Is Economic Growth Necessary for Economic Development?

                           

Economic growth is a necessary but not sufficient condition of economic development.

 

There is no single definition that encompasses all the aspects of economic development. The most comprehensive definition perhaps of economic development is the one given by Todaro:

 

‘Development is not purely an economic phenomenon but rather a multi-dimensional process involving reorganization and reorientation of the entire economic and social system.

 

Development is a process of improving the quality of all human lives with three equally important aspects. These are:

 

1. Raising peoples’ living levels, i.e. incomes and consumption, levels of food, medical services, education through relevant growth processes.

2. Creating conditions conducive to the growth of peoples’ self-esteem through the establishment of social, political, and economic systems and institutions that promote human dignity and respect.

 

3. Increasing peoples’ freedom to choose by enlarging the range of their choice variables.’

 

Economic growth may be defined as an increase in a country's ability to produce goods and services. Economic growth merely refers to an increase in the real Gross Domestic Product or GDP per capita over some time.

 

It is natural to be misled by the idea that economic growth is the key to economic development and perhaps a condition of development itself, but development is more than simply increasing economic output i.e. GDP per capita. It is a wider concept than economic growth. A country's economy may experience real growth of GDP with no economic development taking place. Nevertheless, wider more meaningful indicators of development are often correlated with GDPs per capita, such as The Physical Quality of Life Index, Human Development Index, Human Poverty Index, and the Human Suffering Index, which help us include the non-monetary factors of development.

 

Amartya Sen defines economic development in terms of personal freedom, freedom to choose from a range of options. While the economic growth may lead to an increase in the purchasing power of people, if the country has a repressed economy, there is a lack of choice, and hence personal freedom is restricted. Hence once again growth has taken place without any development.

 

While the economic growth may result in an improvement in the standard of living of a relatively small proportion of the population whilst the majority of the population remains poor. It is how the economic growth is distributed amongst the population that determines the level of development.

 

Taking into consideration the trickle-down theory of economics by Lewis, if the growth in the economy is not sufficient to satisfy the needs and wants of the upper sections, nothing or very little shall trickle down to the lower sections in the hierarchy of society. Thus, the gap between the rich and poor widens, and though economic growth has impacted a certain section of society, this cannot be considered development.

 

Another example is an increase in the defense output of a nation, which accounts for an increased GDP but does not in any way contribute to economic development.

 

Economic growth is not enough in itself to measure economic development as even if there has been a leap in the income of people in a particular nation, but the inflation rate is very high, then economic development cannot be claimed as having taken place.

 

Undoubtedly economic growth and economic development are complementary.

 

Economic development may be considered our short-term goal towards the achievement of utopia in the long run, and economic growth is one of the myriad essential factors necessary for bringing about economic development, a much broader term concerned with a lot more than just the monetary aspect of development.

 

Hence it may be said that ‘Economic growth is a necessary but not sufficient condition of economic development.’

 

 

 

‘Does economic development always lead to improvement in living standards?’

 

 

Economic development may be defined as a sustained increase in the economic standard of living of a country's population, normally accomplished by increasing its stocks of physical and human capital and improving its technology.

The Standard of living refers to the level of material comfort as measured by the goods, services, and luxuries available to an individual, group, or nation.

 

The term ‘standard of living’ also encompasses the quality of life, which takes into account not only the material standard of living but also other more subjective factors that contribute to human life, such as leisure, safety, cultural resources, social life, mental health, etc.

 

Economic development does not always lead to an improvement in living standards. While the economic condition of the people may be boosted, with an increase in purchasing power and the variety of choices available to them; in no way does it ensure a happier life in more subjective terms. It does not do away with the worries of a person, social evils, or in any way reflect upon a better form of government, an efficient legal and judicial system, etc.

 

Economic development usually takes place along with industrialization, which leads to an increase in pollution in the environment which takes its toll on the quality of life of citizens.

 

Thus it is evident that economic development does not always lead to an improvement in living standards, due to its limited scope and inability to impact the nonmaterialistic aspects of human life.