The concept of economic growth and development are clearly explained here
with clear cut distinction between the two concepts. In addition to this, some
selected growth theories were analysed and explained. We give a
comprehensible analysis of growth arithmetic and enumerate and explain main
features of developed and developing countries, and analyse reason why
economic growth may not lead to development.
At the end of this post student should be able to;
i. Explain what is meant by Economic growth and Development.
ii. Differentiate between economic growth and economic development.
iii. Understand reasons why economic growth may not lead to economic
development.
3.0 Main Content
3.1 Concept of Economic Growth and Development
Economic growth is defined as the expansion in a nations real output or it can be
define as the expansion in a nations capability to produce goods and services its
people want. Economic growth also refers to an increase in real aggregate
output (real GDP) reflected in increased real per capital income. The rate of
economic growth is measured as the percentage increase in real GDP overtime.
Economic growth can equally be defined as increase in a nation‘s output which
is identifiable by sustainable increase in real per capita income (Bakare-Aremu,
T.A).
Economic development on the other hand is a sustainable increase in real GDP
that implies increased real per capital income, better education and health as well
as environmental protection, legal and institutional reforms and an efficient
production and distribution system for goods and services (Fashola, M.A ).
Self Assessment Exercise
i. What is Economic Growth and how is it different from Economic
development?
3.2 Distinction between Economic Growth and Development
The terms growth and development are often misused by laymen to mean the
same thing. But this is not so. 'The summary below focuses on the distinction
between growth and development.
Fashola (1998) argues that economic growth is an aspect of economics that deals
with national income objectives; whereas development incorporates other
objectives such as: equitable welfare distribution, national self reliance, balance
sectorial development, balanced regional development; ecological balance, social
and environmental stability, among others.
Todaro (1977) contends that growth stimulates improvement in incomes and
output while development involves radical changes in institutional, social and
administrative structure, as well as in popular attitudes and sometimes even
customs and beliefs.
Schumpeter (1934) stresses that growth is a gradual and steady change in the
long run which comes about by a general increase in the rate of savings and
population. Development on the other hand is a discontinuous and spontaneous
change in the stationary state which forever alters and displaces the equilibrium
state previously existing.
Maddison (1970) was of the opinion that the raising of the income levels in rich
countries is economic growth. But the achievement of the same objective in
underdeveloped countries is economic development.
Kindleberger (1965).advances that economic growth means more output while
development implies both more output and changes technical and Institutional
management by which it is produced and distributed.
Bakare (1999) perceives development as the process of optimizing the resources
of a nation to meet the needs of the people and their enlightened aspiration and
endowing them with the capacity to sustain their achievement. It need be stated
that growth is a necessary but not a sufficient condition for attaining
development. Without growth there cannot be development. But without
development, there can be growth.
Bakare-aremu (2009) defined Economic growth as a continuous increase in
National output which is identifiable by sustainable increase in real Per capita
income which translates to general wellbeing of an average citizen. However,
when this leads to structural positive transformations then development is
implied.
It is also necessary to note that the existence of growth in a country may not lead
to development in a situation where there is growing income inequality which
can strengthen abject poverty. More so, inter-sectorial imbalance will not
promote development because an increase in national output not accompanied by
equitable distribution of income will create setback for sectors such as housing,
utilities, health "Services, food production, transport and communication. As
such development cannot be sustained because diseases, mortality rate,
starvation, misery, and industrial inefficiency cannot be eradicated. Other
reasons why economic growth may not lead to development can be attributed to
environmental degradation, moral, intellectual and spiritual decadence; these
would be discussed in the latter study unit.
Self Assessment Exercise
i. What are the major difference between economic growth and economic
development?
ii. Can there be development without growth?
3.3 Measurement and Arithmetic of Growth
Economic growth concerns the relative change in the real value to volume of
goods and services produced by a country for final demand (i.e. demand by
households, consumers, governments, capital formation and net exports);
represent the national product, national output, or national income. At market
value, national output represents revenue or earnings by the business (or
production) sector. Such earnings are ultimately income to the factors of
production, namely; wages to labour, rent to land and real estate interest to
capital and profit to entrepreneurship or the business. So output in monetary
value in income. It is in this that national product (output) in the things same and
national income.
In precise terminology, we speak of Gross Domestic Products (GDP) and Gross
National Products (GNP) in volume of national income. GDP refers to the
market disposable value of output produced within the country i.e. produced
domestically. On the other hands, GNP refers to total income occurring to the
nation or at the disposal of the nation. Therefore, to obtain the GNP, we
subtraction GDP, all incomes that are repatriated abroad to foreign owned factors
of production (such as interest on foreign loan, dividends to foreign shareholders,
and part salaries repatriated abroad on account of expatriate personnel) and add
all incomes from abroad on account of the citizens of or residents in the country.
What is subtracted is referred to as factors payments to abroad (FP) and what is
added is referred to as factors income (FI).
The difference between factor payments to and incomes from abroad is the net
factor payments (NFP). A net factors payment is almost always positive for
developing countries on account or substantial foreign investment, foreign equity
ownership, and-management by expatriates of the modern sector of their
economies.
Thus we can state:
GNP = GDP - FP + Fl ……………………………(1)
= GDP - (FP - FI)………………………………...(2)
= GDP - NFP …………………………………… (3)
GNP is almost always significantly smaller than GDP
GNP is more relevant than GDP for measuring economic growth since GNP is
the nationally available income to the people and hence more related to their
material welfare as opposed to GDP which is income generated within the
country but partly belonging to the people of other countries who partly own the
resources employed in generating the GDP. Since the average income of the
people is more significant than total income, as far as economic welfare is
concerned, GNP per head of the population is preferred to total GNP for the
purpose of measuring economic growth.
Other measures of economic growth are the volume of electricity generated per
head, total energy consumed per head, and index of industrial production net of
population growth. These measures may be more reliable than per capital GNP,
because the internal measurement is compounded by the changing price levels
which have to be estimated and adjusted for in evaluating the real GNP or GD P
at constant prices of a given year.
Arithmetic of Growth
The illustration below stand for standard arithmetic of growth;
Self Assessment Exercise
Suppose GDP increase by 15% and price level by 45%. Calculate the real
growth rate in the economy.
4.0 Conclusion
The unit survey the concept of economic growth and development, it
differentiate between economic growth and development as well stating the
major characteristics of the developed and underdeveloped or developing
countries.
5.0 Summary
The unit review concepts of economic growth and development and those issues
that are highly related to it such as theories of growth, distinction between
economic growth and economic development,
6.0 Tutor-Marked Assignment
i) Differentiate between economic growth and economic development.
ii) Given that economic grow at 12% and population grow at 9%,
calculate per capita growth of income.
iii) Examine the Rostow stages of growth.
7.0 References/Further Readings
Attah B.O, Bakare, T.A. & Daisi, O.R., (2011); Anatomy of Economics
Principles, Q&A (Macroeconomics), Raamson Printing Press, Oke-Afa, Isolo,
Lagos, Nigeria
Amacher, R and Ulbrich, H, (1986); Principles of Economics, South Western
Publications Co. Cincinnafi, Oliso
Bakare –Aremu T.A, (2013); Fundamental of Economics Principles
(Macroeconomics), Raamson Printing Press, Oke-Afa, Isolo, Lagos, Nigeria
