Understanding Economic Development Vs Economic Growth

Part A:

Read the Seers and Brinkman (1995) articles, which can be accessed through Blackboard. What is the meaning of economic development? In what way(s) is economic growth different from economic development? How does the difference affect the way that poverty measured?
• Brinkman, R., 1995, ‘Economic Growth versus Economic Development: Toward a Conceptual Clarification’, vol. 29, Journal of Economic Issues.
• Seers, D., 1969, “The Meaning of Development”, paper presented at the 11th World Conference of the Society for International Development, New Delhi.

Part B:

Read the case study on Pakistan and Bangladesh in Todaro and Smith (pp. 96-101). In what way(s) do the development paths chosen by Pakistan and Bangladesh differ? What are the main factors that have contributed to these differing paths? Is it possible to describe this development in terms the following schools: linear stages, structural change, dependence and neoclassical.

Part A

Economic Development 

As discussed in the above section, the term economic development has existed in the conceptual framework of economics over the years. However, its meanings and implications have been differently interpreted by different schools of thoughts at different points of time. The Classical school of thought, founded under Adam Smith, in general used both the terms interchangeably, to denote more or less the same phenomenon of economic progress of a country with time. The same trend also remained in the Neo-Classical school of thought. Some economists tried to interpret this phenomenon with the help of comparative-static analysis while some others asserted that economic development is a dynamic process (Brinkman 1995).

However, with time and especially after the Second World War, the notion of economic development changed with the conditions faced by major sections of the global population. The conditions not only showed acute economic scarcity but also the presence of evils like lack of food, presence of high disease burdens, acute poverty, stagnancy of life and destruction of economic activities (Seers 1969). This, to some extent, gave rise to the need for a wholesome improvement in the human life, which is not just comprised of economic progress, but also improvements in the social, political and other aspects of human lives. From this need, originated the concept of economic development, as it can be seen to be in the contemporary period (Gillis et al. 1992).

One of the most comprehensive definitions of the concept of economic development, in the recent periods, is that of a wholesome and all-inclusive process of improvement of the economic, structural, political as well as social aspects of a country, thereby affecting the lives of the population of the country positively, from all aspects of well-being (Meier 1994). Thus, the concept of economic development can be found to be a much broader concept than only the progress of industries, commerce and economic aspects of a country and involves the general welfare of the population of the same.

Difference between Economic Development and Economic Growth 

The term “Economic Growth”, in general, refers to the increase in the money value of goods and services which are produced by the different sectors of the economies within a particular period of time. In the contemporary period, many economists also view economic growth as the increase in capital formation and industrial growth of the countries with time. Overall, this concept is a quantitative measure which shows the increase in the commercial transaction and economic abundance, per head of the population of the country (Seers 1969).

Difference between Economic Development and Economic Growth

The concept of economic growth thus differs from that of the notion of economic development in the following ways:

• Economic growth refers to the positive changes in the real output production in a country within a particular point of time whereas the term, economic development, not only involves the increase in the production of the country but also factors like the technological advancements as well as increase in the overall living standards of the population of the country, which includes economic, social, cultural and political aspects too (Ranis, Stewart and Ramirez 2000).
• Some economists like Amartya Sen denotes economic growth to be one of the comprising features of economic development, while economists like Kuznets and Rostow defines economic development to be an independent variable, whose dynamics influence economic growth of a country (Kuznets 2016).
• The economic growth of a country is an automatic phenomenon which occurs with industrial and commercial advancements of the country. On the other hand, economic development, generally occurs in a country, as a result of planned and targeted activities of the government of the same.
• The economic growth of a country, in general, leads to positive dynamics in the indicators of monetary well-being like that of the Gross Domestic Product, per-capita income of a country and others (Schumpeter 2017). However, economic development indicates towards the improvement of other welfare aspects like the life expectancy, infant mortality, poverty and literacy in a country.
• The two concepts also differ in terms of duration. While economic growth is a short-term phenomenon, measured in terms of yearly changes in the income of the economy, economic development is a much long-term process.
• Economic growth can only measure the monetary and cardinal progress of the population of a country while the overall quality of life is measured by the economic development of the country.
• Economic growth, thus, results in only quantitative changes while the implications of economic development are both quantitative as well as qualitative (Leigh and Blakely 2016).
• The process of economic growth can be discretely measured in a particular period but the phenomenon of economic development is a continuous one which cannot be measured effectively for a discrete time period.

Thus, from the above discussion, it can be asserted that although in many instances the terms economic growth and economic development are used interchangeably to refer to the progress of a nation, the concepts are however, considerably different. Economic development is a much broader concept than that of economic growth (Lewis 2013). When there is positive economic growth in a country, it does not necessarily mean that there is also existence of economic development in the country. This can be explained with the help of the following example:

Example:

The difference between economic growth and economic development can be highlighted by discussion the theory of Trickle Down, in the conceptual framework of economics. According to this theory, existing in the earlier years, the fruits of economic growth of a nation are first accrued to the wealthier classes and then trickle down to other sections of the country, thereby increasing the overall welfare of the population of the countries, which in turn led to the notion of interchangeability of the terms economic growth and economic development. However, this theory did not seem to work, which can be seen to be especially in the cases of developing countries (Bertrand and Morse 2016). With the increase in the economic growth of the countries (most of whose growth rates are highly impressive), the inequality in distribution of the fruits of growth has also increased, with the rich becoming richer and the poor becoming poorer. This can be seen from the following figure:

                                                    

As is evident from the above figure, the Gini Coefficient values have been considerably high for the developing countries (in spite of their high economic growth) and the same can also be seen to be increasing with time for some of them, which in turn indicates towards higher presence of inequality (Persky, Felzensh?ain and Carlson 2004).

Thus, from the above discussion, it is evident that economic growth of a country does not necessarily leads to the overall economic development of the same and the latter is a much broader concept than that of the former in the conceptual framework of economics.

Differences in measurement of Poverty 

Differences in measurement of Poverty

The differences between the economic growth and economic development concepts, can be seen to have implications on different aspects of human life and their measurements, which primarily include that of the aspect of poverty. In general, the term “Poverty”, refers to an inferior condition of living of people in which the basic needs of the people cannot be fulfilled by them due to lack of resources and amenities present with them (Sen 2006).

However, the poverty in a country, can be seen to be measured differently and from different perspectives, under the domain of economic growth theory and economic development theory, which can be seen as follows:

Economic Growth and Poverty 

Under the domain of economic growth, poverty is measured in terms of lack of monetary abundance present with a section of population in the country. There are different measures of poverty, which are frequently used in this aspect:

Poverty Line- This refers to a monetary threshold which shows the amount of money required by an adult of a country, to sustain and get the basic needs fulfilled. The section of the population of the country, under that line is considered to be poor. This also shows the absolute poverty in a country (Chen and Ravallion 2007).

Relative Poverty- This measures the share of population in a country receiving income at a certain level below the median income level of the general population of the country.

Economic Development and Poverty 

Under the domain of economic development, the measurement of poverty is much more widespread than that of only economic deprivation and factors like health, employment, education and overall standard of living are also considered. One such example of measurement is as follows:

Multi-Dimensional Poverty Index (MPI)

In this method, there are three dimensions of deprivation and each of them has indicators for measuring the extent of deprivation which are as follows:

1. Health-The indicators being nutrition and mortality of children
2. Education-The indicators being years of schooling and children enrolment
3. Standard of Living-The indicators being lack of access to electricity, sanitation, cooking fuel, safe drinking water, flooring and assets (Alkire, Conconi and Seth 2014)

Part B 

The economic development, being a multi-dimensional notion, can be seen to be taking place in different countries across the globe at different periods of time. The trends shown by the economic development frameworks of different countries can also be seen to be hugely differing from one another, attributed to the inherent differences in the countries, their governing bodies as well as exogenous factors affecting the economies of the countries, which in turn can also be seen to be bringing different outcomes for the countries and their population (Baulch and Hoddinott 2000).

Keeping this into consideration, this section of the assignment tries to explore and discuss the development trends of Pakistan and Bangladesh, two of the developing economies in the contemporary period, thereby highlighting the differences in their development trends and linking the same with the existing development theories in the conceptual framework of economics.

Differences in Paths of Development 

Before independence, in 1971, Bangladesh used to be a part of Pakistan (known as East Pakistan) and the economic and political power of the entire consolidation were concentrated in the West Pakistan. Despite of being under same governing and policy frameworks, Bangladesh, lagged hugely behind Pakistan and much of its sufferings can be attributed to the phenomena like Bengal famine, war of independence and others.

However, post-independence, the country can be seen to show distinct developing traits, which are highly different from that of Pakistan. Although both the countries started with almost similar economic, political, social and demographic characteristics and although Pakistan had an upper hand over that of Bangladesh, it can be seen that in the recent period, the latter has been showing much more positive trends in terms of overall economic development than the former (Todaro and Smith 2012).

Pakistan has over the years developed the monetary aspects of the economy, with 44% higher income that of Bangladesh. But the trends of Pakistan resemble more of “Growth without development” as it lags dangerously behind in terms of the different other social indicators of well-being (Deaton 2003). On the other hand, Bangladesh, in spite of lagging Pakistan, in the aspects of income growth and monetary abundance, can be seen to be performing better in the overall social indicators, which in turn indicates towards the fact that while Pakistan has overtly emphasized on economic progress, Bangladesh has resorted to an overall development of its society and population, which can be seen from the following differences:

Income- Pakistan have 44% higher income than Bangladesh.

Human Development Index- Bangladesh has caught up with Pakistan with nine places higher than expected in NHDI, while Pakistan lags nine places behind as expected in the same indicator.

Literacy- More parity in male and female literacy levels in Bangladesh than that in Pakistan.

Health- The average life expectancy of Bangladesh in much higher (69 years) than that of Pakistan (65 years) in 2012, while the trends were inverse in 1970s. The child malnutrition rates of Bangladesh have also fallen significantly from 1971, although the fall in the same in case of Pakistan is much less significant. The mortality rate (under 5) for Bangladesh is 46 per 1000 while for Pakistan it is 72 per 1000 (as per 2013 statistics) (Deaton 2003).

Population Growth- Although in 1971, the fertility rates were extremely high for both Pakistan and Bangladesh (with 6 births per woman), by 2011, the same decreased to 2.2 for Bangladesh while for Pakistan it is as high as 3.3.

Gender Equity- The ranking of Pakistan in gender equity index (2013) is 0.29 while that for the Bangladesh can be seen to be much higher (0.55) (Todaro and Smith 2012).

Reasons behind these differences 

There are various reasons behind the different development dynamics of Pakistan and Bangladesh, the primary ones being as follows:

Priorities of the government- While Pakistan’s policy frameworks have been always pro-military, with wars agitation, political instabilities always remaining highly existent in the country, the government of Bangladesh, in spite of the sufferings and shortcomings, emphasized in slow but steady improvement of the overall life quality in the country.

Equity- The increasing equity between male and female population of Bangladesh helped considerably in developing the way it has. On one hand, with increased educational opportunities, the female population has been increasing engaging in production activities, thereby increasing economic growth as well as individual development and on the other hand, this has also led to fall in fertility and decrease in dependence level, which cannot be seen in the case of Pakistan (Boserup, Tan and Toulmin 2013).

NGO sectors- Bangladesh has one of the most develop0ed non-profit NGO sectors across the globe, which works for various social development like poverty eradication, increase in educational and employment opportunities and health care, which also contributes to its wholesome slow but steady progress (Rahman 2006).

Civil Inequality- The level of inequality in Bangladesh is also comparatively low which explains its similar HDI rank with that of Pakistan, in spite of lesser income than the same. The income growth of Pakistan does not percolate to all the sections of the society due to presence of higher inequality and corruption in the country.

Theoretical Linkages 

The economic development traits of Bangladesh can be explained considerably by the Linear Stages of Growth Theory of Rostow. As per the theoretical framework, Bangladesh, currently can be considered to be in the late transitional phase with investment increasing, fertility decreasing, equity and freedom increasing and the overall mindset changing, thereby getting ready for the take-off stage, which can lead the country to a sustained path of development in the coming years (Rostow 2000). The economy of Bangladesh also developed over the years, from agriculture based one to an industrial one, with different service sectors also slowly coming into existence, which indicates the structural changes as can be founded in the Structural Theory of Development.

On the other hand, the development of Pakistan, can be attributed considerably to the high levels of aids and monetary as well as non-monetary assistance of the developed countries and international organizations, thereby making the development traits of the country considerably dependent on the exogenous factors, which in turn draws the linkage of the Dependency Theory of Development with the traits of Pakistan (Pieterse 2010). There also remains lack of government intervention in developing the economy of the country by appropriately regulating the markets, which can be seen to the form of development advocated by the Neo-Classical theories of economic development.

Conclusion:

The above discussion asserts that there lie significant differences between the concepts of economic growth and economic development in the contemporary global economic scenario. Thus, the measurement of poverty also, is a much more inclusive and multi-dimensional under the economic development framework than that of the same under the economic growth model as in the former apart from economic, other factors of deprivation, which leads to poverty, are also considered unlike that in the former.

Over the years, the global economic scenario has developed immensely and has experienced immense dynamics in due course of time. This in turn has contributed in expanding the theoretical and conceptual framework of economics as a discipline and newer theories have emerged over the years, much of which can be attributed to the modifications and changes which have occurred in the global economic scenario, with time (Ray 1998).

Two such aspects of immense importance of the theoretical framework of economics are that of economic growth and economic development. In the initial periods, although both were used to refer to similar notions of economic progress of regions, however, with time, there arose differences in the meaning of the two economic concepts (Pearce and Warford 1993).

Keeping this into consideration, the concerned assignment tries to discuss the concept of economic development and its differences with that of economic growth, addressing the various opinions and debates existing in these aspects. The assignment also tries to analyse the implications of the differences between these two terms on the measurement of poverty in a generalised framework.

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