Economic growth: Definition, Explanation & Examples
Economic growth
Economic growth is a concept that allows economic activity to be measured through indicators, such as the growth of gross domestic product (GDP), also through an indicator that is the most accepted to measure it, which is the increase in per capita income.
In the field of economics and social sciences, some authors use the terms economic development and economic growth as synonyms, however, most authors think they have different meanings.
The term economic growth classifies countries as developed and underdeveloped countries according to their per capita income, classifying them as follows:
- Developed countries: Countries with a per capita income above the world average.
- Underdeveloped countries: These are countries that are below the world average, and calls developing countries those that are within the world average.
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Characteristics of economic growth
The term focuses on the use of the productive potential of a country that translates into goods and services, economic growth is characterized by the following:
- The idea that economic growth has a conjectural nature. Because growth occurs for a certain time when there are positive changes in some variables, an example is the increase in the price of raw materials such as oil, but when that price drops, growth stops.
- Those who affirm that economic growth doesn’t contribute to a fairer and more equitable distribution of national income. The argument is that economic growth is circumstantial and only benefits a small group of society, since it’s not accompanied by measures that create an improvement in living standards for society as a whole.
- Per capita income is not the best indicator of a country’s development. The indicator only says what is the average income of the population, but it doesn’t determine whether the distribution of national income is fair and equitable. An example of this is oil-producing countries that have high income per capita, but the majority of their populations are very poor.
Differences between growth and economic development
Economic growth is the improvement of certain macroeconomic magnitudes such as GDP, employment rate, purchasing power, but it doesn’t necessarily translate into a significant social and structural impact.
For example, if there is an increase in GDP in a country like Venezuela, it doesn’t mean that its deep-rooted social and structural problems have disappeared or that it’s a first world country. On the other hand, development does entail those profound changes that make a country advance to the first world.
See more: Differences between growth and economic development.
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