Growth is not the same as development. Growth, measured in terms of an increase in GDP is a quantitative measure. Real GDP per capita figures are an inadequate means of making comparisons both within countries and between countries.
Limitations of GDP as a measure to compare welfare between countries: * The ‘shadow’ economy often means that GDP calculations are an underestimation of actual GDP. In Nigeria it is estimated that the ‘shadow’ economy represents 77% of GDP. Regional variations exist within countries * Externalities are not accounted for.
* New products and improvements in quality are not accounted for. * Some countries have more leisure time for similar levels of GDP. * Currencies in one country may not have the same purchasing power as in another country and so a common currency may be used to make comparisons. * Even with a common currency not all goods are traded, products are regionally differentiated, there are local taxes and currencies fluctuate.
Development is a qualitative measure of an improvement in the quality of life. An economy can grow without developing
Variations in long run growth rates
Given compund growth rates, small differences in annual growth rates can open up wide gaps in growth and income between countries. Poor countries find it easier find it easier to achieve high growth rates than rich countries as they are growing from comparitevely low levels of income. Growth also needs to take into account changes in population
Changes associated with economic growth
Primary -> Secondaryy -> Tertiary
Growth of GDP per capita
Increases in productivity
Increased international trade