before it can hope to expand its industries and the services sectors. Nowhere in the world has the occupational distribution of population changed in the absence of growth.

Prior to the 1970’s, development was seen as an economic phenomenon in which rapid gains in overall and per capita GNP growth would either “trickle down” to the masses in the form of jobs and other economic opportunities or create the necessary conditions for the wider distribution of the economic and social benefits of growth. Problems of poverty, unemployment and income distribution were of secondary importance to “getting the growth job done.”