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Economic Growth vs. Economic Development?

As Christians, we are all called to serve the Kingdom by using our gifts, talents, and passions, as well as the knowledge we gain from our education and life experience. How can you do that with the study of Economics? How can you go the extra step to apply what you have learned to serve others? A brief look at the difference between Economic Growth and Economic Development will give you some ideas here!

What is Economic Growth about?

One of the primary indicators of the health or depletion of our capitalist economy in the United States is what we call Economic Growth, measured by a percentage change in GDP (gross domestic product) over time. If our economy is growing at a 3% annual rate or even a little more than that, it is said to be doing well. But what happens when too much emphasis is put on this one economic indicator? Our society may be deceived into thinking our economy is doing fine. A deeper look tells us what is left out of that measurement.

The GDP is the total dollar market value of the goods and services produced within a country’s borders in a given year. A healthy GDP growth rate means that there are more goods and services produced than the year before. It does not tell us who is receiving the income from producing the goods, nor how that new income from the growth in GDP is spread among the population or counted only as profit by corporations.

It also doesn’t tell us the metrics on what those goods and services are and if they are of value to our society or if they are actually harmful to our well-being. There is a lot of weight given to the GDP as a leading economic indicator, perhaps more weight than should be given to it as a determinant of the health of our socioeconomic system.

Economic Growth, as measured by the increase in GDP, is a purely quantitative measure of our economy, coming from the classical theories of modern economics beginning with Adam Smith in the 1700s. To look more deeply at the economic well-being of the people of a country for a period of time, the concept of Economic Development must be used.

Economic Development is a qualitative measure that includes the quantitative measures of increased economic activity. Still, it then adds a qualitative focus that looks more deeply at the factors that determine the well-being of the people in macroeconomics.

Economic Growth vs Economic Development

Economic Development is a relatively new field of study with the first theories emerging in the middle of the 20th century. After World War II, the United States invested huge amounts of capital into the war-torn European economies to rebuild and modernize our allies. The impact of the Marshall Plan stimulated economists to question what more could be done to change a socioeconomic system qualitatively.

The first theories of Economic Development from the 1950s looked at different stages of Economic Growth, noticing that each stage had a different qualitative aspect to it. More complex models of Economic Development then emerged that explored the role of human capital and labor in both the quantitative growth measures as well as the qualitative features of the structures and patterns in the economy. On a short-term basis, in the 1980s and 1990s, the theories of Economic Development focused on the power of market fundamentalism and expected the free market (including international trade) to increase the socioeconomic well-being of society.

You may have heard the term “standard of living” used in talking about an increase in Economic Growth. By definition, the “standard of living” is the real GDP per capita income which is the total GDP divided by the population. This calculation determines the average national income among the workers in that country.

It doesn’t take an economist to see that the GDP is not spread evenly among the population, so the “standard of living” is really nothing more than a quantitative economic indicator, not telling us much about the quality of life of the different income earners in our country. There are great discrepancies in the United States and obviously, not everyone has the same standard of living.

From a broader concept, Economic Development uses the measure called “level of living” which is a much more expansive measure of socioeconomic well-being than “standard of living.” The economic indicator used to measure levels of life expectancy is the Human Development Index (HDI). The HDI uses the increase in incomes as a foundation for the measure of sustainability, but then includes complex measures for the health and education levels of the people.

One interesting experiment when looking at Economic Growth and Economic Development from a narrower concept is to compare the rankings of countries using each different measure. The United States, as well as many other developed and developing countries, ranks differently, depending on whether you use just the quantitative measure of standard of living (GDP/capita) or a more complex qualitative measure such as the HDI.

More modern theories of Economic Development look at how a socio-economic system increases the capabilities of people to provide for themselves and their families through better healthcare, health education, and training. The concept of individual freedom has also been included in the Nobel Prize-winning Economic Development theories of Amartya Sen.

A current definition of Economic Development (Todaro & Smith, 2020) is “the long-term process of improving the quality of all human lives and capabilities by raising people’s levels of living, self-esteem, and freedom.”

The Biblical Worldview

When we look at the study of Economics through a Biblical lens, we see many references to economic ideas throughout scripture. For example, Paul tells us in Philippians 2:4 to not just look out for our own interests (including material needs), but also for the interests of others. Jesus reminds us in Matthew 25:45 to care for the least advantaged.

John reminds us in I John 3:17 that if we neglect the poor, we cannot claim that the love of God is active in us. There are many scripture verses in both the Old and New Testaments that command us to care for one another in a qualitative way. This points us beyond classical economic theory, including Economic Growth, to what we do with that theory in terms of Economic Development.

In our new Economics programs at CCU (both B.S. and M.S. degrees), the focus is on building a strong foundation of the fundamental quantitative concepts in the field of Economics. You will learn to discern and apply the value of quantitative measures in Economics such as GDP growth and standard of living. Because we are a Christian University, we want to take that study of Economics and add to it a subset of Biblical standards, to care for the least advantaged, both in our own country and around the world.

In our online BS/MS Economics programs, we take a giant step beyond a classical theoretical approach to economic theory, including the study of Economic Growth, to dive deep into how we can use what we know to serve others in the name of Christ. Taking that extra step to look at the concept of Economic Development and how one can use traditional economic theory to serve the least advantaged fulfills the mandate of scripture to care for one another and create structural changes for mankind.

Connie Ostwald, Ph.D. is the Lead Faculty in Economics for the School of Business & Technology in the College of Adult and Graduate Studies. She received her Ph.D. in International Economics, with a concentration in Economic Development, from the Korbel School at the University of Denver. Since then, she has taught in a graduate program in Economic Development for national leaders in Africa, Asia, Eastern Europe, Latin America, and the United States.

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