What is Economic Growth and Development ?

What is Economic Growth and Development ?

Economic Growth –

It has been defined in two ways – first

Economic growth is defined as a sustained annual increase in an economy’s real national income over a long period of time. In simple words, rising trend of net national product at constant prices.

This definition has been criticized by some economists as inadequate and unsatisfactory. They says that total national income may be increasing and yet the standard of living of the people may be falling. This happens when the population is increasing at a faster rate than total national income.

For example, if national income is increasing at 1% per year and population is increasing at 2% per year, the standard of living of people will fall, because when population is increasing at a faster rate than the national income, per capita income will go on falling.

Per capita income will increase when the national income increases faster than population. So, according to the – Second view

Economic growth means the annual increase in real per capita income of a country over the long period.

According to Professor Arthur Lewis, ‘economic growth means the growth of output per head of population’.

The main aim of economic growth is to raise the standard of living of the people, so, defining economic growth in terms of per capita income or output is better.

Rates of economic growth are measured both in terms of increase in overall Gross National Product (GNP) or Net National Product (NNP) and increase in per capita income.

GNP measures the total output of goods and services which an economy is capable of producing or can produce within a given period of time.

Per capita income measures how much of real goods and services which an average person of the community will have for consumption and investment (average level of living of a citizen of a country).

In India, Planning Commission, Central Statistical Organization (CSO) and RBI measure the economic growth on the basis of both overall GNP or NNP and per capita income.

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Economic Development –

Economic development has two views one is Traditional View and other is Modern View.

The traditional view is in terms of planned changes in the structure of nations product and occupational patterns of labour force and also the institutional and technological changes that bring such changes.

According to C.P. Kindleberger, ‘Economic growth means more output and economic development means more output and changes in the technical and institutional arrangements by which it is produced’.

According to traditional view, economic development means growth with structural changes.

Structural changes means changes in technological and institutional factors which causes shift of labour from agricultural sector to modern manufacturing and service sectors and also generate self sustaining growth of output.

An aspect of structural changes is that during the process of economic development there occurs a shift of working population from low productivity employment in agricultural sector to the industries and service sector having higher levels of productivity of labour. During this process of economic development percentage share of working population in agriculture sharply falls and the percentage share of working population in industrial and service sectors substantially increases.