Saturday, November 8, 2008

Economic Development vs. Economic Growth

For economic growth there is a generally accepted definition, but not for the case for economic development

Economic growth
Defined as sustain increase in real GDP over time. In layman, it means increase in the amount of goods & services produced with their value adjusted against inflation. If there is no adjustment, the value of GDP will be overstated

Economic development
The traditional measure regard it as a sustain increase in income per capita of 5% to 7% per annum. Some alternative regard it as a country’s ability to expand output at a rate faster that the growth rate of its population. Another measure relates it to the speed of industrialisation. In other word how output & employment in agriculture shrinks over time, BUT output & employment in manufacturing & services sector increase.

The modern view is more comprehensive & multidimensional as it takes into consideration more aspects. In economic development, there must be not only economic growth, but also other aspects such as reduction of income inequality, poverty eradication, greater literacy rates, higher life expectancy, environmental quality & all forms of economic well being.

In reality, many developing nations did reach economic growth targets but at the same time there is widespread of inequality in income distribution, widespread of absolute poverty, low literacy rates etc. A country could have higher income than another (after adjusted for PPP), but somehow having lower level of development to its comparator

Consider Tunisia & China, Saudi Arabia & Uruguay

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