Economic Growth versus Economic Development

Economic Growth and Economic Development are central to developed as well as developing economies. Classical thinkers such as Adam Smith, Karl Marx examined the problem of economic development as early as 18th century. However, the study of economic growth and development as a specialized study started during the period of Great depression of 1929-33 and World War-II.

Classical economists used the terms economic growth and economic development as synonyms of each other. However, modern economists such as J.A. Schumpeter, Ursula Hicks and Kindleberger have focused on growth and development as two different concepts. They argued that growth need not necessarily imply the occurrence of development.

Economic Growth

We have already discussed that Economic growth refers the long term increase in real national output or real national income. Economic growth is a single dimensional quantitative concept which is concerned only with the rate of increase in national income. It ignores distribution of income and it ignores qualitative aspects of human life.

Economic Development

Economic development is broader in nature. It not only includes the quantitative change but also includes certain qualitative changes in the economy. Economic development means not just increase in the real per capita income but also reduction in economic-divide, poverty, illiteracy and unemployment. Thus, economic development includes both economic growth as well as social welfare. Economic development should focus on inclusive growth – growth that includes all sectors of the economy and all sections of the society.

The following table outlines the basic differences between Economic Growth and Development:

Economic GrowthEconomic Development
Single dimension Concept: Economic growth is merely a quantitative concept. It is concerned with rate of increase in national income.Double / Multi dimension Concept: Concept of economic development is both quantitative and qualitative in nature. It is concerned with welfare of people (a qualitative aspect) along with increase in per capita income (a quantitative concept).
Ignores Distribution of Income: Distribution of income is ignored in case of economic growth. In spite of increase in income, number of poor people may rise if the distribution of income becomes further unequal.Considers Distribution of Income: In case of economic development, distribution of income is given due consideration. Reduction in inequality (of income distribution) is one of the principal targets of economic development. In equality of income and wealth must be reduced.
Independent of Structural, Institutional and Technical Changes: Economic growth may occur independent of any structural, institutional and technical changes in the economy.Associated with socio-technological Change: Economic development is invariably associated with significant structural, institutional and technical changes in the economy.


Differences between Economic Growth and Development can also be summarized in the below points:

  • Economic growth is a narrow concept (It studies only increase in real per capita income) while economic development is a broad concept (it studies increase in real per capita income as well as economic welfare).
  • Economic growth is only a quantitative concept whereas economic development is both a quantitative as well as a qualitative concept.
  • Economic growth ignores distribution of income. Economic development studies distribution of income.
  • Economic growth is the essential element of progress of developed countries. Economic development is the essential element of the progress of under developed countries.
  • Economic development accounts for structural, institutional and technical change in the economy while economic growth does not.

India Economy and the Growth Development Paradox

Economic growth is possible without development and like many others, Indian economy also presents a growth development paradox. Since 1992, the average growth rate of India has been above 6% and it has attracted global attention as a resilient economy that was able to keep itself tamperproof against the effects of the subprime crisis and the global financial slowdowns. Due to this, India is seen as emerging economic powerhouse in the South Asia region. However, India is also home to a large concentration of people living in debilitating poverty and social deprivation. This is because the pace of poverty reduction and human development has not kept pace with the economic growth. The key reasons for this paradox are inequitable distribution of land and income, lack of adequate funding on social development, adverse impacts of liberalization on poor, lack of political will, lack of economic agenda towards etc. and to a great extent the trade regime led by WTO. These all have resulted in increasing gap between macroeconomic development and social development and lack of inclusive growth overall in the Indian economy. Thus, despite of more than two decades of economic growth, India has yet to achieve economic development.