March 10, 2013

Economic Growth vs. Economic Development

There are many factors affecting the economic growth of the Philippines; energy, infrastructure, and the likes to name the few. When we think of economic growth, the first three letters that enters to our mind is GDP – Gross Domestic Product (I assume this is true for most people, I keep my fingers crossed). GDP is defined as the measurement of overall income or productivity within the country. What about economic development? How is it different from economic growth?

Economic growth and economic development are two different terms. When we talk of economic growth we can refer to GDP, but for economic development there are many indicators but subject to arguments. For simplicity let us use “income gap”. Income gap is the difference between the income of rich and poor.

Economic growth can lead to economic development, but not all economic growth ends to economic development. For example, we may see growth in GDP but income gap is increasing – in this case only minority is benefiting from the growth of the economy or as some economist termed as exclusive growth. The challenge is how to create an inclusive growth which we can call an economic development.

The key to economic development is to uplift the lives of the poor; that is by providing jobs to the poor. According to statistics 80% of unemployed are non-college graduates. To address the situation, more jobs should be created in industrial sector which accepts majority of non-college graduates. To build jobs in industrial sector, local or foreign investments are needed. These investments would require infrastructure, energy, government supporting policies, and the likes.

The previous belief that economic development can be reached thru inflation targeting or fiscal policy is no longer sufficient for this current generation. The way to economic development is to look for the root of the economic problem and try to fix it as soon as possible.

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