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CONCEPT OF ECONOMIC GROWTH AND DEVELOPMENT.

The concept of economic growth and development are clearly explained here 
with clear cut distinction between the two concepts. In addition to this, some 
selected growth theories were analysed and explained. We give a 
comprehensible analysis of growth arithmetic and enumerate and explain main 
features of developed and developing countries, and analyse reason why 
economic growth may not lead to development.

At the end of this post student should be able to;
i. Explain what is meant by Economic growth and Development.
ii. Differentiate between economic growth and economic development.
iii. Understand reasons why economic growth may not lead to economic 
development.
3.0 Main Content

3.1 Concept of Economic Growth and Development

Economic growth is defined as the expansion in a nations real output or it can be 
define as the expansion in a nations capability to produce goods and services its 
people want. Economic growth also refers to an increase in real aggregate 
output (real GDP) reflected in increased real per capital income. The rate of 
economic growth is measured as the percentage increase in real GDP overtime. 
Economic growth can equally be defined as increase in a nation‘s output which 
is identifiable by sustainable increase in real per capita income (Bakare-Aremu, 
T.A).
Economic development on the other hand is a sustainable increase in real GDP 
that implies increased real per capital income, better education and health as well 
as environmental protection, legal and institutional reforms and an efficient 
production and distribution system for goods and services (Fashola, M.A ).
Self Assessment Exercise
i. What is Economic Growth and how is it different from Economic
development?

3.2 Distinction between Economic Growth and Development

The terms growth and development are often misused by laymen to mean the 
same thing. But this is not so. 'The summary below focuses on the distinction 
between growth and development.
Fashola (1998) argues that economic growth is an aspect of economics that deals 
with national income objectives; whereas development incorporates other 
objectives such as: equitable welfare distribution, national self reliance, balance 
sectorial development, balanced regional development; ecological balance, social 
and environmental stability, among others.
Todaro (1977) contends that growth stimulates improvement in incomes and 
output while development involves radical changes in institutional, social and 
administrative structure, as well as in popular attitudes and sometimes even 
customs and beliefs.
Schumpeter (1934) stresses that growth is a gradual and steady change in the 
long run which comes about by a general increase in the rate of savings and 
population. Development on the other hand is a discontinuous and spontaneous 
change in the stationary state which forever alters and displaces the equilibrium 
state previously existing.
Maddison (1970) was of the opinion that the raising of the income levels in rich 
countries is economic growth. But the achievement of the same objective in 
underdeveloped countries is economic development.
Kindleberger (1965).advances that economic growth means more output while 
development implies both more output and changes technical and Institutional 
management by which it is produced and distributed.
Bakare (1999) perceives development as the process of optimizing the resources 
of a nation to meet the needs of the people and their enlightened aspiration and 
endowing them with the capacity to sustain their achievement. It need be stated 
that growth is a necessary but not a sufficient condition for attaining 
development. Without growth there cannot be development. But without 
development, there can be growth.
Bakare-aremu (2009) defined Economic growth as a continuous increase in 
National output which is identifiable by sustainable increase in real Per capita 
income which translates to general wellbeing of an average citizen. However, 
when this leads to structural positive transformations then development is 
implied.
It is also necessary to note that the existence of growth in a country may not lead 
to development in a situation where there is growing income inequality which 
can strengthen abject poverty. More so, inter-sectorial imbalance will not 
promote development because an increase in national output not accompanied by 
equitable distribution of income will create setback for sectors such as housing, 
utilities, health "Services, food production, transport and communication. As 
such development cannot be sustained because diseases, mortality rate, 
starvation, misery, and industrial inefficiency cannot be eradicated. Other 
reasons why economic growth may not lead to development can be attributed to 
environmental degradation, moral, intellectual and spiritual decadence; these 
would be discussed in the latter study unit.
Self Assessment Exercise
i. What are the major difference between economic growth and economic 
development?
ii. Can there be development without growth?

3.3 Measurement and Arithmetic of Growth

Economic growth concerns the relative change in the real value to volume of 
goods and services produced by a country for final demand (i.e. demand by 
households, consumers, governments, capital formation and net exports); 
represent the national product, national output, or national income. At market 
value, national output represents revenue or earnings by the business (or 
production) sector. Such earnings are ultimately income to the factors of 
production, namely; wages to labour, rent to land and real estate interest to 
capital and profit to entrepreneurship or the business. So output in monetary 
value in income. It is in this that national product (output) in the things same and 
national income.
In precise terminology, we speak of Gross Domestic Products (GDP) and Gross 
National Products (GNP) in volume of national income. GDP refers to the 
market disposable value of output produced within the country i.e. produced 
domestically. On the other hands, GNP refers to total income occurring to the 
nation or at the disposal of the nation. Therefore, to obtain the GNP, we 
subtraction GDP, all incomes that are repatriated abroad to foreign owned factors 
of production (such as interest on foreign loan, dividends to foreign shareholders, 
and part salaries repatriated abroad on account of expatriate personnel) and add 
all incomes from abroad on account of the citizens of or residents in the country. 
What is subtracted is referred to as factors payments to abroad (FP) and what is 
added is referred to as factors income (FI).
The difference between factor payments to and incomes from abroad is the net 
factor payments (NFP). A net factors payment is almost always positive for 
developing countries on account or substantial foreign investment, foreign equity 
ownership, and-management by expatriates of the modern sector of their 
economies.
Thus we can state:
GNP = GDP - FP + Fl ……………………………(1)
= GDP - (FP - FI)………………………………...(2)
= GDP - NFP …………………………………… (3)
GNP is almost always significantly smaller than GDP
GNP is more relevant than GDP for measuring economic growth since GNP is 
the nationally available income to the people and hence more related to their 
material welfare as opposed to GDP which is income generated within the 
country but partly belonging to the people of other countries who partly own the 
resources employed in generating the GDP. Since the average income of the 
people is more significant than total income, as far as economic welfare is 
concerned, GNP per head of the population is preferred to total GNP for the 
purpose of measuring economic growth.
Other measures of economic growth are the volume of electricity generated per 
head, total energy consumed per head, and index of industrial production net of 
population growth. These measures may be more reliable than per capital GNP, 
because the internal measurement is compounded by the changing price levels 
which have to be estimated and adjusted for in evaluating the real GNP or GD P 
at constant prices of a given year.
Arithmetic of Growth
The illustration below stand for standard arithmetic of growth;


Self Assessment Exercise
Suppose GDP increase by 15% and price level by 45%. Calculate the real 
growth rate in the economy.

4.0 Conclusion
The unit survey the concept of economic growth and development, it
differentiate between economic growth and development as well stating the 
major characteristics of the developed and underdeveloped or developing
countries.

5.0 Summary
The unit review concepts of economic growth and development and those issues
that are highly related to it such as theories of growth, distinction between 
economic growth and economic development,
6.0 Tutor-Marked Assignment
i) Differentiate between economic growth and economic development.
ii) Given that economic grow at 12% and population grow at 9%, 
calculate per capita growth of income.
iii) Examine the Rostow stages of growth.
7.0 References/Further Readings
Attah B.O, Bakare, T.A. & Daisi, O.R., (2011); Anatomy of Economics 
Principles, Q&A (Macroeconomics), Raamson Printing Press, Oke-Afa, Isolo, 
Lagos, Nigeria
Amacher, R and Ulbrich, H, (1986); Principles of Economics, South Western
Publications Co. Cincinnafi, Oliso
Bakare –Aremu T.A, (2013); Fundamental of Economics Principles
(Macroeconomics), Raamson Printing Press, Oke-Afa, Isolo, Lagos, Nigeria

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