Introduction
Several scholars define economic development variously depending on their academic and professional orientation. But most agree that the phenomenon can be described as any change (quantitative or qualitative, positive or negative) in the economy of a country. The changes are usually as a result of deliberate and strategic plans made by policy makers and other stakeholders in an effort to promote the living and health standards in a given country (Ladimir 2011, p.57).
Analysts are of the view that there is a huge difference between economic development and economic growth. Economic development involves the use of policies to bring changes to the country’s economy and to make sure that the country’s economy is aligned with the international development criteria. This is aimed at enhancing the competitiveness of the country’s economy.
Economic growth on the other hand is concerned with the change in GDP of the given country. In this case, the country’s economic productivity should be thriving in order to achieve a high GDP growth which is a reflection of high economic development (Charlest 2002, p. 94). To this end, it can be inferred that economic growth directs economic development.
This paper is written against this backdrop. To this end, the author is going to discuss the relationship between economic development and economic growth
Economic Development and Economic Growth
Economic Development
Overview
Economic development is characterised by the initiatives put in place to spearhead improvement of the economy. This usually involves fostering a stable political environment which in turn improves the social welfare of people living in the area. All these depend on the kind of policies that are put in place to instigate economic growth (Ranis &Ramirez 2009).
Achieving Economic Development
One way to achieve economic development in many countries is through the application of sociological research. This is to ensure that investors in the country conduct themselves in the proper manner. In this context, development of the business enterprises, enhancement of the market value as well as international trade are being encouraged to achieve a high rate of economic development (Sullivan & Sheffrin 2003).
Economic development involves the improvement of several aspects of the society. These include improving the level of literacy, eradication of poverty as well as the maintenance of high living standards. If the change in these aspects of the society is maintained in the positive direction, then it can be said the country is undergoing positive development. Therefore, economic growth is an important aspect of economic development as already indicated in this paper.
Though the two are approached differently, there is a positive correlation which ensures that a positive change in one leads to a positive change in the other and vice versa. As the economy grows, development is evident meaning that the two are more or less the same as far as their interaction is concerned.
Another aspect of the society that comes to the scene at this juncture is human development. There is a close relationship between human development and economic development (Weil 2008). The interaction between the two is notable considering the important role played by education and health in economic development. To this end it is noted that all these factors relate to one another in more than one way (Anand & Sen 2007).
Economic Development Policies
As already indicated earlier in this paper, economic development is usually characterised by policy interventions on the part of the government or other relevant agents. For this to be fully understood, it will be important to analyse these policies that lead to economic development at this juncture.
Regional Policies
Policies that are meant to define and inform economic development touch on several areas of the society. These will be discussed briefly at this juncture.
- A given country has to make efforts to ensure that its economic development is achieved through the stabilization of commodity prices and improved levels of employment other factors. Measures that can be put in place to achieve this include monetary and fiscal policies. Other policies that will be important in to this end include regulatory policies such as financial regulation, trade and tax regulations which are directed towards the development of a nation (Anand & Ravallion 2006)
- A development policy that touches on the promotion of an effective infrastructure, improvement in housing as well as adequate education is paramount for a developed or developing nation (Porter 2008)
- And finally on regional policy, creation of employment for citizens is important as it ensures that all subjects in a given country not only get a job but also retain that job (Anand & Ravallion)
Economic Growth
Defining Economic Growth
Economic growth can be defined as the process through which the economy achieves a surplus in both goods and services (Porter 2008, p. 79). The process takes a long period of time as compared to economic development. Growth in the economy is measured using the gross domestic product indicator (here in referred to as GDP). Measuring the economic growth involves adjusting the levels of inflation to determine the effects it has on goods and services produced in the country.
At this point, a clear distinction between economic development and economic growth can be made. Growth involves the process through which nations can increase their economic output while development is a sequential improvement of the economy especially in low income nations (Ranis & Ramirez 2009).
Economic growth is characterized by an increase in productive levels of capital as well as innovations made in the country among other things. Economic growth was viewed differently in the past as compared to how it is viewed today. In the past, it involved territorial expansion through colonization and other strategies. This is disregarded today especially after economists realised that geographical expansion cannot be explicitly linked to the GDP of a country.
In order to fully understand economic growth, it is important to discuss briefly what economic per capital is all about (Hanushek & Ludger 2008).
Economic Per Capital
Many authors and economist have argued that economic per capital determines the economic growth. This is characterised by increased production in goods and services to satisfy the needs of the population in a given nation. An improvement in the production of goods and services is an indicator of a growth in economy. However, there are long-term and short-term business cycles which in turn describe economic growth.
The short term business cycle is described as that which lasts for several months or years. For example in the year 2002 there was a sharp increase in production that was sustained till the year 2008-09 when a global financial crisis interrupted the cycle. From this, it is noted that a business cycle experiences several changes before it finally stabilises.
These range from overproduction which leads to surplus. Other challenges that threaten such a growth include overexpansion of credit facilities leading to huge debts as well as bubbles. These inhibit growth in any given business cycle giving rise to a struggling economy (Weil 2008, p. 20).
Economic growth is defined by long term business cycles which have weathered several challenges to achieve maturity. This is when such developments can be regarded as economic growth. Industrial revolution is one of the major causes of economic growth. This was drastic in England and involved the replacement of manual production with automated production of goods and services. Growth per capital increased as the economy stabilised (Weil 2008, p. 23).
Measuring Economic Growth
Growth in the economy is represented by the percentage change in GDP. It can either go up or down depending on the performance of the various economic sectors during the review period. This is compared with changes in other countries in terms of per capital income. The latter is expressed using a common currency such as the US dollar.
Exchange rates are used to calculate the value of the currency in order to arrive at a common figure that can be used to describe the economic status of such a nation. It is important to note that an increase or decrease in rates of inflation cannot reflect economic growth on its own. Inflation may be realised as a result of high price of commodities and not as a result of high production of goods and services with a ready market (Hanushek & Ludger 2008).
Indicators of Economic Development
Overview
There are several indicators of economic development in any given country. These include per capital income, national income as well as quality of life index. Different organisations and scholars have used one indicator or the other to describe economic development in different countries. For instance, an organisation such as the United Nations uses the human development index to measure economic development in a given country.
As already indicated in this paper, the author will identify and discuss one factor that they feel accurately represents economic development in a given nation. The author will also make reference to one country in discussing this. The factor identified is per capita income.
Per Capita Income
Overview
Prominent economists have argued that an increase in per capital income is the best indicator of economic development and growth. According to the United Nations, countries with per capita income which is below $580 can be described as poor countries. Those with per capita income falling between $ 580 and $ 6000 are labelled as middle class countries.
Rich or developed countries are perceived to be those countries with a per capita income which is above $6000 (Chumpeter 2000). According to the 2009 World Development Report, Nepal had a per capita income of $340. As such, this country can be described as poor.
An increase in per capital income indicates an increase in economic development. Nepal can be described as a nation of low income earners. This can be deduced from a critical analysis of the country’s balance of trade. It is noted that the value of the country’s imports is more than that of the exports. This is an indication of the fact that the county has a “………low producing power of goods and services to fully meet the needs of the subjects” (Mansell & Wehn 2010, p. 233).
United States’ Economy
The United States of America is regarded as the world’s largest economy. In 2011, the GDP of this nation stood at about $15 trillion. When compared to other nations in the world, the United States is ranked seventh behind other countries such as Norway. This is given her per capital income of 76,450.
The US has a vast economy with a stable and consistent GDP. A slight decrease in the rate of employment was experienced. This was accompanied by high purchasing power parity (herein known as PPP). All these aspects make the economy of the United States one of the largest in the world.
The currency of the US is considered as the universal means of exchange. It accounts for about 60% of the total global currency circulation. Most of this is invested in the country’s financial institutions.
America has a stable labour market which has attracted immigrants from across the globe. This is an indication of the fact that it has a high per capital income. It has effective economic policies and regulations that control business operations throughout the states (Chumpeter 2000, p. 24).
Conclusion
This paper looked at the relationship between economic growth and development. It was noted that the two factors are positively correlated and they seems to have similar effects on the economy of the nation. When efficient measures are put in place, it is noted that economic growth can increase proportionately with economic development and vice versa.
References
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