Economic Growth and
Economic Development
Concept of Economic Growth and Economic
Development
• Economic growth is an increase in the national income per capita and
it involves the analysis, especially in quantitative terms, of this
process. It involves the increase of Gross Domestic Product (GDP),
Gross National Product (GNP) and National Income (NI). Economic
growth include changes in material production and during a relative
short period of time, usually one year.
• It is a process of increasing the sizes of national economies, the
macro-economic indicators especially GDP per capita, in an ascendant
but not necessarily linear direction, with positive effects on the
economic and social sector.
Cont.
• Economic growth can be: positive, zero, negative. Positive economic
growth is recorded when the annual average increase of the macro-
indicators are higher than the average growth of the population. When the
annual average growth of the macro-economic indicators, particularly GDP,
are equal to those of the population growth, we can speak of zero
economic growth. Negative economic growth appears when population
growth is higher than those of the macro-economic indicators.
• Economic growth is a complex, long-run phenomenon, subjected to
constraints like: excessive rise of population, limited resources, inadequate
infrastructure, inefficient utilization of resources, excessive governmental
intervention, institutional and cultural models that make the increase
difficult, etc.
• Economic growth is obtained by an efficient use of the available resources
and by increasing the capacity of production of a country. It facilitates the
redistribution of incomes between population and society. It is easier to
redistribute the income in a dynamic, growing society, than in a static one.
Cont.
• When the rate of economic growth is big, the production of goods and
services rises and, consequently, unemployment rate decreases, the
number of job opportunities rises, as well as the population’s standard of
life.
• Economic development is therefore expressed in a longer period of time.
Economic development of an economy consists of a series of structural
changes and is achieved through greater participation of the processing
capacity of industrial production (secondary sector), and at higher levels is
increasingly dominated by service sector (tertiary sector).
• For the economic development of any country there needs to be changes
in production structure and introduction of new products, new products,
new techniques and technologies, new processes of production, raw
materials, new energy sources. Changes in the distribution of factors of
production, ie in their new location, and not only labor, but of the entire
technical potential.
Cont.
• Economic Development includes the ever-growing share of
accumulation in the national income and thus, it represents a very
complex process and phenomenon. Economic growth, measured by
the percentage increase in national income per capita, cannot really
be realistic indication of the achieved level of economic development.
• Economic development is not just an increase in GDP and national
income, but all the long-term socio-economic changes in the
economy of a country. It is very important that, above all, political
economy, deals with the problems of economic development. This
involves creating and managing development and economic policy.
Cont.
• It is also worth pointing out that between economic growth and economic
development there are similarities and differences. Similarities refer to the fact
that:
-Growth and development are continuous processes, with stimulating effects in
economy;
-Both processes involve the utilization of resources and the increase of efficiency;
-The objective of growth and development is the improvement of the standard and
quality of life;
-Growth and development are cause and result of the general trend, influencing its
rhythm and ensuring passages from one level to the other.
• The differences between economic growth and development refer to the fact
that, while economic growth concerns the quantitative side of economic activity
(the increase of results, of quantities, of sizes), development has a larger scope,
including qualitative changes that take place in economy and society.
Cont.
• A country is able to develop fast when:
- Industries and people have the possibility to plan their activity on the long run, which requires
political, legislative and monetary stability;
- The results of economic activity depend on free initiative, on the efficient utilization of resources,
on efficient labour, etc.
- Investments are not sacrificed in favour of immediate consumption. When most of the current
incomes are reinvested, the productive capital increases and, consequently, the real incomes too;
- The decisions regarding investments and production are correct, and the wealth accumulated in
time is adequately used to achieve assets as efficient as possible from an economic standpoint;
- The degree of education and civilization rises and records a leap forward
-Any decision takes into consideration the protection and conservation of eco-system (durable and
sustainable development);
- Economic, social, spiritual values are respected.
