To know the meaning of the term economic growth .We must first discover the etymological origin of the two words that compose it:
First of all, growth derives from Latin, precisely from the verb “crescer,” which can be translated as “increase in size thanks to what is an organic and natural development.”
The term economics comes from Greek. It is the result of the sum of three obviously defined elements: the name “Oikos,” which means “house”; the name “nomos,” synonymous with “rule”; and the suffix “-Nikos,” which is used to express “with.”
How is economic growth measured?
Economic growth is difficult to measure precisely. Counting the number of televisions manufactured in a country is one thing.
However. Things get a little confusing when discussing intangible services or products like intellectual property or research results.
As a result, economists traditionally look to gross domestic product (GDP) as a pointer of an economy’s growth or recession. As we will see, this is an imperfect index for judging the overall health of an economy.
Understanding whether an economy is growing or shrinking business is essential not only for economists but also for public and private sector leaders and individuals.
What is GDP?
GDP is the monetary value of a country’s goods and services in a given period. Traditionally, GDP is considered the best indicator of a country’s economic growth because it represents its entire economic output. Including domestic and international goods and services.
Economists distinguish between insignificant GDP and real GDP. These are calculated slightly differently: real GDP considers the effects of the increase, while nominal GDP does not. Real GDP is usually considered a more accurate indicator.
GDP seems even less helpful if we consider everything it doesn’t think, for example. Everything we use and do, primarily online, and for which we don’t pay, like cards, emails, messaging, and video conferencing. , and further.
GDP also does not consider unpaid work, including child or elderly care and housework. Finally. GDP does not include the environmental and digital costs of production or disposal.
It all comes down to this: if something doesn’t have a price attached to it, it isn’t measured in GDP. And ultimately. That means an imprecise measure of an economy’s growth and overall health.
What are some alternate metrics indicating economic growth?
An extra comprehensive measure is needed to better understand an economy’s growth and prospects. This measure must consider the national workforce, online free goods and services. And the environmental costs of commercial activity.
You must also consider intangible assets such as software and other intellectual property. The COVID-19 pandemic looks to have accelerated the transition towards the dematerialization of economies.
Over time, dematerialization refers to a general reduction in the amount of raw materials (or tangible assets) needed for economic functions. Tangible assets include cement, telephone poles, copper wires, and tractors.
On the other hand, intangible assets include intellectual property, software, datasets, and other digital assets. Over the past 25 years. The share of investment in intangible assets has increased by 29 percent.
What is Economic Development?
Economic development is the process of improving a country’s economy over time. This involves increasing the nation’s wealth and its population’s standard of living.
Economic development includes several factors, such as income growth, better job opportunities, better health care, and better education. Its objective is to create a stable and prosperous economy for the well-being of the entire population.
Factors Governing Economic Development
Factors that affect economic development include:
- Human Resources: An increase in human capital in the economy leads to overall growth and development of the economy.
- Education: Better literacy rates among the population lead to better understanding. This not only increases labor efficiency but also leads to the development of the economy.
- Infrastructure Development: Growth in infrastructure parameters increases the economy’s efficiency and improves the standard of living.
- Natural Resources: The handiness of natural resources, such as forests, wildlife, minerals, etc., can potentially lead to economic development.
- Capital Formation: Capital formation is the country’s savings and investment rate. The economic development of a country depends on the rate of capital formation in the country.
Difference between Economic Growth and Economic Development
The alteration between economic growth and economic development is presented in tabular form for better understanding.
Economic Growth
- It is the value of an economy’s final goods and services over a given time.
- Economic growth is a short-term process.
- Economic growth is a short-term process.
- It is the improvement of the quantitative aspects.
- Its scope is limited because it only concerns the economic growth of a country.
- The term economic growth mainly refers to developed economies.
- The measures for inferring economic growth are gross domestic and national products.
- It reflects growth in national or per capita income.
Economic Development
- Developing socio-economic parameters of the economy raises the population’s standard of living.
- Development is a long-term process.
- This is an improvement both quantitatively and qualitatively.
- This is an improvement both quantitatively and qualitatively.
- Economic development is closely linked to developing economies.
- The measures to achieve economic development are green GDP, gender inequality index, gross happiness index, etc.
- This reflects the positive progress made by a country.
Features of Economic Development
The characteristics of economic development are as follows:
- Economic development refers to the positive change brought about in the standard of living of the citizens of the economy through the development of social indicators such as health education, etc.
- Economic development leads to the reduction of poverty levels and the improvement of citizens’ quality of life.
- Economic development is a positive process that brings about structural changes in the economy regarding infrastructure development, etc.
- The process of economic development is a never-ending process.
- Economic development helps to increase the per capita income in the country, which would lead to an increase in national income.
Measurements of Economic Development
Economic development can be measured through indicators such as the human poverty index, infant mortality rate, maternal mortality rate, happiness index, etc.
Unlike economic growth, economic development focuses on qualitative and quantitative changes. The measures of economic development are:
Green GDP
Green GDP is the measure taken to adjust the environmental degradation of GDP. This involves subtracting the causes of environmental damage from GDP to arrive at a sustainable GDP. It was first initiated through a national accounting system.
Gender Inequality Index
- The Gender Inequality Index measures gender inequality in the economy in 3 main aspects:
- Reproductive health, measured by maternal birth rate and adolescent birth rate,
- Empowerment is measured by the number of parliamentary seats occupied by women and
- Proportion of adult men and women over the age of 25 with some level of secondary education.
- The Gender Inequality Index helps determine the proper position of women in countries and highlights key areas where gender gaps exist.
Human Capital Index
- The Human Capital Index seeks to capture the complexity of teaching, employment, and workforce dynamics so that different stakeholders can make more informed decisions.
- The index assesses learning and employment outcomes on a measure of 0 (worst) to 100 (best) for five different age groups to capture the complete demographic profile of a country.
Measurement of Economic Growth
The primary measure of economic growth is real GDP, which represents both goods and services produced after adjusting for inflation.
Real GDP can be estimate using three method.
- Quarterly growth at an annual rate: This method calculates the change in GDP from one quarter to the next and then annualizes it. For example, a quarterly change of 0.3% is extrapolated to an annual rate of 1.2%.
- Four-quarter or one-year growth rate: This approach compares single-quarter GDP over two successive years as a percentage, allowing for seasonal variations.
- Average annual growth rate: This method calculates the average change over the four quarters. For example, if the four-quarter rates in 2022 are 2%, 3%, 1.5% and 1%, the average annual growth rate for the year would be (2% + 3% + 1.5% + 1%) ÷ 4. = 1.875%.