Theories of Economic Growth and Development

Understanding Economic Growth and Development

By Marvin J. Roberts, BA, MPS, MPA

What does it truly mean for a nation to “develop”? While economic growth and development are often used interchangeably, they are not quite the same. Economic growth refers to a rise in a country's per capita income. It’s measurable and often illustrated through statistics like Gross Domestic Product (GDP) or Gross National Product (GNP). But economic development is something broader—it encompasses growth, yes, but also improvements in the quality of life.

Growth vs. Development: More Than Numbers

Growth is necessary, but it’s not enough. A country can experience increasing income levels while still facing deep inequalities in education, health, and gender access. In contrast, economic development captures improvements in human well-being: better health outcomes, higher education enrollment, lower mortality rates, and equitable distribution of wealth and opportunity.

Development, then, is about freedom and capability—a notion championed by Nobel Laureate Amartya Sen. His “capabilities approach” argues that real development should expand people's ability to live the lives they value. In this sense, income is a means to an end, not the end itself.

Why Should We Care About Development?

As economist Robert E. Lucas Jr. once said, the question of why some countries develop while others lag is so important that once you begin thinking about it, "it is hard to think about anything else." The disparities in development achievements across countries raise deep questions about governance, institutions, policy choices, and history.

Imagine this: in 2005, the United States had a GDP per capita of $37,003, while Pakistan’s stood at just $605. That gap is not just economic—it reflects differences in access to education, healthcare, and even life expectancy. The human cost of underdevelopment is enormous. 

Measuring Development: More Than GDP

To assess development comprehensively, economists turn to composite indicators like the Human Development Index (HDI), which combines:

• Life expectancy (health)

• Educational attainment (knowledge)

• Income per capita (standard of living)

This shift in focus—from pure income to well-being—helps us better understand what development looks like on the ground. The HDI also serves as a policy tool, guiding governments toward more inclusive goals.

Another important concept is Purchasing Power Parity (PPP), which adjusts income levels to reflect differences in local prices. For example, $1 in the U.S. might not stretch as far as $1 in India, which is why comparing incomes across countries using market exchange rates alone can be misleading.

The History of Development Gaps

Interestingly, for most of human history, there was very little economic growth—until around 1820, when industrialization in Western Europe and its offshoots (e.g., the U.S., Canada) triggered a sharp divergence. Between 1820 and 1950, the richest countries grew faster than the poorest, leading to an income ratio of 15:1. Today, these gaps persist and continue to shape global inequalities.

Moving Forward

Understanding the distinction between growth and development is crucial in shaping policy. Governments, especially in low- and middle-income countries, need to focus not only on expanding GDP but also on investing in education, health, infrastructure, and equity. Economic development is about building capabilities, not just accumulating capital.

As I continue writing about these topics, I invite you to reflect: Is your country growing? Or is it truly developing?