Economic Growth and Development - Ch03

Economic Growth

Sustained increase in real output or real income over time
Related to quantitative change
Useful for judging average real income/material living standards: Real per capita income

Per Capita Income = National Income ÷ Total Population

Economic Development

Efficient utilization of all factors of production
With continuous and long-term growth in national income and per capita income, there is improvement in people's standard of living
Related to both quantitative and qualitative change
Influenced by human capital, institutions, technology, capital formation, infrastructure, resources and market access

Prof. Amartya Sen's DefinitionEmpowerment and expansion of capabilities

Amartya Sen — Nobel Prize1998

Environmental Kuznets Curve: hypothesized inverted-U relationship between some forms of environmental degradation and income per capita.

⚡ QUICK RECALL

Growth = quantitative only; Development = quantitative + qualitative — the single biggest exam distinction in this topic.

Measurement of Economic Development

Human Development Index (HDI)
Basic Needs strategy — ILO World Employment Programme, especially the 1976 World Employment Conference
Physical Quality of Life Index (PQLI)
Net Economic Welfare (NEW)
Purchasing Power Parity Method (PPP)

Human Development Index (HDI)

Propounded1990, by Mahbub ul Haq, Amartya Sen, and others

Related ToUnited Nations Development Programme (UNDP)

Published Since1990, by UNDP

IndicatorsLife expectancy at birth; expected and mean years of schooling; GNI per capita (PPP-adjusted)

Score ScaleMax: 1, Min: 0

130India's rank: HDR 2025 (2023 HDI data), out of 193

Iceland topped the HDI Report (2025), while South Sudan ranked last.

⚠ EXAM TRAP

Don't confuse HDI's score scale (0 to 1) with PQLI's scale (0 to 100) — a very common mix-up in options.

Physical Quality of Life Index (PQLI)

Propounded ByMorris D. Morris

Score ScaleMax: 100, Min: 0

Indicators

Life expectancy at age one
Infant Mortality Rate
Basic Literacy Rate

⚡ QUICK RECALL

First Indian state to release a sub-national Human Development Report: Madhya Pradesh (1995).

Net Economic Welfare (NEW)

Modified form of MEW (Measure of Economic Welfare)
Term popularized by Paul Samuelson, drawing on MEW developed by William Nordhaus and James Tobin

ISEW (Index of Sustainable Economic Well-being)First issued by Daly and Cobb (1989)

Purchasing Power Parity Method (PPP)

Global comparable PPPs: International Comparison Program (ICP), coordinated by the World Bank under the UN Statistical Commission
Used for comparative analysis of standard of living across countries

Gross National Happiness (GNH)

Coined By4th King of Bhutan, Jigme Singye Wangchuck

Decade1970s

33Indicators

9Domains

The concept implies that sustainable development should take a holistic approach towards national progress, giving equal importance to non-economic aspects of well-being and happiness.

⚡ QUICK RECALL

GNH = Bhutan's original contribution to development economics — 33 indicators across 9 domains, prioritizing happiness over pure GDP.

Economic Development vs Economic Growth

Economic Development	Economic Growth
Quantitative + qualitative improvements	Quantitative Concept
Along with increase in production, technological and institutional changes are also important	May be driven by capital, labour, productivity and innovation; need not be perfectly steady
Requires structural transformation	Structural change can accompany growth; growth alone does not guarantee broader development
Driven by institutions, capabilities, technological change, investment, incentives, public policy and structural transformation	Can arise from private investment, innovation, productivity, labour-force changes and public policy; not only planning
Involves social, cultural, economic, qualitative, and quantitative changes	Related only to the increase in production

⚠ EXAM TRAP

Growth is narrower and mainly quantitative; development is broader and includes qualitative improvements in capabilities, institutions and structure. Growth can occur without broad development.

Quick Reference Summary

Topic	Key Fact
Economic Growth	Sustained increase in real output or real income; primarily quantitative
Per Capita Income Formula	National Income ÷ Total Population
Measure of Average Real Income	Real Per Capita Income
Economic Development	Qualitative + Quantitative change; efficient utilization of production factors
Amartya Sen on Development	Empowerment and expansion of capabilities; Nobel Prize 1998
Environment Kuznets Curve	Hypothesized inverted-U between some environmental degradation indicators and income per capita
HDI Propounded	1990 by Mahbub ul Haq, Amartya Sen; Published by UNDP
HDI Indicators	Life expectancy at birth; expected/mean years of schooling; GNI per capita (PPP-adjusted)
HDI Score Range	Max 1, Min 0
India's HDI Rank (2025)	130 out of 193 countries and territories; HDR 2025 uses 2023 HDI data
HDI Topper (2025)	Iceland
HDI Bottom (2025)	South Sudan
First State to Publish HDI in India	Madhya Pradesh (1995)
PQLI Propounded by	Morris D. Morris; Scale: Max 100, Min 0
PQLI Indicators	Life expectancy at age one, Infant Mortality Rate, Basic Literacy Rate
NEW	NEW term popularized by Samuelson; draws on MEW of Nordhaus and Tobin
ISEW	Index of Sustainable Economic Well-being; first issued by Daly and Cobb (1989)
PPP	ICP coordinated by World Bank produces global PPPs for comparisons controlling for price differences
GNH	Coined by 4th King of Bhutan, Jigme Singye Wangchuck, 1970s; 33 indicators, 9 domains