Economic growth in an economy is demonstrated by an outward shift in its Production

Possibility Curve (PPC). Another way to define growth is the increase in a country’s total output
or Gross Domestic Product (GDP). It is the increase in a country’s production.
A country’s economic development is usually indicated by an increase in citizens’
quality of life. ‘Quality of life’ is often measured using the Human Development Index, which is
an economic model that considers intrinsic personal factors not considered in economic
growth, such as literacy rates, life expectancy and poverty rates.

Growth Occurs When

1 There is a discovery of new mineral/metal deposits.
2 There is an increase in the number of people in the workforce or the quality of the workforce
improves. For example, through training and education.
3 There is an increase in capital and machinery.
4 There is an improvement in technology.

Development Occurs When

Measures of economic development will look at:
• An increase in real income per head – GDP per capita.
• The increase in levels of literacy and education standards.
• Improvement in the quality and availability of housing.
• Improvement in levels of environmental standards.
• Increased life expectancy.

Difference between Economic Growth and Economic Development

We can also have a situation where there is growth and development, i.e. increase in
luxury goods and education.
Development alleviates people from low standards of living into proper employment
with suitable shelter. Economic Growth does not take into account the depletion of natural
resources, which might lead to pollution, congestion & disease. Development, however, is
concerned with sustainability, which means meeting the needs of the present without
compromising future needs.
A. Economic Growth Definition
Economic Growth is an increase in a country’s output.
Economists usually measure economic growth in terms of gross domestic product (GDP) or
related indicators, such as gross national product (GNP) or gross national income (GNI) which
are derived from the GDP calculation. GDP is calculated from a country's national accounts
which report annual data on incomes, expenditure and investment for each sector of the
economy. Using these data it is possible to estimate the total income earned in the country in
any given year (GDP) or the total income earned by a country's citizens (GNP or GNI).
GNP is derived by adjusting GDP to include repatriated income that was earned abroad, and
exclude expatriated income that was earned domestically by foreigners. In countries where
inflows and outflows of this sort are significant, GNP may be a more appropriate indicator of a
nation's income than GDP.

There are three different ways of measuring GDP

* The income approach
* The output approach
* The expenditure approach

The income approach, as the name suggests measures people's incomes, the output approach
measures the value of the goods and services used to generate these incomes, and the
expenditure approach measures the expenditure on goods and services. In theory, each of
these approaches should lead to the same result, so if the output of the economy increases,
incomes and expenditures should increase by the same amount.
Figures for economic growth are usually presented as the annual percentage increase in real
GDP. Real GDP is calculated by adjusting nominal GDP to take account of inflation which would
otherwise make growth rates appear much higher than they really are, especially during
periods of high inflation.

B. Economic Development Definition

Economic Development is an improvement in factors such as health, education, literacy rates,
and a decline in poverty levels.

Human Development Index (HDI)

The weaknesses inherent in the use of GDP as a measure of development have led to the
creation of other measures. The most well known of these is the human development index
(HDI) published on a regular basis by The United Nations Development Programme (UNDP) in
its Human Development Report. The HDI was created to emphasize that people and their
capabilities should be the ultimate criteria for assessing the development of a country, not
economic growth alone. The HDI can also be used to question national policy choices, asking
how two countries with the same level of GNI per capita can end up with different human
development outcomes. These contrasts can stimulate debate about government policy
priorities.
The Human Development Index (HDI) is a summary measure of average achievement in key
dimensions of human development: a long and healthy life, being knowledgeable and have a
decent standard of living. The HDI is the geometric mean of normalized indices for each of the
three dimensions.

The Relationship between Inequality and Economic Growth

Poverty has come down most when inequality has fallen, and there is high economic
growth. Initial low levels of inequality are associated with more negative elasticities of poverty
reduction concerning growth. Higher initial inequality results in less effect on poverty with an
increase in economic growth.

1. Savings rate
The marginal savings rate changes with decreasing or increasing income. The marginal savings
rate is the fractional decrease in saving that results from a decrease in income.

2. Credit market constraints

The poor can’t get loans.

3. Political economy
Governments pursue poor policies (redistribution policies) trying to reduce inequality, which
results in high inflation, high deficit, and lower growth. However, there doesn’t seem to any
relationship between inequality and economic growth empirically. But, higher economic growth
leads to lower levels of poverty (not the same as inequality)

Growth Effect
The positive growth of people’s income and no change in income leads to a decrease in
the poverty level.

Redistribution Effect
If there is a rise in inequality and mean income remains constant, then poverty will rise.

Two Approaches to Economic Growth and Development

Mainstream Approach
Economic growth and development are intertwined and can be assessed from two
perspectives: the mainstream and the critical. In the mainstream approach, economic growth
and development are concerned with the unfulfilled material needs of people. Countries need
economic growth to ensure that generates enough resources to meet the needs of their
population. According to this approach, development is linear: there is a specific "path" that
countries can follow to achieve development. Of course, there are different stages that
countries must reach and exceed before achieving economic growth and development.
According to Rostow, the five development stages include the initial "traditional society," a
"take off" phase and the final "high mass consumption" stage. Originally this approach implied
that there was a possibility of unlimited economic growth and thus that all countries could
achieve equal levels of development. Later, the focus of economic growth was transformed to
sustainable economic growth.
Observers indicate that the cultural context is fundamental because it shapes the values, beliefs
and attitudes that frame economic growth and development. Some go on to argue that
development is "state of mind" and thus countries that fall behind need to reshape their values
and attitudes in order to enter the path to economic growth and development.

Material needs include:

 Shelter
 Food
 Clothing
 Transportation
 Defense (safety, protection)
 Communication

Critical Approach
This approach to economic growth and development, conversely, puts emphasis not on a linear
development. This approach contends that development is about meeting the basic material
needs of people and also the non-material. Human well-being is possible by creating societies
whose social, political, economic and cultural structures empower their members. In this
context, some observers consider "development as freedom." Communities can become self-
sufficient thriving at balancing their activities with nature. At the same time, sound democratic
institutions allow societies to be more inclusive in terms of marginalized groups that lack access
to the community's resources. An empowered society enables its members to achieve their
potential and thus reach higher levels of prosperity as a community. Investment in human
capital, for example, is fundamental for economic growth and development.

In this context, country competitiveness functions as the basis for economic growth and
eventually for furthering development. Business efficiency, for example, can generate the
ideal competitive landscape for countries to achieve prosperity by striving to use available
resources productively. Government efficiency also contributes by facilitating a context in
which competitiveness can flourish. For this reason, the IMD World Competitiveness Center in
its Competitiveness Index considers both approaches to economic growth and development.
The international competitiveness index incorporates several leading economic indicators and
other factors that address the subtler elements of economic growth and development. For
example, among economic indicators, the competitiveness index considers GPD per capita, the
growth of GDP by country, exports of goods and commercial services, terms of trade and the
ratio of trade to GDP. Among the more subjective factors of economic growth and development
that the Competitiveness Index incorporates are world education rankings, employee training,
innovative capacity, language skills, quality of life, the attitudes of those members of society
with direct impact on competitiveness and the general value system. In short, the
Competitiveness Index assumes an all-encompassing approach to economic growth and
development.

Spiritual needs include:

 Love
 Spirituality/Religion
 Culture/Arts/Music
 Vanitos (Self-adornment)

Making Water a Part of Economic Development: The Economic Benefits

of Improved Water Management and Services
* Improved water supply and sanitation and improved water resources
management boost countries’ economic growth and contributes greatly to poverty
eradication.
* The economic benefits of improved water supply and – in particular – sanitation
far outweigh the investment costs, surprisingly good news for Northern and Southern
decision makers who often view investments as mere costs.
* National economies are more resilient to rainfall variability, and economic
growth is boosted when water storage capacity is improved.
* Investing in water is good business – improved water resources management
and improved water supply and sanitation contributes significantly to increased
production and productivity within economic sectors.
* The overall public and private investment needs for improved water supply and
sanitation and improved water resources management are considerable. However, at
the country level, meeting such investment challenges is highly feasible and within
reach of most nations.

Summary

Better access to clean water, sanitation services and water management creates tremendous
opportunity for the poor and is a progressive strategy for economic growth. This report
articulates the close link between water and the economy and makes the case that investing in
water management and services is absolutely essential for the eradication of poverty and is a
necessary condition for enabling sustained economic growth.
The poor gain directly from improved access to basic water and sanitation services through
improved health, averted health care costs and time saved. Good management of water
resources brings more certainty and efficiency in productivity across economic sectors and
contributes to the health of the ecosystem.
Taken together, these interventions lead to immediate and long-term economic, social, and
environmental benefits that make a difference to lives of billions of people.