Economic Growth and Development

Given the multiple uses for the term development, it is challenging to find a consensus of its definition because many times the defining of a concept takes into account the purpose of its use and the area of study.

One commonly used concept of development is that which states

Development is a social condition in which the authentic needs of a population are satisfied with the rational and sustainable use of resources and natural systems. The use of resources is based in technology that respects cultural aspects and human rights. All social groups have access to basic services and organizations such as education, housing, healthcare, nourishment and their traditions and cultures are respected.

In economic terms, it is implied that the population has access to job opportunities and their basic needs are met. This would indicate, to a certain degree, the distribution of wealth in order for all members of society to have access to basic services. Nevertheless, once this condition is met, there may exist numerous ways to distribute wealth that would satisfy this condition.

This concept of development also goes against certain types of economic growth, specifically that which does not use its natural resources in a sustainable way or does not respect traditions and cultures. Take, for example, the logging that occurs in Amazonia, that in accounting terms generates economic growth in the short run, but hinders development by eliminating natural resources and not respecting human rights, traditions and the culture of the region’s inhabitants.

Likewise, we see that the concepts of development tend to include certain ideology corresponding to the paradigm or mindset of the author. For example, a concept of development that is tied to modern society and the capitalist production system, tends to maximize benefits and incentives in order to achieve technological advances. This is reflected in the emphasis that was placed on the accumulation of capital in the development concepts used in the 1950’s and 1960’s.

In the 1970’s, the concept of Sustainable Development begins to have more importance and continues on into the 80’s and 90’s. The concern for the environment and sustainability became fundamental objectives of development. In 1972, the United Nations indicated that nature conservation, including wildlife, must [therefore] receive importance in planning for economic development.

Amartya Sen influenced greatly the current definitions of the concept of development, tying to it the concept of liberty. International organizations such as the United Nations incorporate this idea and reflect it in its working papers. In its annual human development report, it is stated that development is basically a life process that allows people to rely on alternatives and choices. Individuals’ aspirations can be grouped into three categories:

  • The pursuit of knowledge
  • The possibility to have a long, healthy life
  • Access to resources that permit an acceptable standard of living

In order to satisfy the previous conditions, many other conditions must be derived from them. For example, while a certain degree of material satisfaction is necessary, human skill training is required and these skills must be practiced in other areas besides those that are economic, such as social, cultural or political realms. For example, a dictatorship that amply satisfies the material needs of the individuals of a country, collides with this concept of development because it does not allow people to rely on choice alternatives in politics and eventually this also becomes true in the cultural domain.

The concept of development and the concept of growth in economic models

Frequently, the concept of development and economic growth are mixed together. Since the neoclassical theory, mainstream research has evolved from including concepts of income distribution among workers and capitalists, as is seen in the Solow-Swan growth model, to endogenous growth models and other new approaches. In the Solow-Swan model, the income distribution among workers and capitalists determines the savings ratio and thus influences economic growth.

In many cases, by applying these models to specific countries, the results may seem contrary to other concepts of development, such as the idea that a higher income would be necessary for businessmen (and lower income for workers), in order to raise the savings rate and achieve higher economic growth (each model’s particular derivation is not included in this article, but the basic concept is the same in several neoclassical models). Albeit in the long term, a higher global economic growth rate, according to these models, would translate into higher income not only for businessmen but also for workers.

Endogenous growth models incorporate concepts of optimization and entrepreneurial innovation, which meant advancement in the understanding of the growth phenomenon, but they still have not been able to explain problems of distribution as seen in the profound inequalities of wealth and development in less developed countries.


You may also like: