Economic Development

Economic Development Definition

A country’s economic development is usually indicated by an increase in citizens’ quality of life. ‘Quality of life’ is often measured using the Human Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as literacy rates, life expectancy, and poverty rates.

What is the difference between Economic Growth and Development? We will start by defining Economic growth and development. Having economic growth without economic development is possible.

Economic growth in an economy is demonstrated by an outward shift in its Production Possibility Curve (PPC). Another way to define growth is the increase in a country’s total output or Gross Domestic Product (GDP). It is the increase in a country’s production.

Economic Growth Occurs When

  1. There is a discovery of new mineral/metal deposits.
  2. There is an increase in the number of people in the workforce or the quality of the workforce improves. For example, through training and education.
  3. There is an increase in capital and machinery.
  4. There is an improvement in technology.

Economic Development Occurs When

Measures of economic development will look at:

  • An increase in real income per head – GDP per capita.
  • The increase in levels of literacy and education standards.
  • Improvement in the quality and availability of housing.
  • Improvement in levels of environmental standards.
  • Increased life expectancy.

Difference between Economic Growth and Economic Development

We can also have a situation where there is economic growth and economic development, i.e. an increase in luxury goods and education.

Development alleviates people from low standards of living into proper employment with suitable shelter. Economic Growth does not take into account the depletion of natural resources, which might lead to pollution, congestion & disease. Development, however, is concerned with sustainability, which means meeting the needs of the present without compromising future needs.

A. Economic Growth Definition

Economic Growth is an increase in a country’s output.

Economic Growth Graph

B. Economic Development Definition

Economic Development is an improvement in factors such as health, education, literacy rates, and a decline in poverty levels.

Economic Development Graph

The Relationship between Inequality and Economic Growth

The Relationship between Inequality and Economic Growth

Poverty has come down most when inequality has fallen, and there is high economic growth. Initial low levels of inequality are associated with more negative elasticities of poverty reduction concerning growth. Higher initial inequality results in less effect on poverty with an increase in economic growth.

1. Savings Rate

The marginal savings rate changes with decreasing or increasing income. The marginal savings rate is the fractional decrease in saving that results from a decrease in income.

2. Credit Market Constraints

The poor can’t get loans.

3. Political Economy

Governments pursue poor policies (redistribution policies) trying to reduce inequality, which results in high inflation, high deficit, and lower growth. However, there doesn’t seem to any relationship between inequality and economic growth empirically. But, higher economic growth leads to lower levels of poverty (not the same as inequality)

Growth Effect

The positive growth of people’s income and no change in income leads to a decrease in the poverty level.

Redistribution Effect

If there is a rise in inequality and mean income remains constant, then poverty will rise.

    April 14, 2020 at 2:36 pm

    Thank you for being clear so I can understand.

    1. Mohini kumari
      Mohini kumari
      June 16, 2020 at 11:23 am

      Please explain Low level of economics development in simple that i can understand..

  2. Kulu
    May 20, 2020 at 4:39 pm

    Please can you advise how we should aim to grow country ‘s economy more quickly, justify

  3. Karma
    August 6, 2020 at 1:30 pm

    How to explain economic growth taking place using the diagram or possibility curve

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