Economic Growth & Development Questions and answers.

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Economic Growth & Development Questions

  1. Explain the difference between economic development and economic growth.

Economic growth is often described as the National Income and the economic activity of a country. This aggregate income of a country is commonly referred to as GDP (at market prices), which is a measure of the total output produced by factors of production based in that country (although measuring the real NNP produces a more accurate figure but is less widely used). National Income is measured by three components, which make up the circle of income; Output, income and expenditure (Output = Incoming = Expenditure – errors and omissions).

There are many ways to define economic development, for instance according to the American Economic Development Council (AEDC) economic development is “a process of creating wealth through the mobilisation of human, financial, capital, physical and natural resources to generate marketable goods and services.” However, the more common method of describing the development of a country refers to the level of per capita income and how closely it conforms to Michael Todaro’s three objectives; “To increase the availability of basic life-sustaining goods,” “to raise living standards,” and “to expand the range of economic and social choices.” However, whilst economic growth is measured through the components of the circle of income, the development measurement indices are the HDI (human development index) and the HPI (human poverty index).

It is clear that economic growth and economic development and not synonymous, but still contain some links. For example, the United States and Norway both possess HDI ranks of 2 & 3 and also have GDP per capita ranks of 2 & 3. However, there are those other countries where this is not the case, for example, in Columbia, which has a low GDP per Capita, but has a reasonable HDI and few people under the poverty line (due to the large ‘shadow economy’ present). This may be true for other countries where the GDP per capita may be rising, but at the same time poverty might be increasing, inequality in the distribution of income might be rising and massive environmental damage may be occurring. However, this is not just the case for LEDC’s (less economically developed countries) as Canada possesses the top HDI rank, but has a GDP rank of 9 (which is due to the large areas of remote land.)

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One difference between growth and development is that growth tends to be more objective, as it can be measured with a set figure and tends to be much more of an exact science. However, development is more normative and it is more difficult to judge accurate figures to gauge a ‘correct’ level of the development (e.g. it is hard to estimate the number of calories the average person should have a day to show the level of poverty).

Although there is a distinct difference in the measurement of the two factors, there is also a small link ...

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