Scope of the Chapter

This chapter discusses the meaning, calculation, and basic indicators of economic growth and development; the classification of rich and poor countries; the price-index problem; the distortion in comparing income per head between rich and poor countries; adjustments to income figures for purchasing power; alternative measures and concepts of the level of economic development besides income per head; the problems of alternative measures; and the costs and benefits of economic development.

Growth and Development

A major goal of poor countries is economic development or economic growth. The two terms are not identical. Growth may be necessary but not sufficient for development. Economic growth refers to increases in a country's production or income per capita (Box 2-1). Production is usually measured by gross national product (GNP) or gross national income (GNI), used interchangeably, an economy's total output of goods and services. Economic development refers to economic growth accompanied by changes in output distribution and economic structure. These changes may include an improvement in the material well-being of the poorer half of the population; a decline in agriculture's share of GNP and a corresponding increase in the GNP share of industry and services; an increase in the education and skills of the labor force; and substantial technical advances originating within the country. As with children, growth involves a stress on quantitative measures (height or GNP), whereas development draws attention to changes in capacities (such as physical coordination and learning ability, or the economy's ability to adapt to shifts in tastes and technology).