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Unit 1: Economics of Growth and Development: Meaning, Measurement, Difference and Comparisions
trade etc. over a period, all imply growth. In economics, however, growth strictly means an Notes
increase in real income, gross and per capita. On the other hand, development is a process of
expansion, fulfilling the desire to have an increase in national income. From the above will be
clear, the distinction and interface of growth and development.
It also occurs by increasing the productivity of existing factors through investment in
education (labour) and technology (capital).
1.8 Measuring of Growth and Production Possibilities
Economic growth is the increase in the amount of the goods and services produced by an economy
over time. It is conventionally measured as the percent rate of increase in real gross domestic
product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in
order to obviate the distorting effect of inflation on the price of the goods produced. In economics,
“economic growth” or “economic growth theory” typically refers to growth of potential output,
i.e., production at “full employment”.
As an area of study, economic growth is generally distinguished from development economics. The
former is primarily the study of how countries can advance their economies. The latter is the study
of the economic aspects of the development process in low-income countries. See also Economic
development.
Since economic growth is measured as the annual percent change of gross domestic product (GDP),
it has all the advantages and drawbacks of that measure.
1.8.1 Economic Growth: Measurement
Economic growth is the sustained increase in welfare of an economy nation, region, city together
with the ongoing changes in that economy’s industrial structure; public health, literacy, and
demography; and distribution of income. In the long run, as this economic transformation evolves,
so do social, political, and cultural norms. Societies change profoundly and multi-dimensionally, as
economic performance improves.
To measure economic growth is to quantify this increase in welfare and to endow with numerical
precision these large-scale economic and social changes. Given the breadth of possibilities, it is
impossible to undertake this measurement exercise without guidance of what can be pared away,
what is essential from some view on the causes of growth (see, e.g., Economic Growth: Theory).
This article sets down some key (measurement) facts concerning economic growth, and documents
how they have evolved, if at all, over time. In doing this, the article attempts also to illustrate the
historical interplay between two lines of research, measurement of and theories about economic
growth, each influencing the other.
1. National Income: The panorama above of profound social and economic changes can be simplified
dramatically by concentrating on just a single key economic variable, income per capita. (We will
return in Sect. 8 below to issues of broader structural transformations). Income per capita is the per
head measure of the total value of all goods and services produced in an economy. Taking national
income measured by either gross national product (GNP) or gross domestic product (GDP), or its
regional counterpart and dividing it by population in the appropriate nation or region gives a
convenient first measure on the state of economic well-being. Since total income is the same as total
output, this measure might sometimes be usefully replaced by output per worker, or labor
productivity, where the denominator is then the size of the labor force; or, even output per worker-
hour, where the measure then takes into account the time spent working by the labor force. In some
detailed analyses, these alternatives can provide different useful insights into economic performance
different countries, at different times, have had their labor force markedly different from their
population, or have had workers and make different choices on the length of their workday.
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