Economist often tends to use the two terms economic development and economic growth interchangeably, as they appear to be synonymous with each other.
Economic growth indicates an increase in the production but economic development indicates an increase in the production and institutional changes. Economic growth indicates quantitative changes while economic development indicates quantitative and qualitative changes
The economic development of a country is defined as the development of the economic wealth of the country. Economic development is aimed at the overall well-being of the citizens of a country, as they are the ultimate beneficiaries of the development of the economy of their country.
Economic development is a sustainable boost in the standards of living of the people of a country. It implies an increase in the per capita income of every citizen. It also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment.
Economic growth on the other hand, is a narrower concept than economic development. It is defined as the increase in the value of goods and services produced by every sector of the economy. It is usually expressed in terms of the gross domestic product or GDP of the country.
Short run and long run economic growth
Short run growth occurs when unemployed resources are put to work ( land and labour)
Long run growth is possible when there is an increase in the supply of all factors of production and use more efficiently
Advantages of economic growth
An increase in the output of goods and services in a country can have the following advantages.
1) Raise standard of living because there’s an increase in goods and services being produced
2) Improve firms’ and consumers’ confidence (positive outlook) which may lead to an increase in investment.
3) Higher employment through diversification
Disadvantages of economic growth
1) Increase in pollution (noise and congestion).
2) Excessive depletion of non-renewable resources.
3) The benefits of growth between income groups and regions may be uneven leading to an increase in relative poverty. Income inequalities may widen.
Economic growth should be an important aim for a government.
To increase N.I and standard of living economic growth is essential. Without economic growth it is very difficult for a country to develop or gains national prestige. Besides economic growth, there are some other possible aims such as low rate of inflation, a low level of unemployment, equilibrium in the balance of payments, equal distribution of income and wealth.
Standard of living and Natural resources:-If a country had good natural resource, the standard of living of its population would not necessarily to high.
Standard of living of a country does not depend on the natural resources only. It refers to the consumption or enjoyment of necessities, comforts and luxuries. Not only quantity but also quality of the consumption of goods and services of the people reflect their standard of living.
The higher the rate of growth of population of the country the lower would be the standard of living even though it has good natural recourses. It is important to control the population growth for achieving high standard of living.
Standard of living of the people will also depend upon the availability of goods and services in the economy. If the goods and services are abundantly available in the economy, the people enjoy high level of standard of living. If a country has skilled labour, enough capital and infrastructure, it knows how to exploit natural recourses efficiently. If the country is inefficient in exploiting and utilising its resources then the standard of living of its population would not be necessary considered as high.
But it is an advantage for a country having good natural recourses. There is a chance for a country to exploit and utilise its recourses well and increase the standard of living. The countries, which are able to utilize its natural recourses well maintain high standard of living. But it is not certain that if a country has good natural recourses, the standard of living of its population would necessarily be high.
Per capita income:-Income per head is known as per capita income. It is the average income received by a citizen of a country in a year. Per capita income is the real measure of the welfare of the people. A rise in the per capita income indicates an improvement in the economy position of the people.
Per capita income (PCI)= N.I / the total population of a country
The living standards that might be found in a developing economy compared with a developed economy are
Per capita income:-The per capita income of a developing country is low. But the per capita income of a developing country is high.
Health:-The doctor patient ratio in a developing country is lower than that of a developed country. A developed country provides better health care so the life expectancy of a developed country is higher than that of a developing country.
Education: the facility of education and training is better in developed countries. There are adequate educational institutions and training centres. But in developing countries due to shortage of funds there are limited educational institutions. Therefore, a large percentage of the working population in developing countries is found unskilled or semiskilled.
Housing:- In developing countries, people live in unhygienic environment. They don’t have proper houses to shelter. Many people live in huts. But developed countries people enjoy modern and advanced housing facilities
Infrastructure :-Developing countries are severely handicapped by their lack of electricity and water supplies, transport and farming equipment, goods and railways, port facilities and other capital goods. But in developed countries people enjoy modern technology along with these facilities
Some countries have lower standards of living than other because:
Productivity in agriculture:-In low income countries 70% or more than the labour force works on land. The output per worker in agriculture is extremely low compared with that in developed countries
The availability and development of economic recourses:-many countries have very poor supplies of natural recourses. They have very little modern technology. So these countries have lower living standard
Population growth:-In the great majority of developing countries, the rate of population growth is very higher than it is in developed countries. This means that it is difficult for them to achieve increase in GNP per head.
Unemployment:-In some countries unemployment, or disguised unemployment, is a serious problem which keeps the standard of living low.
Social barriers: – in some countries the way of life has been unchanged for centuries .social customs, religious beliefs and superstitions may be barriers to economic growth and restricts the standard of living.
The most effective ways for developing countries to develop are:
- Increasing primary product
- Industrialisation through import substitution
- Promoting export-led growth
- Developing tourism
- Borrowing from abroad
- Relying on foreign aid
- Increase the quality of human recourses
- Resources should be moved from low productivity to high productivity industries
- Innovation: new method ,improved technology .better communication, advanced management