Economic Growth vs. Development: Key Differences & Factors

Posted on Jan 15, 2025 in Geography

Economic Growth vs. Economic Development: Key Differences

The problems of developed and underdeveloped countries are not the same in nature. To discuss and alleviate such problems, we use the terms “Economic Growth” and “Economic Development.” Though they may seem synonymous, they are quite different in meaning within economic literature.

What is Economic Growth?

Economic Growth refers to the increase in the real output of goods and services of an economy. It indicates only the quantitative changes in the economy. This concept is generally related to developed countries.

What is Economic Development?

Economic Development refers to the overall progress of an economy, including institutional and technological changes. It indicates both quantitative and qualitative changes in the economy. This concept is generally related to underdeveloped countries.

Key Differences Between Economic Growth and Development

Here’s a breakdown of the differences:

Economic Growth indicates only qualitative changes, while Economic Development indicates both qualitative and quantitative changes.
Economic Growth is a uni-dimensional concept, while Economic Development is a multidimensional concept.
Economic Growth is a narrow concept, while Economic Development is a broad concept.
The government plays a nominal role in Economic Growth, while it plays a dominant role in Economic Development.
Economic Growth is related to developed countries, while Economic Development is related to underdeveloped countries.
Economic Growth is a short-run process, while Economic Development is a long-run process.

Factors Determining Economic Development

Several factors contribute to a nation’s economic development:

Natural Resources: According to Jacob Viner, William J. Baumol, and W.A. Lewis, a country’s development is determined by its natural resources, such as soil fertility, irrigation, and minerals like coal and petroleum.
Capital Formation: An increase in the net stock of capital is known as capital formation. It helps create a sound infrastructure and enlarges productive capacity.
Marketable Surplus: The excess amount of output available in the agricultural sector after meeting the basic needs of the rural population is known as the marketable surplus. A larger marketable surplus leads to economic development.
Foreign Trade: Foreign trade provides sufficient investment, technology, and managerial abilities and enlarges the market. Thus, it is often described as an engine of growth.
Human Resources: A country’s population is considered its human resources. A high-quality population provides skilled and efficient labor and managerial resources.
Technological Progress: The availability of the latest and most sophisticated technology minimizes the cost of production, maximizes output, and changes the social atmosphere.
Political Freedom: If a country is under the rule of another country, it may be exploited and forced to remain backward. Therefore, political freedom is essential for economic development.
Desire to Develop: Richard T. Gill states that economic development is not a mechanical process but depends on the skills, qualities, and attitudes of the people.

Classification of Countries by the World Bank

The World Bank classifies countries based on per capita Gross National Income (GNI), as per the World Development Report 2008:

Low Income Countries: Below $906
Middle Income Countries: $907 – $11,115
High Income Countries: $11,116 and above

Features of Developed Countries

Developed countries, also known as industrial and emerging economies, are characterized by high per capita income. According to the World Development Report (2008), they have 16% of the world’s population but account for 77% of the world’s GNI. Examples include the USA, UK, and Switzerland.

Characteristics of Developed Countries

High Per Capita Income: Developed countries possess higher per capita income as well as Gross National Income. For example, the Per Capita Income (PCI) of Switzerland is $65,330, and that of the USA is $47,580.
Importance of Non-Agricultural Sector: In developed countries, the non-agricultural sector (industry and services) contributes more to GDP and employment for the majority of the population. For example, in the USA, the industrial sector provides 22% and the service sector provides 76% of the share in GDP and employment for 96% of the population.
High Level of Capital and Technology: Due to high savings rates, investment, and PCI, developed countries maintain a high level of capital formation and technological progress.
Low Level of Unemployment: There is a very low level of unemployment in these countries due to the dominance of the non-agricultural sector. Cyclical and frictional unemployment may exist to some extent.
Better Quality of Life: In these countries, all citizens are ensured a minimum standard of living with social security. There are low death and birth rates, a high literacy rate, etc., due to higher human capital.

Features of Underdeveloped Countries: India

According to the Indian Planning Commission, an underdeveloped country is characterized by a greater or lesser degree of unutilized or underutilized manpower on one hand and unexploited natural resources on the other. These are also known as third-world countries, agrarian economies, and developing countries. They have 84% of the world’s population but only 23% of the world’s GNI. Examples include India and Sri Lanka.

Features of Underdeveloped Countries with Reference to India

Low Per Capita Income: Underdeveloped countries have lower PCI due to low savings and investment. India’s PCI is $1,070, which is 45 times less than that of the USA.
Scarcity of Capital: In most of these countries, the savings rates range between 15% to 20%. This leads to low capital formation. According to Ragnar Nurkse, many of these countries are in a vicious cycle of poverty due to scarcity of capital. India’s capital formation rate is currently 39% of GDP.
Demographic Characteristics: Many countries are suffering from population explosion, high death rates, high birth rates, etc. 84% of the world’s population is in developing countries. As per the 2011 Census, India’s population is 121 crores, which is 17% of the world’s population.
Unemployment: These countries are suffering from disguised and cyclical unemployment due to poverty and market failure. In India, disguised unemployment ranges between 15% to 20%.
Predominance of Agriculture: In developing countries, agriculture provides 20% to 30% of the share in GDP and employment opportunities for nearly 70% to 80% of the population. In India, agriculture provides 58% of employment opportunities and contributes 18% to GDP.
High Incidence of Poverty: Most underdeveloped countries suffer from high poverty levels, along with malnutrition, poor quality of life, ill health, and illiteracy. In India, 19.3% of people live below the poverty line.
Income Inequalities: There are large inequalities in income and wealth distribution in these countries due to private ownership, tax evasion, etc. This widens the gap between the haves and have-nots.
Poor Quality of Life: These countries have low literacy rates, low income, poor health facilities, poor sanitation, unsafe drinking water, low life expectancy, etc. In India, life expectancy is 63.4 years, with a 74% literacy rate.
Technological Backwardness: Capital deficiency is the main reason for technological backwardness. There is technological dualism in almost all sectors of the economy.
Density of Population: The average number of persons living per square kilometer area is called the density of population. High population density in these countries increases the burden on land and other resources. At present, India’s population density is 382 persons per square kilometer.

Andhra Pradesh Economy

Andhra Pradesh is the fourth-largest state in India by area, with 8.37% of India’s land area, and the fifth-largest by population, with 8.46 crore people. It possesses 7% of India’s population, with a 1.06% growth rate. The current sex ratio is 992 females per 1,000 males.

Currently, 59.7% of the population in Andhra Pradesh is engaged in agriculture, 15.5% in the industrial sector, and 24.8% in the service sector. Andhra Pradesh is one of the largest states in India among high Per Capita Income states.