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Economic Development VS Economic Growth

While economic growth and economic development sound like very similar terms, they actually define two different concepts in the world of economics. While both have their similarities, the distinct differences between economic growth versus economic development are important to note, as the two concepts are distinctly important to affecting change in an economy. While both may lead to similar results, their aims and methods of measurement vary greatly.

What is economic growth?

Economic growth is a measurement of the increase in an economy's output. These quantitative changes are measured in finite terms by using the percentage increase of the country's gross domestic product. Economic growth typically does not take into account factors that are not part of the formal economy.

What is economic development?

Economic development focuses on increasing intangible results, such as systemic changes, standard of living, and overall self-esteem in an economy, indicating an upward movement of an entire social system. Economic development can measure the increase in a community’s collective morality, or their sense of what is right and wrong or what is good or bad. Development can also focus on specific sectors of an economy, such as healthcare, conservationism or education.

What makes these two terms so different?

The scope of economic development is far broader than that of economic growth. Economic growth measures the formal economy in very quantitative terms and in tangible results, mostly focusing on GDP and overall output. Economic development focuses on intangible changes to provide qualitative results, which will in turn lead to quantitative results. Such measures taken for development include the Human Development Index (HDI), Human poverty index (HPI), gender- related index (GDI), the literacy rate of a community, life expectancy rates, infant mortality rates, and others.

Economic growth is not concerned with sustainability, nor does it look into depletion of natural resources which may lead to negative results for an economy, such as pollution or disease. Development focuses on keeping a region sustainable and will look into symptoms of depleted resources, trying to course correct when able.

Economic growth does not take into account elements of morality. Undocumented economic activity from things such as black markets is not factored into growth. While economic development does not actively work to thwart the informal economy, the activities implemented by development (including development of quality of life and decreasing figures of inequality) tend to increase the formal economy enough so that the informal economy can lessen its influence.

How do the two work in relation to one another?

The work performed by economic development will lead to many qualitative changes in an economy, which will in time have an impact on the overall output. Positive change in economic development can lead to economic growth, which leads to a direct relationship between the two. Economic growth can be viewed as an overarching goal of economic development, though development has a number of specific stepping stones to get to first.


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