Difference between growth and development

Even before an economist named Simon Kuznets developed gross domestic product (GDP) in 1934, the difference between what economic growth is and what development is has confronted numerous economists across the globe.

Difference between growth and development

In this sense, the most widely used indicator to measure economic growth is gross domestic product (GDP). The well-known index, coined in 1934 by the previously mentioned North American economist, has been the reference to measure the growth of an economy, and this because said indicator is in charge of measuring, periodically, the production of an entire economy during a period of time. specified period of time.

Thus, GDP measures the total production of an economy, at the same time that it is responsible for comparing these measurements with past measurements. And this is done in order, through a variation rate, to know what the growth of an economy has been. Understanding growth, yes, an increase in production, or what would be the aggregate production through the application of the formula that Kuznets indicates for the calculation of GDP.

However, there have been many economists who consider that the fact that an economy grows does not mean that it develops, so a clear difference must be established between economic growth and development. In fact, there have been many economists who have given examples of how an economy can grow without interruption and, nevertheless, present an increasingly intense inequality. Inequality that, ultimately, makes life in that territory worse and, therefore, presents less development.

For this reason, many experts in the field have requested that new indicators be generated to complement the measurement and establish the distinction. Indicators such as the Human Development Index (HDI) prepared by the UN, which allow us to measure this development that, in the measurement established by GDP, is ignored. And it is that, for this, other indicators complement production with life expectancy, income, as well as other variables that, together with growth, show us an authentic development.

With that said, let’s look at the differences between these two concepts.

Difference between growth and development

To understand these two concepts, let’s see, first of all, what we economists mean by economic growth and what we mean by development.

In the first place, economic growth is understood as the positive evolution of the living standards of a territory, usually countries, measured in terms of the productive capacity of its economy and its income within a specific period of time. In other words, the positive evolution of a series of indicators, such as GDP, that show that production and, therefore, the income of the population grows over time.

On the other hand, and secondly, economic development is a concept that refers to the ability of a country to generate wealth. However, this growth must be reflected in the quality of life of the inhabitants. In other words, development must be perceived with a higher life expectancy, lower economic inequality, a total reduction in poverty, as well as the favorable behavior of another series of variables that growth does not take into account.

Therefore, as can be seen in both definitions, we are talking about two closely linked concepts, but which present clear differences that should be emphasized.

In a way, by way of conclusion, we can say that economic growth is part of development, but that economic growth, by itself, is not development.

Growth and development

Indicators to measure development and growth

To finish, we finish with a small recommendation to know how the evolution of economic growth and the development of a territory is being. In this sense, we offer the indicators that will allow us to know this evolution, as well as to distinguish it.

Therefore, to measure economic growth, we will observe indicators such as gross domestic product (GDP), unemployment rate, GDP per capita, among others.

On the other hand, to measure economic development, we will be more attentive to indicators such as the human development index (HDI), the Gini index, as well as other indices that complement the conclusions that the growth indicators show.