Page 12 - DECO501_ECONOMICS_OF_GROWTH_AND_DEVELPOMENT_ENGLISH

Economics of Growth and Development

Notes 1.7 Economic Development and Economic Growth

By a “developed” economy, people roughly mean ones with a high, persistently-growing per-
captia income which is not simply based on resource extraction (i.e., oil) or remittances or rentierism
— an industrial (or, if there is such a thing, post-industrial) economy which makes most of its
participants reasonably and increasingly prosperous. While there are of course differences among
them — the United States is not New Zealand, which is not Belgium, which is not Finland, which is
not Japan — they are all more similar to each other than they are to the vast variety of “undeveloped”,
“under-developed”, or (most optimistically) “developing” economies across the world. (Some
people refer to the developed countries as “the North” and the others as “the South”; this drives me
up the wall, if only from looking at where China and Australia are on the map.) Economies in the
first category tend to stay there; so, sadly, do countries in the second. Development economics is the
sub-discipline of economics which attempts to study how economies which have not attained this
happy condition can be made to do so, and the factors which hold others back.
Normally in economic textbooks, growth and development are used synonymously, and this usage
is widely acceptable. However, in particular, the two terms have been distinguished by different
economists as follows:
1. To some economists, economic development refers to the process of expansion of backward
economies, while economic growth relates to that of advanced economies.
2. Schumpeter, however, uses the term “economic development” as a spontaneous and
discontinuous change in the stationary state which disturbs the equilibrium state previously
existing. And the term “economic growth” is used to denote a steady and gradual change in the
long run which comes through a general increase in the rate of saving and population in a
dynamic economy.
3. Prof. Kindleberger has given the differences between growth and development as; “Growth
may well imply not only more output and also more inputs and more efficiency, i.e., an
increase in output per unit of input. Development goes beyond these to imply changes in the
structure of outputs and in the allocation of inputs by sectors. By analogy with human beings
to stress growth involves focusing on height and weight, while to emphasize development,
draws attention to the change in functional capacity in physical coordination. For example,
growth without development-more and more steel in the Soviet Union or more and more
coffee in Brazil-leads nowhere. It is virtually impossible to contemplate development without
growth because change in function requires a change in size. Until an economy can produce a
margin above its food, through growth, it will be unable to allocate a portion of its resources
to other types of activity”.
4. To some, economic development is the outcome of conscious and deliberate efforts involved
in planning. Economic growth, on the other hand, signifies the progress of an economy under
the stimulus of certain favourable circumstances, e.g., the progress achieved by the United
Kingdom during the Industrial Revolution.
5. In his simple words, A. Maddison says, “The raising of income levels is generally called
economic growth in rich countries and in poor ones it is called economic development”. Mrs.
Hicks has also expressed almost the same views and said that economic development refers to
the problems of underdeveloped countries and economic growth to those of advanced countries
she points out that the problems of underdeveloped countries are concerned with development
of unused resources, even though their uses are well-known; while those of advanced countries
are related to growth, most of their resources being already known and developed to a
considerable extent.
6. According to Prof. Mehta, however, the term “growth” has quantitative significance. Growth
suggests an increase in the quantity or volume of something. An increase in a country’s
population, national income; per capita income, consumption, saving, investment, foreign

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