Economic growth and economic development are two closely related but distinct concepts in economics. While both are important for improving the well-being of a nation, they focus on different aspects of the economy and have different implications for policymaking.

What is Economic Growth?

Economic growth refers to the increase in a country's output of goods and services, typically measured by the growth in real Gross Domestic Product (GDP) or real Gross National Product (GNP). Economic growth is driven by factors such as technological progress, capital accumulation, and increased labour productivity.

Economic growth is important because it can lead to higher living standards, increased employment opportunities, and greater economic prosperity. However, economic growth alone does not necessarily translate into societal improvements. This is because the benefits of growth may not be evenly distributed, due to factors such as corruption. Thus, economic growth must be combined with economic development to improve life for people within an economy.

How is GDP Measured?

When measuring economic growth, the primary indicator is GDP or GNP as explained before. However, there are various calculations which can be applied.

Gross Domestic Product or GDP is the primary measure of economic growth and is equal to the total value of all goods and services produced within a country in a specific time period (usually a year). The formula to calculate this is as follows:

$$GDP=C+I+G+(X-M)$$

Where,

Real GDP is the measure of GDP which adjusts for inflation. This gives a more accurate picture of growth over time. The formula for this is:

$$Real\; GDP= \frac{Nominal\;GDP}{GDP\; Deflator}$$

Where,

GDP growth rate shows the percentage change in GDP from one period to another (generally yearly). Apply the following to calculate GDP growth as a percentage:

$$GDP \;growth\;rate= \frac{GDP_2-GDP_1}{GDP_1}\times 100$$

Where,

What is Economic Development?

Unlike economic growth, economic development focuses on the standards of living among the people in an economy. It refers to the progress towards a healthier, safer, more educated, and richer society overall—not just the ability to produce more goods and services. It emphasises the importance of social and environmental factors, such as gender equality, environmental sustainability, and good governance.

Economic development is measured by the Human Development Index (HDI). It is a composite measure that takes into account life expectancy, education, and per capita income. The HDI index will give a result between 0 and 1, with 0 being the least economically developed country, and 1 being the most. As of 2024, Australia's HDI ranking is 0.951. From this we can infer that Australia is one of the most equitable and economically developed countries in the world. If you wish to see the HDI rankings of other countries, have a look at the following website: World HDI Rankings

The Relationship between Economic Growth and Development:

Although they are separate concepts, economic growth and development are inherently linked. Generally, economic growth can occur without economic development; however, economic development usually cannot occur without economic growth. This is because economic growth provides the resources and opportunities necessary for improving living standards, reducing poverty, and investing in human capital.

However, economic development can still support economic growth. This is done as sustained economic development results in a more skilled and productive workforce, fostering innovation and entrepreneurship. Thus, by investing in education, healthcare, and infrastructure, countries can lay the foundation for long-term economic growth and development.