What is Economic Development And Growth

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In the article, we will talk about economic development and growth, what economic growth is, how it differs from economic development, and how Russia is doing with these indicators.

What is economic growth?

Economic growth is increasing and improving national production so that a country can produce more goods and services and improve its quality—changes in total GDP or per capita growth.

Types

Production of raw materials can be divided into two types: extensive and intensive.

With extensive growth, more emphasis is placed on quantitative rather than qualitative factors. That is, the technical basis for manufacturing goods remains the same, but more resources are used.

For example:

  • enterprises hire more employees to increase production rates;
  • attract investors;
  • increase the consumption of natural resources;

Intensive growth is the exact opposite – with this approach, the emphasis is on improving the quality of production, not its quantity. And this is achieved by improving technology, finding more efficient ways to sell raw materials and improving workers’ skills.

It isn’t easy to find examples where production uses only one of the methods. Usually, this is a combination of two methods, where one or the other may prevail.

The economic growth of countries can vary greatly – somewhere it is always steadily on the rise, as in the case of the United States and European countries, someone is growing even faster – for example, South Korea and Japan, and in some, there is almost no growth or no growth at all, which is observed in some African countries or Zimbabwe.

In Russia, growth rates in recent years amounted to about 2%.

Another factor plays an equally important role in demographic growth.

In any country, citizens age and die. Still, if these processes are not compensated by the corresponding birth rate or migration of people, a big problem arises for the economy.

stages

The “Five Stages of Economic Growth” idea was invented by the American scientist Walt Rostow half a century ago.

  1. The stage of a traditional society with agriculture, routine machinery and land rent.
  2. The stage where the transition to the shift occurs: capital per person increases, agricultural productivity increases, and entrepreneurs slowly emerge.
  3. Directly “Shift” is an industrial revolution in which people accumulate funds. The industry is overgrowing along with the emergence of new technologies.
  4. In the fourth stage, society “ripens”. At the same time, it develops industry along new paths and increases the proportion of skilled labour.
  5. The final stage is a temporary section in which the main problem is not production but consumption. And the main areas of labour are the service sector and the production of goods for the masses.

Indicators

Indicators are divided into two types: quantitative and qualitative.

The quantitative measure is determined by the increase in the volume of products that the country produces as a whole or per capita, that is, GDP. 

How fast GDP grows may tell you how big an economy is or how it compares to the rest of the world, but it tells you almost nothing about how well people live in a given country.

Therefore, they take GDP and divide it per capita in such cases. As a result, they receive information not only about the rate of increase in GDP but also about the well-being of citizens.

But there are also private indicators, the most important of them:

  • labour productivity – the number of products produced per hour;
  • Return on assets – the number of products produced for a certain amount.

Qualitative indicators are much more focused on the social component. They show how much free time people have, how secure they are, how much money is invested in staff development, and so on.

However, there can be intense contradictions between these indicators – for example, you can increase the pace of production if you make people work more, but at the same time, they will have much less free time, and the quality of life will decrease.

Factors

The main factors that determine the improvement of the economy:

  • the number of employees and the quality of their professional training;
  • competent distribution of production assets;
  • large volumes of natural resources combined with efficient methods of extraction and processing;
  • the high degree of technology and management development;
  • territorial location, etc.

In addition, according to one of the economic schools, one of the most critical factors in the development of the economy is the effective operation of political and economic institutions within the country. Moreover, the rest of the factors play almost no significance in the case of the malfunctioning of the central, fundamental institutions.

What is economic development?

Economic development is an improvement in the economy by expanding production by improving workers’ quality of life and various public spheres.

The term was first mentioned in 1911 in the book of the same name by economist Joseph Schumpeter, describing the difference between growth and economic development.

Goals

The development is aimed at increasing income, caring for the health of citizens, as well as creating opportunities for quality education and further self-realization.

It also includes the creation of social, economic and political systems that would help increase the self-esteem of people, as well as ensure the protection of citizens’ finances. 

Politics

Any country in the world is trying to create its ways of economic development. For example, the European Union members have similar systems, and they all contribute to an increase in GDP.

Germany, France, and Italy have the most robust economies – the rest of the countries that are part of the union are equal to this trio. The UK, which has left the EU, can theoretically be attributed there. The so-called small group – all other EU countries – still have a relatively strong and stable economy. They are responsible for the narrow specialization of production and the creation of products of higher quality.

According to the leading indicators of economic development, which will discuss below, Russia ranks 50th in terms of GDP per capita and 52nd (out of 189) in the Human Development Index, behind European competitors. 

Indicators

The most important indicators: are GDP per capita and the human development index – the ability of people to lead a long, healthy life, as well as to receive education and improve themselves.

Secondary metrics include:

  • GDP and GNP per capita;
  • the ability of the country’s companies to compete with foreign competitors;
  • the level of corruption;
  • degree of integration into the world economy;
  • world rankings;
  • production of primary products per capita;
  • and an indicator of genuine progress.

But the most crucial factor that lays the foundation for the rest is human capital investment.

It is also evidenced by the fact that developed countries, on average, invest up to 5 times more in medicine, education, science, etc., which gives them such a big jump. Among them are Finland, Singapore, South Korea, etc.

How is economic growth different from economic development?

Economic development and growth are completely different indicators that differ in their essence because growth is determined by quantitative changes in production and development – by qualitative ones.

Of course, these two concepts usually go side by side – for example, enterprises are trying not only to hire new employees but also to raise the qualifications of existing ones.

But there are cases when production grows without qualitative changes, and the development of technologies almost does not increase the volume of products. 

Who is responsible for the economic development and growth of the country

The Ministry of economic development and growth of the Russian Federation is responsible for these processes. It is important not to confuse the Ministry of Finance, as they perform different functions.

The Ministry of Economic Development develops, implements and controls the country’s economic policy and ensures stable trade with other states through representative offices. In addition, the ministry makes forecasts for development, entrepreneurial activity, etc.

The Treasury’s job is to contain the increase in spending and oversee the proper use of public money.

The Ministry of Economic Development performs the function of creating new industries and objects of taxation. That is, both of these departments develop the economy, but in different ways.

In Russia, in the first years after perestroika, extensive economic growth prevailed, mainly due to the extraction of valuable raw materials and their processing. The rich volumes of the country’s hydrocarbons made it possible to bring the country out of the financial hole, but they are not eternal either.

That is why, since 2008, Russia has embarked on a path of intensive growth to reduce the economy’s dependence on gas and oil. And for this, new technologies are being introduced into production every year, and the role of highly professional labor is increasing.

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