Difference Between Economic Growth and Economic Development

Difference Between Economic Growth and Economic Development

9 mins read40.2K Views Comment
Rashmi
Rashmi Karan
Manager - Content
Updated on May 2, 2025 14:19 IST

Economic growth and development represent different aspects of a country's economic progress and well-being. Economic growth primarily focuses on the quantitative expansion of an economy. In contrast, economic development is a broader concept, encompassing improvements in the overall well-being and quality of life of a country's population.

Difference Between Economic Growth & Development

Economic growth and development are commonly misunderstood terms and are often used interchangeably. Both economic policies strive to achieve the financial well-being of a nation. Developed countries are concerned with maintaining and surpassing their achievements and improving their growth and development indicators balances. On the other hand, non-developed countries have made them an essential part of the utopia or dream to achieve. This article will explain the difference between economic growth and economic development.

Recommended online courses

Best-suited Banking, Finance & Insurance courses for you

Learn Banking, Finance & Insurance with these high-rated online courses

1.5 L
2 years
Free
1 hours
599
21 hours
Free
4 hours
– / –
8 months
62 K
2 years
2.67 L
2 years

Table of Content

Difference Between Economic Growth and Development

  • Economic growth: An increase in actual national income/national output.
  • Economic development: An improvement in the quality of life and standard of living.
  Economic Growth  Economic Development
Definition  Economic growth is a positive quantitative change in a country’s actual output per capita income. Economic Development is the improvement in the quality of life and standard of living.
Approach  Quantitative  Qualitative 
Indicators 

Growth in metrics like -

  • Better Human Development Index (HDI)
  • Human Poverty Index (HPI)
  • Gender Development Index (GDI)
  • Balance of trade
  • Physical Quality of Life Index (PQLI), etc.
Term  Short-term  Long-term
Applicability 

Developed nations

Developing nations

Government Aid

No government support or intervention is required since it is an automatic process.

Highly dependent on government aid since it includes widespread policy changes.

Wealth Distribution

Economic growth does not refer to fair and equal distribution of wealth among the people.

Economic development focuses on the equal distribution of wealth among the people and uplifts the less privileged.

Focus 

Production of goods and services.

Distribution of resources.

If you want to upskill yourself for free, then consider exploring FREE Online Courses by top online course providers like Coursera, edX, Udemy, NPTEL, etc., across various domains, like Technology, Data Science, ManagementFinance, etc., and improve your hiring chances.  

Economic Activity – Definition, Stages, and Types
Economic Activity – Definition, Stages, and Types
Explore various types of markets in economics, from perfect competition to monopolies labour markets to online marketplaces. The study of these markets to understand how they function and impact the...read more
What is Recession in Economy and Why is it Inevitable?
What is Recession in Economy and Why is it Inevitable?
Recession is a downward slope in the growth curve of any economy. It is a period when unemployment increases that directly hits the economy of any country.

What Is Economic Growth?

Economic growth is an economy’s capacity to produce more goods and services. It can be expressed as expanding the economy’s production possibilities, which means the economy can produce more, and its production possibilities frontier (PPF) moves upwards. 

Economic growth is a narrow term. It involves an increase in output in quantitative terms. Still, economic development includes changes in qualitative terms, such as social attitudes and customs and quantitative growth of output or national income.

Economic growth represents:

  • Increased production: Economic growth signifies an expansion in the quantity and/or quality of goods and services produced. This expansion leads to higher levels of output and income in the economy.
  • Rising standard of living: As production increases, the average standard of living for individuals typically improves, allowing them to consume more goods and services.
  • Greater prosperity: Economic growth often leads to increased employment opportunities, improved infrastructure, and greater access to education and healthcare.

Factors influencing economic growth:

  • Capital accumulation: Investment in physical capital (machinery, equipment, infrastructure) and human capital (education, skills, training) can drive productivity and economic growth.
  • Technological advancements: Innovations and technological breakthroughs can increase efficiency, new products and services, and overall economic expansion.
  • Institutional factors: Stable political and legal institutions, efficient property rights systems, and healthy business environments are conducive to long-term economic growth.
  • Globalization: Openness to international trade and investment can provide access to new markets, capital, and technology, promoting economic growth.

Means to Measure Economic Growth:

  • GDP growth rate: The most common measure of economic growth is the annual percentage change in GDP. A positive growth rate indicates an expansion, while a negative rate signifies a contraction (recession).
  • Real vs nominal GDP: Real GDP measures the change in the production volume, adjusted for inflation, while nominal GDP includes the effect of price changes.
  • Per capita GDP: This metric measures the GDP per person in a country, providing a more accurate picture of individual living standards and economic well-being.

Difference Between Economy and Economics
Difference Between Economy and Economics
The economy is like a country’s financial system that deals with producing, distributing, and consuming goods and services. Economics is the study of how this financial system works and the...read more

What is Equity: Calculation, Types, and Importance
What is Equity: Calculation, Types, and Importance
The term equity refers to the amount of money that the company owns from its shareholders. The company is liable to return its shareholders under certain conditions. The equity represents...read more

What Is Economic Development?

Economic development can be generically defined as sustainable growth from three points of view:  social, cultural, political, and economic changes that contribute to material progress. Economic development is a sustained improvement in the material well-being of society. It is a broader concept than economic growth. It contains changes in resource supplies, the rate of capital formation, the population’s size and composition, technology, skills, efficiency, and institutional and organizational set-up. 

These changes fulfil the broader objectives of ensuring more equitable income distribution, significant employment, and poverty alleviation.

What Economic Development Represents:

  • Improved living standards: Economic development aims to raise the standard of living for individuals and households by increasing income, improving access to basic necessities like healthcare and education, and creating opportunities for personal growth and development.
  • Structural transformation: It involves diversifying the economy beyond primary sectors like agriculture, including robust industrial and service industries, fostering job creation and economic growth.
  • Technological advancement: Encourages innovation and adoption of new technologies to improve productivity, competitiveness, and sustainability in the global economy.
  • Increased social well-being: Promotes human development by investing in education, healthcare, and skills training, empowering individuals to reach their full potential and contribute meaningfully to society.
  • Reduced inequality: Aims to address income and wealth disparities, ensuring everyone has equal opportunities to participate in and benefit from economic growth.

Factors Influencing Economic Development:

  • Capital accumulation: Investment in physical capital (infrastructure, machinery) and human capital (education, skills) is crucial for driving productivity, innovation, and economic growth.
  • Institutional development: Effective institutions, including stable legal systems, efficient property rights, and strong governance, create a predictable and transparent business environment, encouraging investment and growth.
  • Openness to global markets: Engaging in international trade and investment provides access to new markets, capital, and technologies, promoting economic development and competitiveness.
  • Technological advancements: Innovation and diffusion of new technologies are critical for increasing productivity, and efficiency, and creating new products and services, driving economic growth.
  • Sustainable practices: Incorporating environmental sustainability into economic development ensures long-term economic viability and protects the environment for future generations.

Means to Measure Economic Development:

  • Economic indicators: Traditional indicators like GDP per capita, unemployment rates, poverty rates, literacy rates, and life expectancy help assess economic progress and well-being.
  • Human development index (HDI): This composite index combines measures of income, health, and education, providing a broader picture of human development and well-being.
  • Subjective well-being surveys: Measures of happiness and life satisfaction are increasingly used to complement traditional economic indicators and capture individuals' subjective experiences and living standards within an economy.
  • Inequality metrics: Measures like the Gini coefficient help assess the distribution of income and wealth within an economy, indicating the level of economic inequality and its potential impact on development.

To summarize, economic development is a process that constitutes a long chain of interrelated changes in fundamental supply factors and demands that ultimately lead to growth in a country's net national product over the long term.

An example of the difference between economic growth and economic development can be illustrated through the case of Bangalore below

Economic Growth

Bangalore has recently become a central hub for technology and IT services. The city has seen substantial economic growth, with numerous tech companies operating there, rapidly increasing the region's GDP. This growth has been marked by high levels of foreign investment and job creation, particularly in the IT sector. The city’s infrastructure, including roads, office spaces, and tech parks, has expanded to support this economic growth.

Economic Development

However, alongside this economic growth, Bangalore has faced challenges related to economic development. Despite the booming IT industry, the city has struggled with issues such as traffic congestion, pollution, and inadequate public infrastructure, which have affected residents' quality of life.

To address these challenges, various government initiatives and non-governmental organizations have focused on improving living conditions. For instance, programs aimed at enhancing public transportation, providing affordable housing, and improving healthcare services have been introduced. Additionally, initiatives to support education and skill development have been launched to ensure that the benefits of economic growth reach a broader segment of the population, especially marginalized communities.

Boost your financial knowledge and expertise with an online MBA in Finance. Master trading, investment banking, taxation, risk analysis, and financial planning and analysis from top institutions like IIMs, XLRI, MDI, and Amity Online. Also learn essential soft skills, such as problem-solving, decision-making, and business transformation.

What is Sustainable Economic Development?

Sustainable Economic Development focuses on long-term growth while ensuring resources are used responsibly. The approach ensures that the needs of the current generation are met without compromising the ability of future generations to meet their needs. This approach considers economic growth, environmental protection, social equality, and efficient use of natural resources. For example, increasing renewable energy or reducing pollution as part of economic growth falls in sustainable development.

Why is Sustainable Economic Development Important?

Sustainable Economic Development is crucial for the following reasons -

Why is Sustainable Economic Development Important
  • Environmental Protection: Preserves natural resources such as water, forests, and air for future generations by minimizing pollution and overuse.
  • Long-term Growth: Encourages economic growth that lasts over time without depleting resources or causing environmental harm.
  • Social Equality: Promotes fair distribution of resources and opportunities, reducing poverty and inequality within and among communities.
  • Climate Change Mitigation: Emphasizes the importance of sustainability practices that mitigate the release of greenhouse gases, preventing global warming.
  • Resource Efficiency: Encourages the efficient use of renewable resources and production to avoid waste and promote sustainability.
  • Global Responsibility: It will assist countries in meeting international goals like the United Nations Sustainable Development Goals (SDGs), thereby promoting global progress.
  • Biodiversity Conservation: It safeguards ecosystems and wildlife, crucial to maintaining balance in nature and sustaining human livelihoods.
Different Types of Markets in Economics
Different Types of Markets in Economics
Explore various types of markets in economics, from perfect competition to monopolies labour markets to online marketplaces. The study of these markets to understand how they function and impact the...read more
What is Liberalization – Definition, Example, and Benefits
What is Liberalization – Definition, Example, and Benefits
Liberalization refers to the process of reducing or removing government regulations and restrictions on economic activities, trade, and business operations. The article defines liberalization, advantages, and disadvantages of liberalization, and...read more
Consumer Awareness: Know Your Rights and Responsibilities
Consumer Awareness: Know Your Rights and Responsibilities
Consumer awareness means making sure shoppers /consumers know about what they’re buying. This knowledge is crucial so that people can make smart decisions and pick the best options for themselves....read more

Conclusion

Economic growth, measured by real GDP, helps address socio-economic issues and improve living standards. However, it must be balanced with responsible environmental policies to prevent resource depletion. Economic development, aiming at citizen welfare, considers broader factors like life expectancy and literacy. Both growth and development are vital for a nation’s progress, ensuring prosperity and the well-being of its people. Striking this balance is key to sustainable and inclusive growth.

Recommended Reads

Difference Between Positive and Normative Economics
Difference Between Positive and Normative Economics
Positive and normative economics differ in their approach towards economic situations. Positive economics focuses on understanding and describing economic phenomena in a factual manner. Normative economics focuses on offering value-based...read more

Difference Between Economic and Non-Economic Activities
Difference Between Economic and Non-Economic Activities
The primary difference between economic and non-economic activities is that economic activities are primarily focused on the production and distribution of goods and services for monetary gain, whereas non-economic activities...read more

Consumer Awareness: Know Your Rights and Responsibilities
Consumer Awareness: Know Your Rights and Responsibilities
Consumer awareness means making sure shoppers /consumers know about what they’re buying. This knowledge is crucial so that people can make smart decisions and pick the best options for themselves....read more

Difference Between Microeconomics and Macroeconomics
Difference Between Microeconomics and Macroeconomics
Macroeconomics studies the performance of economies. It is the study of inflation, changes in economic output, balance of payments and interest and foreign exchange rates. It is the study of...read more

FAQs

Is economic growth the same as an increase in GDP?

Economic growth is often associated with increased GDP, representing the value of all goods and services produced in an economy. However, economic growth alone does not provide insights into other social, environmental, or distributional aspects of development.

What factors contribute to economic growth?

Economic growth is influenced by factors such as investments in physical and human capital, technological advancements, improvements in productivity, trade and exports, and favorable government policies that promote economic activity.

Does economic development only focus on the economic aspects of a society?

No, economic development encompasses a broader social, environmental, and institutional perspective. It considers aspects such as poverty alleviation, access to education and healthcare, environmental sustainability, and good governance.

Is economic growth more important than economic development?

Both economic growth and economic development are important, but they serve different purposes. Economic growth focuses on increasing the size of the economy, while economic development aims to improve the overall well-being and quality of life for individuals within the society.

Can economic development be achieved without economic growth?

Yes, economic development can be achieved without substantial economic growth. It is possible to prioritize social and environmental improvements, equitable distribution of resources, and sustainable practices, even without significant economic expansion.

Do economic growth and economic development always occur simultaneously?

Economic growth and economic development can occur simultaneously but are not necessarily interdependent. It is possible for a country to experience economic growth without achieving comprehensive development and vice versa.

About the Author
author-image
Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio