Differences between economic growth and economic development

While the terms “economic growth” and “economic development” can be misunderstood as the same, the reality is different. And it is that in fact, they are different definitions, that although they share certain similarities they are not essentially the same. But we must also consider that both are part of the economy of nations, and that must be studied for proper analysis.

In this article we will explain the differences between economic growth and economic development. But in addition, we will tell you in-depth the definitions of both terms, importance in the economy, causes, indicators, etc.

In the first place, one of its biggest differences is that the term economic growth is more specific than the term economic development. While economic growth corresponds to an increase in the real level of a country’s national productivity, economic development corresponds rather to a normative concept. That is, the morality of each person depends. This is an increase in quality of life.

Taking into account the differences but also what they have in common, it is necessary to analyze several details of both terms for complete compression.

Definition of economic growth

The definition of economic growth corresponds to the increase in the value of final goods and services or the value of income produced by an economy. This over a certain period of time, which is usually one year and is focused on a country or region as such.

If you want to observe it in broad strokes, this growth can be analyzed as the increase of certain indicators. Among these indicators, you will find a huge crowd, since you can be talking about savings, investment, greater energy consumption, production of goods and services, a favourable trade balance, as well as the increase in calorie consumption per capita, among many more indicators.

When these indicators improve, it is a positive signal for the region or the country, because it is an indication that there is an increase in the living standards of the population, at least theoretically.

Economic growth can also be understood as simply the positive evolution of the living standards of a territory. With which the productive capacity and income will be reflected within the allotted time period.

Economic growth is measured by means of increasing percentages of the Gross Domestic Product or GDP. Calculating economic growth in this way, it is considered historically as desirable, because it is related to the number of material goods that are available or spent on the production of goods and services.

Because not everything that is spent will be renewable, as are the cases of many raw materials or ecological reserves such as oil, coal, gas, gold, etc.

Which of the following best describes the relationship between economic growth and literacy?

A.) As the economy grows, literacy declines because it becomes less and less useful in a developed economy.
B.) Increased literacy initially stimulates economic growth by raising labor productivity, but as the economy grows and the opportunity cost of education rises, literacy declines.
C.) Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.
D.) There is no correlation between economic growth and literacy.


C.) Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.

What is the importance of economic growth?

Economic growth is important in the economic and social development of a country and is one of the main goals in every society. Being in a region or country with economic growth implies a priori increase in factors such as per capita income and, in theory, the quality of life of people living in these societies.

This is also of such importance because it serves as an axis for measuring investment, as well as the level of consumption or social policies. Measuring the level of growth would actually be predicting how far or near economic and social development it is.

When economic development is being experienced in society, situations such as the increase in production and productivity in the economic branches will be witnessing, the quality and qualification of human capital and progressive steps will be taken towards industrial development and diversified production.

A priori, economic growth is a source of global well-being, although there are several reasons to think otherwise. We recommend that you visit the section on Criticisms of economic growth to be able to read this argument a little more developed.

Objective of economic growth

All countries want positive economic growth because this represents an advance and improvement of the general quality of life of their inhabitants. The objective of economic growth can be defined precisely as the improvement of the quality of life of nations. This improvement contains within itself goals that shape the solid objects in its entirety.

Some of the small goals include some such as providing access to education, skills and training to obtain jobs; the promotion of food sovereignty or the impulse of organizations that contribute to the common good.

This series of goals is focused on creating self-sufficient economy systems, capable of continuing to drive long-term production.

Something that is unquestionable, is that economic growth is one of the goals of the whole society because when talking about it it will also be an increase in income and a better way of life for everyone in general. However, there are several sources that cite economic growth simply as a factor to consider but not an end in itself., as neoclassical economists have tried to impose in their speech.

Causes of economic growth

Like any consequence, economic growth has causes, which are responsible for this event taking place. With a correct investment, favourable changes, or positive drag effects, can be generated to the sectors involved to encourage growth. Some of the causes of economic growth are:

  • Capital: When workers have at their disposal more instruments to fulfil their assignments, more machines, tools, etc. It is a sign of improvement of conditions. All this is possible through the capital investment, with this you can produce more goods and services. The physical capital of a country is made up of all infrastructure such as ports, routes, as well as cars, trucks, computers, robots, etc.
  • Education: Given the same amount of inputs, two workers with different educational levels will obtain different results. In other words, those workers who have a higher level of knowledge, can theoretically be more productive in his job if he is compared to workers without studies. Likewise, a worker with better training You can access jobs where you generate a higher marginal productivity or value for the company. As an example, a bank worker generates more economic value for the company in 8 hours of work than a warehouse labourer. Hence, wages are also different. That is why the most developed countries in the world are known for investing large sums of money in education. Its objective is that the sum of the work of the most qualified professionals can generate greater growth of the economy at an aggregate level.
  • Technological progress: Technological progress refers to combining in a better way the most advanced supplies, machines and knowledge to yield better production results. Many indicate that the key to economic growth is technological progress.

How is the growth of the economy measured? Indicators

The growth of the economy is measured through the Gross Domestic Product (GDP), that is, with the annual increase in GDP in a nation.

What is the GDP?

The GDP represents the value of all final goods and services that are produced by a nation in a given time, which usually corresponds per year.
GDP is a variable that changes and fluctuates according to this:

  • When GDP grows at a faster rate than population growth it is claimed that the standard of living increases,
  • In the opposite case, if the growth rate of said population is higher than GDP, it would be affirming that the population’s standard of living would be decreasing.

Growth can be measured in either nominal or real terms:

That is why if nominal GDP has increased at a 5% growth rate while the inflation reached the number of 4% at the same time, it would have to be according to real terms, the growth rate is only 1%, and this increase of 1% is the real increase in GDP.

Criticisms of economic growth

The concept of economic growth and its positive influence on the economy is deeply rooted in society. This is due to the influence of neoclassical thinkers who are committed to the more “wild” version of the market economy, what we know as capitalism. Within its thesis, the objective is to grow to continue generating wealth in the economy of a country at an aggregate level. This idea seems quite logical, but wealth in many cases does not directly affect the quality of life of the population: improvements in education, health, wages in the quality of life in general.

A clear example of this is numerous developing countries, with large growth rates driven mainly by the global globalization process, but in which the redistribution of income is totally unbalanced. In other words, the rich accumulate more and more capital while basic-scale workers continue to live on the poverty line.

What does economic development mean?

Economic Development is the ability of a country or region to create wealth in order to promote or maintain the economic and social welfare of its inhabitants. The branch of the Economy that deals with the study of development issues is the Development Economics.

Often, a high growth rate is often mistakenly associated with a high level of development. However, in economies with unstable state models and strong institutional weakness, high growth rates do not correspond to acceptable levels of development.

To determine a more realistic relationship, a combination of indicators that measure the economic development of a country is used, including the Gross Domestic Product per capita, the distribution of income and wealth, life expectancy at birth, adult literacy rate and other indicators related to economic prosperity and quality of life, included in the Human Development Index (HDI) prepared by the United Nations Development Program (UNDP).

What does economic development look for? goals

The main objective of economic development is focused on generating greater well-being in the population using as a means the revitalization of the local economy and macroeconomic variables.

However, improper use of them can cause uneven development of the zones, which is a disadvantage because it creates a notable disproportion.

Causes of economic development

These are the main causes of economic development:

Economic causes

  • Access to natural and energy resources.
  • Technological resources.
  • Workforce available.
  • Purchasing power.
  • Communication and transport networks.
  • Education level.
  • Capital accumulation.

Political causes

  • Type of government.
  • Political stability.
  • Administration of public investment.
  • Type of market
  • Corruption.

What are the indicators of economic development?

The economic development of a nation can be measured superficially by analyzing a series of basic socioeconomic indicators such as GDP and the IDC (key performance indicators). But it can also be measured by other indicators such as the economically active population (PEA), per capita income (CPI), the human development index (HDI), and education, health and housing levels:

  • The PEA refers to the group of the population that is of working age and have a job
  • the CPI indicates the average income per inhabitant in a year
  • The HDI is an indicator that is based on three basic parameters that are: life expectancy, health, education and standard of living.

What is the difference between growth and economic development?

As mentioned, there are several differences between growth and economic development to highlight. That is why we will talk a little more about these:

  • Implications: Economic development translates into a rise in the entire social system, this with respect to salaries, savings, investments, educational level, health, etc. There is a need for progressive changes in the socioeconomic structure in order for the results to appear. While for its part, economic growth refers to the gradual increase in real productivity of a country.
  • Indices: Among other differences between development and economic growth is that development is related to human development indices (HDI)
  • as the index of human poverty, literacy, human poverty, etc. While growth is related to the gradual increase in all or certain components of GDP.
  • Effects: In economic development there are more qualitative and quantitative changes in the economy, but in the case of economic growth the changes focus on the quantitative level.
  • Relevance: For economic development, it is more important to stimulate the quality of life, so it has different types of interrelated indicators focused on improving people’s living conditions: access to education, income, health, life expectancy, etc. Economic growth is more focused on increasing capital and income in the economy, assuming that these will lead to an improvement in people’s lives.
  • Scope: Economic development focuses more on the structural changes in the economy and the long term. Instead, economic growth does so in increasing economic productivity that has a more short-term approach.